What Does the Future of Public Private Partnerships Look Like in Oregon? AGC s Annual Business Meeting Friday January 10, :00 11:45am

Transcription

1 What Does the Future of Public Private Partnerships Look Like in Oregon? AGC s Annual Business Meeting Friday January 10, :00 11:45am

2 Dee Burch President Advanced American Construction

3 Buck s American Cafe

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8 Buck s American Cafe

9 John D. Carter President and Chief Executive Officer Schnitzer Steel

10 Public-Private Partnerships John D. Carter

11 Summary Why are We Discussing Public-Private Partnerships and What Are They? Why Would the Private Sector Participate? Why would the Public Sector want Private Sector Participation? Variations of the Model Examples Risk Factors Financial Risk Profile Mitigation Conclusion

12 Why Are We Discussing Public-Private Partnerships And What Are They? What Problems are we trying to solve? The nature of Public-Private Partnerships When do they work? What application do they have here? Timing

13 Why Would the Private Sector Participate? Opportunity to participate in a signature project Opportunity to make a reasonable return on capital and services Potential to create a template that has application elsewhere

14 Why Would the Public Sector Want Private Sector Participation? Assistance with risk mitigation: Cost control Completion guarantees Schedule guarantees Innovative assistance in financing Potential for engineering improvements and design optimization Private procurement flexibility Development opportunities to generate offsetting revenue Broaden Public Support

15 Variations of the Model Full Privatization Public Ownership/ Private Operation Public/Private Joint Ownership Concession Award

16 Examples Portland s Light Rail to the Airport Channel Tunnel Channel Tunnel Rail Link/Eurostar London Underground Meizouwan Power Plant (China) Polish Motorway Tacoma Narrows Bridge Luton Airport (England) Manila Water System (Philippines)

17 Risk Factors Political Risk Funding Risk Regulatory Risk Completion Costs Risk Schedule Risk Construction Risk Technology Management

18 Financial Risk Profile Seed Money Mezz. Debt Long-term High risk Development Construction Operation low risk

19 Mitigation Build public support through an understanding of why the private sector should be involved Include the private sector in incentive programs to ensure lowest cost funding Develop completion costs incentives Develop schedule incentives in conjunction with related public agencies Incentivize construction objectives

20 Selection How do you test private sector appetite for involvement? How do you identify likely candidates for proposals, and ensure competitive proposals? Identification of: Competitive selection process Governance structure Regulatory approach

21 Conclusion Not every project is a candidate Each project will have unique characteristics Financing will determine structure Where it works, major advantages: New sources of capital Long-term advantages in operations Public sector resources multiplied

22 Johnathan Woolworth Construction Client Advocate Willis

23 Groups Active in P3 Project Skanska Kiewit Development Cintra US Parsons Walsh Construction Group (Chicago) Macquarie Group of Australia PCL Constructors ACS Infrastructure Development Lane Construction Stacy & Witbeck Lane Construction Shimick Construction Honeywell Building Solutions

24 Types of P3 Delivery Models Pre-Development Agreement Design-Build Design, Build, Finance Design, Build, Operate, Maintain (DBOM) Design, Build, Finance, Operate, Maintain (DBFOM) Long-Term Concession or Lease

25 Pre-Development Agreement Early Private Partner Involvement Starts during the environmental impact phase Projects in early stages of procurement Technically challenging project Selection based on qualifications and project benefits from this approach or business case Private Business Group may undertake pre-development work at risk, or with shared public sector risk Private Business Group gets first rights to negotiate development agreement If agreement not reached; public sponsor has fully developed project to be available for public bid

26 Design/Build Model Designer and Contractor hired under a single contract Selection usually based on best value Majority of design and Construction is taken on by the Private Partnership Possibility of Private Sector Innovation Greater Cost and Schedule Certainty Public Sector has a single point of contact for the project Any disputes are usually handled between the contractor and the designer Public Entity/Sponsor retains the obligation to fund Public Entities retain full maintenance and operational responsibilities

27 Design, Build, Operate, Maintain Model (DBOM) Very Similar to Design/Build Model Private Partnership has the long term operational & maintenance responsibility Like an extended warranty Transfers the lifecycle costs to the Private Partnership DBOM balances upfront capital costs vs. long term maintenance costs Public Entity is responsible for the revenue collection and financing DBOM projects are suited for facilities with specialized operational and/or maintenance requirements

28 Design, Build, Finance, Operate, Maintain (DBFOM) Similar to DBOM Private Partnership is responsible for financing Public Entity is responsible for the revenue stream Applicable to both revenue and non-revenue facilities Suitability Where transfer of revenue risk may not be the best value for the money

29 Long-Term Concession or Lease Greatest Risk Transfer Model Design, Construction, Revenue, Finance, Operations, Maintenance, Capital Renewal Has the ability to be expanded in size as capacity deems Public Entity keeps the least control Rate Setting Operational/Performance Standards Payment to Public Entity(s) Upfront Payment Revenue Sharing Unplanned Refinancing Excess Revenue

30 Lessons for Contractors & Public Entities State of Oregon, County, City & Other Public Entity Golden Rule What would the project cost if the agency funded the project themselves? Things Contractors need to be aware of: 2% to 8% of the overall project value are: design, legal, financing and other pursuit cost. Legal clauses of most contract are very restrictive. No Special Exemption for unforeseen delay or change orders Penalties for not having the project ready on the exact day can be up to $100,000 per day.

31 CALIFORNIA PROS: Functioning P3 Commission Public Hearing on Proposed P3 projects Constant Pipeline of Possible Projects Procurement Process: RFI, RFQ, RFP, Selection, Contract process All Unsolicited Project Proposals are put out to public bid for competing private proposals Delivered the first Civic Building in the U.S. with use of a P3 delivery model ($492- Million) Single Job Focus CONS: Confidential one-on-one meetings with the State of CA and Proposers of Unsolicited Projects are encouraged. All Commissioners are Public officials

32 FLORIDA PROS: P3 Task Force appointed with a mix of public employees, private business owners, and citizens Single job focus Public Requests for Proposals All P3 projects are up for Public Bid (Both Solicited & Unsolicited Proposals) o Must solicit competing proposals for the same job for 60 days after initial publication CONS: Laws have only been on the books for 2 years (5 projects completed, 7 under contract) Unsolicited Proposals publicly displayed in a newspaper publication (1 to 2 weeks) Task Force can set the timeline for bids for those Unsolicited Projects (min. 21 days and a maximum of 120 days) Lending Public Funds to Private Enterprises for existing publicly-owned facilities or infrastructure 32

33 TEXAS PROS: Overseer of projects managed by current TX DOT s Chief Planning & Projects Officer Notifies the public within 10 days of receiving a proposal that meets the P3 standards Procurement process: RFQ, RFP, Selection, Contract process Single job focus CONS: Comprehensive Development Agreements (CDAs) are approved by Legislature ONLY First Project in has only been law in Texas since All P3 Commissioners are appointed by the Governor, LT Governor and House Speaker

34 VIRGINIA PROS: One of the oldest states participating in P3 project (Legislative Framework began in 1995) Accepts both Solicited & Unsolicited project proposals Single job focus All Unsolicited Project Proposals are put out to public bid for competing private proposals Constant Pipeline of Possible Projects Procurement Process: RFQ, RFP, Selection, Contract process Seeks Public and affected jurisdictions for comments & concerns Sets standards of participation of DBE & SWAM contractors and suppliers prior to contracts being awarded Virginia s P3 Agency provides for more than 45 days for competing proposals if they are deemed complex CONS: Only elected or state officials make the final decisions on projects and who is awarded the projects Unsolicited Proposals only need to be listed for at least 45 days The Virginia P3 agency has to publish AT LEAST ONCE in one or more newspapers or periodicals of general circulation in the affected jurisdiction(s). No definition on what deems a project to be complex or not

35 Chip Hastie Vice President Clark Construction Company

36 PPP / PBI OVERVIEW Friday January 10, 2014

37 PPP / PBI Structure Design Build Finance Operate - Maintain Client Sponsor Entitlements Legal Finance Leasing Land Facilities Management Design/Builder Architect General Contractor

38 PBI model is used with great success in Canada Performance Based Infrastructure

39 Partnerships BC Established 2002 to develop provincial approach to alternate procurement Performance methods Based Infrastructure Serves public agencies through planning, delivery and oversight of major infrastructure projects 40 projects to date: $17B+ in value with $7B+ private capital at risk Origins in health care and transportation projects Includes social housing, justice, energy, education

40 Infrastructure Ontario P3 $1.5 B savings on investment of $35 B. Job creation and preservation estimated at 300,000 over the past three years Performance Based Infrastructure New facilities demonstrate higher employee satisfaction levels and working environment Wait times in Ontario for healthcare concerns has been reduced by new facilities

41 DBFOM Observations Projects Enabled + Execution Expedited Design and Innovation Focused on Owner Interests Up-time, Life Cycle and Operations Factors Emphasized Cash Flow Certainty (government and contractor) Guaranteed Building Up-time and Upkeep (private party risk)

42 Governor George Deukmejian Courthouse

43 Project Overview Program Courtrooms: 31 (+ 6 future expansion) Overall Square Footage: 529,000 SF o 425,000 SF Court o 7,000 SF Retail o 97,000 SF County Lease Construction Cost: $340,000,000 Financial Close: 12/20/2010 Occupancy Date: 8/30/2013

44 Mission Replace Outdated and Poorly Maintained Courthouse

45 Calif. Courts Approach Framework and Participants 2.5 years design & construction + 35 years operation Parking operation & commercial/retail leasing included 100% private capital Strong public counterparties Judicial Council of California (AOC) LA County

46 Calif. Courts Approach Solicitation Process 11 Consortiums submitted qualifications Five teams shortlisted for interview; three selected for final competition Six month competition with multiple proprietary meetings Long Beach Judicial Partners Selected June 2010 Financial Close December 2010

47 Long Beach Structure Design Build Finance Operate - Maintain CALIFORNIA COURTS LENDER(S) Agreement & Payment Debt PROJECT COMPANY Interest in Land Equity INVESTOR Design-Builder Facilities Maintenance Capital Replacement Architect Builder

48 Example of PBI Payment Model

49 PBI Influence on D/B Up-time Risk: Building Layout / Elevators

50 PBI Influence on D/B Life Cycle: Flooring Systems

51 PBI Influence on D/B Operations & Maintenance: Light Fixtures

52 Local Impacts of P3 Execution of Projects Potentially jump-start projects that might not otherwise have funding or authorized bond sales Once contracting underway, fewer de-railers (budget misalignment, appropriation factors, etc.) Aligned interests during project execution (Owner change orders less than 1% at Long Beach)

53 Local Impacts of P3 Contracting Opportunities Local presence is essential (subcontractors, general contractors, suppliers, etc.) 85% of sub-contracts in Long Beach let to firms Headquartered in Southern CA 92% of sub-contracts in Long Beach let to firms with regional offices and operations to support the project

54 Local Impacts of P3 Contracting Factors Performance assuredness (schedule + quality) in context of delivery risk Bricks & mortar execution labor, materials, site and community logistics, etc. Satisfying program in creative / innovative ways (design-build with different envelope)

55 Mike Day President Day CPM Services LLC

56 Agenda Introductions Procurement Methods: P3 PPP Developer Model review RFP Procurement Process Challenges Q & A P3 Alternative Project Delivery

57 Introductions Day CPM Services Recent/Current Delivery of Healthcare, Public Safety, Municipal, Institutional and Justice. Recent Major Capital Projects in Excess of $2 billion Currently Under Contract with 3 major Public Clients in the Portland Metro Area Experienced in Alternative forms of Contracting in Oregon and Washington: ( ORS, RCW) exemptions Innovator in IPD and Lean Project Delivery P3 experience: Mike Day, 30+ years experience in leading major Municipal Capital projects in the NW region P3 Alternative Project Delivery

58 Mike Day, Development Manager / Owner s Representative Mike is an Executive Leader with more than 30 years of Construction Management/Owner s Representative experience providing full-service project management expertise in both the public and private sectors. He is a dynamic principal who supports the foundation of teams and leads through example and mentoring. A money-wise Owner s Representative, he manages construction capital with strict accountability. His in-the-trenches contracting knowledge translates to protection of Owner interests with persuasive authority in dealing with construction entities. He is very well respected by major construction corporations and A/E firms throughout the Northwest. He has 30+ major CIP projects delivered under alternative forms of contracting in Washington and Oregon in the last 23 years including GC/CM, CM/GC, IPD, Design- Build / Developer led - P3, and CM Agency. Mike s recent project experience includes; Collaborative Life Sciences - OUS/OHSU; PCC Bond Program; MC-Courthouse; Oregon State Capital Pre- Development IPD; 3 Greenfield Hospital Programs; 1 International Medical Center Developer - P3. P3 Alternative Project Delivery

59 Procurement Methods Developer Developer Led process: Design, Build, Finance.. Public Private Partnership: P3 (PPP) Alternative Financing; Public Bonds and Private equity RFQ/RFP process: Qualifications Based Transfer of construction risk Efficient Delivery: Saves Time & Money Mirrors Private sector delivery model May include Operations and Maintenance: DBFM Life Cycle cost analysis considerations P3 Alternative Project Delivery

60 Procurement Method - Developer Pros Developer Led P3 Creative alternate funding solutions Tax Exempt bond financing (63-20) Lease-to-own or rent: "Off balance sheet Qualification based selection Efficient project delivery Highly collaborative (Use of IPD) Minimal initial capital investment for Owner May Require less owner staff & management May not be bound to requirements for pubic procurement (ORS, RCW) Private Development process (Knowledge and Efficiency) Cons Perceived loss of the control of the project and design Front end development of Bridging & Concession documents Potential debt service premiums for private sector financing P3 Alternative Project Delivery

61 Developer P3 Timeline Pre-Development Phase: Early Project Screening process for Project Procurement Business Case Analysis Functional Program Concept / Reference Design developed Cost Modeling; Benchmark estimates Hard/Soft costs & Life cycle Financial and Funding Models: Value For Money Analysis of Risk Matrix and adjusters Detailed Procurement options Analysis: comparison with other forms of project delivery: DB, CM/GC, DBM, DBFM Debt Service structure; Proposed sources of funding Development Phase: RFP/RFP Selection Process Transfer of Risk to Developer ( 1 st cost and life cycle) Design, Planning and Land use Construction & Closeout Operations and Maintenance P3 Alternative Project Delivery

62 Developer Selection Process The Developer selection process: Varies (8-12 months) Open to all qualified Developer teams Best Value Delivery approach Value Added Request for Qualifications: RFQ/RFP Describes the Project and submission requirements: Experience, Capacity, past performance Proposed Development plan and schedule, development agreement, estimated worksheet budget, Financial Strength Owner Develops Bridging Documents and Facilities Master Plan and functional program. Basis of Design and Blocking/stacking Diagrams Developed by Owner for bridging document exhibits RFQ Process: Developer submits initial SOQ Legal Counsel involvement in RFQ/RFP document development Establishes the timeline and describes the review process P3 Alternative Project Delivery

63 Developer Selection Process RFP: Short-list and interview of top Developer teams: Conceptual Design & Development Plan provided by Developer with proposal / interview process Developer estimated worksheet budget: Preliminary GMP guarantees: Fees, GC s, soft costs, hard costs, contingencies, financial Guarantees provided with RFP proposal response. Notice of award to selected Developer: Pre-Development agreement executed Pre-Development agreement phase: Organizes development process for planning and design. Establish Go/No Go decision Developer Agreement: Binds developer to delivery dates, and overall budget and functional program, as a result of the work funded by the Pre-development agreement Lease offer terms and conditions and Financing finalized P3 Alternative Project Delivery

64 Developer Preconstruction What happens in preconstruction: Prepare a detailed plan and schedule: Developer leads Pre-Development stage to Go/ No go Owner Provided funds to : Validate Basis of Design and program Prepare estimates Target value design in alignment with GMP & RFP Track and monitor budget & provide Value Engineering /Design Owner & Developer execute Development Agreement: Binds developer to develop and construct the project to the established delivery dates, program requirements and overall budget as a result of the work funded by the Pre-development agreement Binds the Developer to the Soft costs and Fees established in the RFP estimated worksheet budget. Developer assumes construction risk Finalize / validate GMP and lease offer term negotiations pursuant to the terms of the executed Development Agreement Market the project to local subs and suppliers & Expedite procurement P3 Alternative Project Delivery

65 Developer Questions & Answers Q: When is Developer led alternative delivery model best? A: For complex projects where alternative financing and speed of delivery are required Q: Does Developer model cost more? A: Varies. Initial costs to client can be lower with more reliable results & transfer of construction development risk. Projects may not be subject to Public works ORS and RCW s & mirror private sector delivery for procurement. Q: Are there change orders on Developer model projects? A: Yes. For owner-initiated programmatic scope changes Q: Are there savings on Developer model projects? A: Yes. Cost savings and Developer incentives developed as part of an IPD - Integrated project delivery approach result in savings $ success sharing. Q: Is this the way projects are built in the public/private sector? A: Yes: When alternative financing off balance sheet is preferred delivery option: Used in Washington Public sector: Harborview, King County, UW, City of Redmond; Task force and P3 Alternative Project Delivery

66 Challenges Educating Stakeholders on developer led option using P3 project delivery Go / No Go decision making model in Precon Objective Business Case Analysis process Risk Register and Adjuster Assumptions Develop Strategy for alternative Financing off balance sheet delivery model & Debt Service Owner Funding options of Debt Service P3 Alternative Project Delivery

67 Questions?

68 What Does the Future of Public Private Partnerships Look Like in Oregon?