Evaluating Potential PBI Projects. April 22, 2016 Portland, Oregon

Transcription

1 Evaluating Potential PBI Projects April 22, 2016 Portland, Oregon

2 What Is WCX? 501(c)(3) non-profit Formed by Oregon, Washington, California Advised by British Columbia A publicly-funded resource to public agencies exploring Performance- Based Infrastructure (PBI) options 2

3 What Is PBI? Consolidates responsibility for the key aspects of a project s full lifecycle into a single, performance-based contract with a private partner. Design Construction Long-term maintenance 3

4 What Is PBI? Can include private sector operations and financing Substantially shifts cost overrun and performance risks from the public to the private sector 4

5 PBI Key Concepts Public ownership Emphasis on full life cycle costs Pay-for-performance model with guarantees Asset management / long-term capital maintenance as contractual deliverable 5

6 PBI Key Concepts Focus on Outcomes / Infrastructure as a service Careful Risk Allocation For the right projects, better value for the public 6

7 PBI Project Screening Criteria Should I consider the PBI method for an upcoming project?

8 PBI Project Screening Criteria Is there a legal path forward? How complicated is the project? What are the capital costs? 8

9 PBI Project Screening Criteria How do O&M costs compare with initial construction? Over what period could a performance-based contract be established? How important is schedule certainty? 9

10 PBI Project Screening Criteria Outcomes and Performance Specifications To what extent can the procurement process focus on outcomes rather than means and methods?

11 11 Focus on Outcomes: Woodland-Davis Clean Water Agency

12 Focus on Outcomes: Woodland-Davis Clean Water Agency The Agency anticipates that the Facility Site plan will include features similar to those included in the conceptual site plan, although not necessarily in a similar configuration. Request for Proposals Appendix 4, Section

13 Focus on Outcomes Woodland-Davis Clean Water Agency Proposers are encouraged to provide creative alternatives that have better long-term performance and cost features, and are not obligated to provide the Benchmark Project, providing Proposers comply with the Design and Construction Requirements WDCWA, Request for Proposals, Section

14 Focus on Outcomes Focus on Outcomes Loss of Control Piping for chemical feed systems shall be Schedule 80 polyvinyl chloride (PVC) conforming to American Society for Testing and Material (ASTM) D1785, or reinforced tubing with a tensile strength minimum of 2,600 pounds per square inch (psi) per ASTM D412 inside a Schedule 40 conduit with long radius elbows. WDCWA, Request for Proposals, Appendix 3, Section

15 PBI Project Screening Criteria Aggregation Can the project be aggregated with similar projects and completed through a single procurement process?

16 Aggregation Clean Water Partnership Prince George s County, Maryland 16

17 Aggregation Rapid Bridge Replacement Pennsylvania West Cruickshank Road Middlesex Township 17 Before After

18 PBI Project Screening Criteria Low-Cost Public Financing Are there low-cost public financing options that can be blended with private capital?

19 Private Financing Why even consider private financing? Public financing constraints Private financing can be tax-exempt Private financing can be mixed with extremely low-cost public financing sources Security for long-term performance / turn-back provisions 19

20 PBI with Private Financing What are we talking about when we talk about PBI with private financing? Debt and equity Debt Can be tax exempt for water and transportation projects Bankruptcy protections Equity No bankruptcy protection More expensive than debt 20

21 PBI with Private Financing: Water Sector Sources: InfraDeals tables Poseidon Desal 2014 Woodland Davis 2012 Credit Rating BBB- N/A Tax exempt bonds ($) $734M Cost of financing 4.78% Favorable EPA Financing ($) $228M? Cost of Financing (%) 1.75% Weighted cost of debt 4.78% 1.75% Debt / Equity Ratio 82% / 18% N/A Total Weighed Cost of Capital 5.60% 1.75% 21

22 Ensuring Value for the Public Wilsonville, OR 22

23 Ensuring Value for the Public: Value for Money (VfM) An investment decision-making tool Apples to apples comparison of different delivery options, accounting for Risk allocation Full life cycle cost What is my risk-adjusted, full-life cycle cost under traditional and PBI project delivery methods? 23

24 Value for Money Analysis Summarized Net Present Value of Total Project Costs ($ millions) Total $170M $40M Total $155M $15M $30M $40M Value for Money Public Sector Retained Risk Financing Costs $100M $100M Lifecycle Costs Traditional Infrastructure Procurement Performance-Based Infrastructure (DBFOM)

25 Ensuring Value for the Public: Value for Money (VfM) Step 1: Establish Initial Cost Assumptions 25

26 Ensuring Value for the Public: Value for Money (VfM) 26 Source: Public Resources Advisory Group - South Miami Heights Water Treatment Plant Value for Money Analysis

27 Ensuring Value for the Public: Value for Money (VfM) Step 2: Identify All Project Risks Across Full Life Cycle 27

28 28 Ensuring Value for the Public

29 Ensuring Value for the Public Other Risks to Consider Public opposition Environmental Approval Environmental Compliance Schedule Overruns Increased Operating Costs Construction/Operation Integration Change in law Process Efficiency Program Changes Technology Risk Deferred Maintenance Geotechnical Conditions Climate Change 29

30 Ensuring Value for the Public: Value for Money (VfM) Step 3: Create a Risk Matrix 30

31 Ensuring Value for the Public Risk Construction Delays Estimated Minimum Cost 15% of Construction Time $6.7 million Estimated Maximum Cost 75% of Construction Time $33.3 million Estimated Most Likely Cost 40% of Construction Time $17.8 million Assumed Occurrence End of Construction Probability Lower Range Upper Range Percent or Allocated to Private Partner 25% 75% 100% Increased Operating Costs 15% of Operating Costs $0.5 million 1 33% of Operating Costs $3.6 million 1 20% of Operating Costs $2.2. million 1 Begins when operations commence 10% 33% 100% Unexpected Equipment Failures 10% of $50 million in Equipment Costs $5.0 million 1 25% of $50 million in Equipment Costs $12.5 million 1 15% of $50 million in Equipment Costs $7.5 million 1 Begins 10 years after operations commence, continues for 5 years 10% 25% 100% Type of Risk Range of Impacts if Risk Occurs (1) Annual Costs Probability of Occurrence 31 Source: Public Resources Advisory Group - South Miami Heights Water Treatment Plant Value for Money Analysis

32 Ensuring Value for the Public Risk Typical Risk Allocations in Water/WW Treatment Projects Construction Process efficiency Geotechnical Output Quality / Permit Compliance Input quality Allocation under PBI Model Private Private Private Private Within window: Private Outside window: Public 32 Source: PPP Canada Water / Wastewater Sector Study

33 Ensuring Value for the Public Typical Risk Allocations in Water/WW Treatment Projects Risk Allocation under PBI Model Facility Sizing Public Source water availability Public Weather Related Bypass Flows Public Latent Defects Buried assets: Public Above-ground assets: Shared Regulatory Change Primarily Public 33 Source: PPP Canada Water / Wastewater Sector Study

34 Ensuring Value for the Public: Value for Money (VfM) Step 4: Run Multiple Scenarios 34

35 35 Ensuring Value for the Public: Value for Money (VfM)

36 Ensuring Value for the Public: Cost Caps and Open-Book Requirements Woodland-Davis Clean Water Agency approach Risk Matrix Successive Cost Caps through RFP process Open-book requirements 36

37 Ensuring Value for the Public: RFP Cost Caps Benchmark Prices $176.6 million for design and construction $3.7 million per year for O&M What s behind these numbers? Initial 10% reduction off of Initial Engineer s estimate of design and construction costs Intentional signal that bidders can t use design and construction as loss-leader on long-term contract 37

38 Ensuring Value for the Public: RFP Cost Caps RFP addendum required: Further 10% reduction in DB costs Competitive subcontracting and open-book requirements to ensure value for public 38

39 Contact: Jonathan Trutt Questions?