The 2009 Outsourcing World Summit. Outsourcing and Private Public Partnerships

Transcription

1 The 2009 Outsourcing World Summit Outsourcing and Private Public Partnerships Jean-François Poisson, VP/GM SNC-Lavalin ProFac 1

2 About JF Joined SNC - Lavalin ProFac/Nexacor Implementing and managing outsourcing contracts for Bell Canada Part of a start up team dedicated to outsourcing management Graduated from Montreal Polytechnic Eng. School Management Certificate Certified Outsourcing Professional IAOP Founding Member 2

3 About SNC-Lavalin ProFac SNC-Lavalin (TSX: SNC) is one of the leading groups of engineering and construction companies in the world, a major player in the ownership of infrastructure and in the provision of operations and maintenance services SNC-Lavalin companies have offices across Canada and in 34 other countries worldwide, working on projects in some 100 countries Leader in PPP world wide 3

4 Agenda Understand Private Public Partnerships (PPP) or (P3) Analogies/Differences between outsourcing and PPP PPP Processes PPP Models Risk Transfer and Management O&M in a PPP vs outsourcing Some Parting Thoughts 4

5 Understand P3 Long term contract between the public and private sectors with or without financing from the latter to design, build, operate and manage a public asset Long term contract where a public entity acquires from the private sectors a public service A cooperative venture between the public and private sectors, built on the expertise of each partner that best meets clearly defined public objectives through the appropriate allocation and definition of results, investments, resources, risks and rewards 5

6 Understand P3 Private Public Partnership is certainly Outsourcing Outsourcing doesn t have P3 intricacies Most often because of the financing More complex contract structure Major difference in the term IT IS NOT PRIVATIZATION where the public sector: Release of assets Public sector has no control beside laws and rulings All risks and benefits are for the private sector 6

7 P3 Models Spectrum of models that progressively engage the expertise or capital of the private sector Outs BD DBO DBFO BOO BOOT O&M Typical Outsourcing DB Design, Build DBO Design, Build, Operate DBFO - Design, Build, Finance, Operate BOO Build, Own Operate BOOT Build, Own, Operate, Transfer 7

8 Where to find P3 8

9 P3 RFQ/RFP Processes PPP process typically could last between months 2. Request for Qualification and Inputs Multiple bidders 3. Short list at least 3 candidates 4. Request for Proposal (Bilateral discussions between client and all bidders about design, scope, services and even prices) 5. Technical offers deposit (Validation, evaluation of design) 6. Financial deposit 7. Bidder award 8. Financial plan implementation (Bid bonds) 9

10 Operational differences Outsourcing & P3 Conventional/Outsourcing Short-term or no O&M contract Owner is coordinator of services Owner keeps risk or, Owner transfers risks to the extent it is able to Owner has flexibility to do what it wants Build or not Change design or services Maintenance decision Replacement of the assets Has all decision making abilities P3 Long-term contracts Transfer of all responsibilities to a concessionaire (JV) Owners risks transferred in whole or in part Risks packaged and transferred to various parties Operator performs all operating activities Limited flexibility on owner to make changes 10

11 Contractual differences Outsourcing & P3 1. Once the RFP process ends, there is no more changes and one on one negotiation 2. Almost no negotiation during the term Limited opportunities beside the ones listed in the contract 3. No further risk rebalancing after the adjudication 4. Extremely difficult to cancel and or terminate because of the financial model which includes the financing and risk transfer to the private sector 5. Potential lawsuits and litigation from the others 11

12 Typical P3 Bidder Structure P3 Public Entity Outs. Client Lenders Project Company - Project JV Concessionaire dedicated to the project Sole liability is in the project X Engineering Construction Ops and Mgmt Ops and Mgmt Subcontractors SME - Others Subcontractors 12

13 Risk Transfer Objective Party that is most capable to evaluate, control and reduce the risk would bare it Approach Typically the public sector decides the PPP model it would like to used Conditional to market appetite for financing the project, economy, politics, type of project Ultimately Wrong risk transfer model make the project more expensive Won t attract the best suppliers Usually would put the project at risk 13

14 Risk Sharing Public Entity Client Lenders Project Company - Project JV Concessionaire dedicated to the project All risks Risk Allocation Engineering Construction Ops and Mgmt Targeted risks Heads of terms Back/back contract Subcontractors SME- Others Risk sharing 14

15 Risk Types Public Land acquisition and purchase Land expropriation Taxation Insurance Environmental Too difficult to assess Too expensive to finance Private Operation and maintenance Cost increase for construction Cost increase for operation Resource availability Design performance Technology Project deadline Financing Interest rate Inflation ( CPI-EPI) Payment start on delivery Soil management Arbitrage on material and supply Asset life cycle 15

16 Benefits Public Sector Infrastructure projects are expensive More projects could be launched at the same time Debt raised by the private sector Government to spend on social programs Payment stream based on year payback Costs of construction and operation for the long-term under one entity Performance mechanisms which guarantee performance by the private sector partner Fixed fee structure - Cost certainty for public sector on an on-going basis 16

17 Benefits Private Sector Long-term contract which allow investment Predictable revenue stream Attractive large projects Manageable stream of risk sharing and insurable risks Leverage all parts of one organization Finance, Design, Construction, O&M 17

18 O&M in a P3 vs Outsourcing Participation during design and construction Transition agreement Warranties and Guaranties Pass thru obligations Changes during the construction that affect O&M Sign off on changes Due diligence with initial proposal Commissioning Deficiencies Mobilization Phase in up to a year Staffing short and long term Complex operational and financial hand-off process with the client 18

19 Some Parting Thoughts Heads of Terms between JV & O&M - Risk allocation, transition and $ JV structure O&M doesn t control all aspects of the agreement with client Long term - Limited upsides Long term - Higher risk of cost increase Client focus change of mindset and management style Major economical disruption - Economic cycle at play Asset transfer - Life cycle management Terms well beyond typical outsourcing agreements Successful ventures 19

20 Thank You 20