Intro Public-Private Partnership (P3) Finance Course

Transcription

1 Intro Public-Private Partnership (P3) Finance Course Identifying P3 Projects and Knowing the Atmosphere Kylee Anastasi Director, Capital Projects and Infrastructure Advisory PricewaterhouseCoopers LLP T: (202) E: August 11, 2015

2 Agenda The P3 Project Lifecycle Tools Used to Deliver P3s o Whole Lifecycle Costing o Procurement Options Assessment o Risk Analysis o Value for Money Analysis o Performance Monitoring 2

3 P3 project life cycle Need Identification Feasibility Solicitation Implement Monitor & Identify Need & Urgency Project Options Market Sounding Proposals Confirm Financing Execute the Contract Develop Project Options Prioritize Project Options Develop RFP Documents Select Preferred Bidder Establish PM Procedures Monitor Contractor Performance Investment Decision Solicit Proposals Contract Award Prepare for Contract Execution Resolve Contractual Issues Procurement Method 3

4 Tools used to deliver P3s Lifecycle Costing Procurement Options Assessment Risk Analysis Value for Money Analysis Performance Monitoring 4

5 Lifecycle costing in the P3 project life cycle Need Identification Feasibility Solicitation Implement Monitor & Identify Need & Urgency Project Options Market Sounding Proposals Confirm Financing Execute the Contract Develop Project Options Prioritize Project Options Develop RFP Documents Select Preferred Bidder Establish PM Procedures Monitor Contractor Performance Investment Decision Solicit Proposals Contract Award Prepare for Contract Execution Resolve Contractual Issues Procurement Method 5

6 Lifecycle costing Lifecycle costing: o Is a process to determine the sum of all the costs associated with an asset or service delivery over its lifecycle o Used across various sectors to allow investment decisions to be made in full consideration of all initial and future costs o Assists the government in determining the most cost effective procurement method o Informs the development of the P3 payment profile 6

7 Procurement options assessment in the P3 life cycle Need Identification Feasibility Solicitation Implement Monitor & Identify Need & Urgency Project Options Market Sounding Proposals Confirm Financing Execute the Contract Develop Project Options Prioritize Project Options Develop RFP Documents Select Preferred Bidder Establish PM Procedures Monitor Contractor Performance Investment Decision Solicit Proposals Contract Award Prepare for Contract Execution Resolve Contractual Issues Procurement Method 7

8 Procurement options assessment A procurement options assessment combines information developed during the investment decision with other project and market information The project objectives and characteristics drive the overall process revenue potential, capex, need for control, etc. Risks, regulations and agency capabilities can support the selection of short listed models Market information, sponsors and stakeholders can support the validation process The assessment focuses on which model best meets the objectives and characteristics and efficiently allocates risk Sponsor & Stakeholders Funding Market Objectives & Characteristics Procurement Options Regulation Agency Capability Risks 8

9 Procurement options assessment Identify project characteristics Short list preferred procurement models (policy, legal, regulatory, capability, risks) Align characteristics to key value drivers e.g.: o Flexibility to control o Time to market o Price certainty o Risk transfer o Contractor s incentive (including innovation) Rank value drivers by level of importance to the project Assess short list and identify preferred procurement method Validate preferred procurement method with market sounding, sponsors and stakeholders 9

10 Factors impacting the procurement decision 10

11 Risk analysis in the P3 project life cycle Need Identification Feasibility Solicitation Implement Monitor & Identify Need & Urgency Project Options Market Sounding Proposals Confirm Financing Execute the Contract Develop Project Options Prioritize Project Options Develop RFP Documents Select Preferred Bidder Establish PM Procedures Monitor Contractor Performance Investment Decision Solicit Proposals Contract Award Prepare for Contract Execution Resolve Contractual Issues Procurement Method 11

12 Risk analysis Risks can affect projects directly through increased cost, time and resources. They can also affect a project indirectly by resulting in additional planning, review, and management oversight activity. The risk analysis process of a P3 project generally contains four key activities: o Identify the project risks. o Assess the risks for costs and schedule impacts through a qualitative and quantitative assessment process. o Allocate risks to the party best able to manage it. o Mitigate the occurrence and/or the impact of a risk. Risks are also monitored and managed during project delivery. Risks are assessed by two key aspects: The first relates to the likelihood of a risk occurring (i.e. risk frequency), with risks classified along a continuum from very unlikely to very probable. The second reflects the impact of the risk if it occurs (consequence severity). 12

13 Risk register The Risk Register is the key document that captures the outcomes of each stage of the risk analysis process. A Risk Register identifies the bearer of a particular risk (i.e. a risk matrix which will also contain quantitative assessments (i.e. costs and likelihoods) of the characteristics of the risks). Risk Allocation and the corresponding mitigation plan are also listed in a Risk Register. Risk Register generates the transferred risk and retained risk values required in the Value for Money analysis. 13

14 Value for Money (VfM) in the P3 project life cycle Need Identification Feasibility Solicitation Implement Monitor & Identify Need & Urgency Project Options Market Sounding Proposals Confirm Financing Execute the Contract Develop Project Options Prioritize Project Options Develop RFP Documents Select Preferred Bidder Establish PM Procedures Monitor Contractor Performance Investment Decision Solicit Proposals Contract Award Prepare for Contract Execution Resolve Contractual Issues Procurement Method 14

15 What is VfM analysis? VfM is the optimum combination of whole lifecycle costs and quality (or fitness for purpose) of the good or service to meet the user s requirement. VfM analysis may be used to: o Assist the overall investment decision for a potential project o Assist in selecting the appropriate procurement method, whether it be a P3 or conventional contract o Select the preferred bidder to award the P3 contract o Assess performance under the P3 contract VfM is determined through a comparative analysis of the quantitative and qualitative benefits, costs, and risks of each project or procurement method. 15

16 Quantitative VfM analysis Public Sector Comparator (PSC): A risk-adjusted, whole-life cost estimate for a project if it were to be financed, owned, and implemented by the public sector o Provides a baseline measure to compare against proposals o Provides a benchmark to measure value for money o Uses financial and statistical modeling techniques to estimate project costs VfM analysis may be used to A PSC is constructed before bids are received and may be updated throughout the procurement process Shadow Bid Model (SBM): A risk-adjusted cost estimate of a project delivered by the private sector A SBM is constructed before bids are received and is the government s estimate of the bid price that could be received if the project is structured as a PPP The SBM is replaced with the proposals in the VfM analysis to select the preferred bidder and award the contract 16

17 Quantitative VfM analysis The government selects the procurement method by comparing the PSC to the SBM during the early stages of P3 project lifecycle, to assess the potential benefits and efficiencies of procuring the project as a P3: NPV of Retained Risk NPV of Transferable Risk NPV of Retained Risk QUANTITATIVE VfM NPV of Raw PSC NPV of PPP Contract PSC SBM The net present value (NPV) of the PSC and SBM are compared. The difference between the total NPV represents the quantitative VfM. 17

18 Quantitative VfM analysis Develop PSC Develop SBM Compare PSC with SBM to Determine Option with Greater VfM Receive Actual P3 Bids Compare PSC with Actual Bids to Determine Option with Greater VfM Estimate the costs of a project if it were reasonably undertaken by the public sector (PSC) or the private sector (SBM) Typically constructed before bids are received SBM is compared to PSC: o Prior to RFQ issuance o Prior to RFP issuance Receive actual costs of p3 bids from vendors during procurement Actual Bids are compared to PSC: o When bids are first received and during bidder selection o Prior to closing the deal If the potential exists for the project to be delivered more efficiently and at a lower risk adjusted cost as a P3, when compared to a conventional procurement, then the P3 option presents greater VfM 18

19 Qualitative VfM analysis - example In general the qualitative assessment seeks to identify factors which influence the project in terms of: o Viability the ability to form a sound contract o Performance the opportunity to encourage risk sharing and innovation o Achievability the capability of the commonwealth and the private sector to deliver the project Some examples of qualitative factors addressed in the initial VfM assessment include: o An assessment of the strategic fit with the agency s overall objectives o Any concerns that the agency has about the deliverability of the project under a Comprehensive Agreement, such as whether the contract adequately describes the service requirements in clear, objective, output-based terms, and maintains sufficient operational flexibility over the lifetime of the contract at an acceptable cost o Any differences in the specifications and service expectations between the PSC and Shadow Bid o Whether there are any equity, efficiency or accountability issues o Whether there are any regulatory or legal restrictions o Whether there are any affordability issues o Whether there are sufficient opportunities for the private sector to deliver high service quality through innovation o Whether there are sufficient resources in the agency to manage the procurement process and administer the contract o The likely strength of competition in the market between private sector entities that submit proposals o The robustness of the information used in developing the PSC 19

20 Challenges with conducting VfM analysis Requires input from financial and other technical specialists, who are often external advisors Can be a costly and lengthy exercise Requires continuous review and assessment through to financial close Accuracy of VfM analyses is dependent upon the quality and reliability of the data inputs, including: o o o The discount rate that discounts the project cash flows to provide a net present value of delivery The value of the risks transferred to the private partner under the SBM The value of any revenues (such as tolls) included in the analysis To address concerns over the impact that such critical inputs often have on the analysis results, sensitivity analysis can be incorporated into the VfM analysis process to illustrate a range of potential outcomes for the project under each delivery method 20

21 Example analysis Portsmouth Bypass, ODOT Portsmouth Bypass Project Delivery Alternatives Analysis ODOT, April ment/portsmouthdeliveryanalysis.pdf 21

22 Performance monitoring in the P3 project life cycle Need Identification Feasibility Solicitation Implement Monitor & Identify Need & Urgency Project Options Market Sounding Proposals Confirm Financing Execute the Contract Develop Project Options Prioritize Project Options Develop RFP Documents Select Preferred Bidder Establish PM Procedures Monitor Contractor Performance Investment Decision Solicit Proposals Contract Award Prepare for Contract Execution Resolve Contractual Issues Procurement Method 22

23 Performance monitoring Performance monitoring is conducted throughout the design, build, operations, and maintenance phases of a project to ensure the private contractor is delivering services on time and at the appropriate quality. Key Performance Indicators (KPIs) are typically determined prior to contractual close and are specified in the P3 contract between the public sector and private contractor. In a P3, payments to the private sector may be: o Based on delivery of defined, objective outcomes o Made when the assets and services are delivered and KPIs are met o Reduced if the service falls below the required output levels 23

24 Performance monitoring KPIs / standards focus on outcomes e.g.: Cleanliness standard can be no foul order or heavy litter Also defines a time for response and/or remedy This provides the concessionaire with the flexibility to achieve this standard/outcome within the timeframe indicated most efficiently, and the potential to generate value in assuming this risk If the standard was more descriptive and input focused, it may not achieve the same level of performance It may also limit concessionaires ability to innovative and use its expertise to meet the performance standard. This is where the concessionaire can seek to generate value in managing this risk. Successful availability payment P3s focus on the output or outcome to provide the concessionaire with the ability to determine the most efficient method for meeting the performance requirements 24

25 Summary Many tools used in identifying and procuring P3 projects can also be beneficial for projects with traditional procurement The tools help to develop a P3 project and take time to complete prior to project commencement, however the tools help to address issues that may occur once the project commences and can help to reduce cost overruns and schedule delays The tools help to provide greater transparency into the procurement selection and structuring process The tools can provide a basis for not proceeding with a P3 transaction 25

26 Questions 26

27 Thank You This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers LLP. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers LLP which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. 27