1. 1
The ABCs of P3s:
What it Means for Cities and Towns
Anatoly M. Darov, P.E.
Matthew G. Feher
MMA Annual Meeting & Trade Show
January 23, 2015

2.  What is a ‟P3” project?
• Basic Structure and Risk Allocation
 What role could P3s play to address infrastructure needs?
 Status of Massachusetts law relating to P3s
 Considerations for public awarding authorities considering P3s
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Introduction

3. What Constitutes a P3?
 Basic Definition: ‟Long-term
agreements formed between a
public agency and a private
sector entity that allow for
greater private sector
participation in delivery and
financing of public facilities”
 Simple in concept but more
difficult to develop and execute
 P3 terminology broadly applied
across a spectrum of projects
 Types of P3s:
• Design-Build (DB)
• Design-Build-Operate (DBO)
• Design-Build-Finance-Operate
(DBOF)
• Build-Operate-Transfer (BOT);
• Long-Term Lease
• Sale/Leaseback;
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4. 4
Basic P3 Transaction Structure

5. Risk Allocation Spectrum
• Government contracts for design and
construction with single entity
• Mix of interim and completion payments
• Government to manage and operate assets
• Design team works for constructor
• Closer coordination between design and
const. teams
• Single point of responsibility
• Increased burden on Owner to monitor the
project and enforce project objectives
• Design Builder provides operations/maint.
over a term of years
• Single point of responsibility
• Typically DB and Ops contract
• Labor negotiations over impact mitigation
• Performance based metrics/penalties
• Transfer of compliance obligations
• O&M costs considered during design
• Public sector retains ownership of the asset
• Private partner provides significant equity
and debt financing
• Requires revenue of some form (tolls,
rates, availability, etc.)
• Financing parties conduct due diligence
• Generally higher private financing costs
• Definition of revenue streams (toll/rate
increases over time)
•Rate setting and collections
• Long term concession agreement with
private partner to deliver and operate a facility
• Could include monetization payments or
lease/availability payments
• Turn-over requirements
• Requires additional due diligence because of
long term nature and financial risk
• Financing and O&M together drive
efficiencies and higher performing contracts
•Private partner controls the asset
•Rate setting and collections
• Complete asset sale or long term lease
• Asset does not revert to government in
event of default
• Up-front payment/monetization of asset
• Public entity receives lump sum initial
payment
• No longer owns or is responsible for the
asset
• Constitutional issues
Alternative Description Risk Factors
Design Build w/
Operations (DBOM)
Design Build Finance
w/Operations (DBFOM)
Long-Term Lease
Asset Sale / Full
Privatization
RiskTransfer—PublictoPrivateSector
More
Less
Design – Build (BD)
Chapter 149A

6. Infrastructure Funding and the Role of P3s
 Why are P3s in focus?
• Limited public resources available to address large (and growing)
need to maintain and upgrade infrastructure
• Significant parts of U.S. transportation systems, water systems, and
public buildings date from the New Deal, National Highway
System, and Clean Water Act
• American Society of Civil Engineers Report Card For America’s
Infrastructure illustrates the decline in the state of U.S.
infrastructure
Rates U.S. Infrastructure a D+ across 16 infrastructure systems
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7. Infrastructure Funding and the Role of P3s (cont’d)
Higher levels of private sector involvement leverages new sources
of capital, innovation, and financial and operating efficiencies
Financing, O&M, performance-based incentives, and turnover
requirements align incentives, encourage innovation, and
planning discipline resulting in cost and schedule advantages over
the term of the project versus traditional delivery methods
• Better performing facilities for less money over the life of the
project
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8. Adoption of P3s
 P3 delivery focused primarily on transportation/water, some social
 Financing based around (1) revenue generating facilities (tolls and
rates) and (2) availability payments
 Limited federal role in P3 delivery (until recently)
• US House T&I Committee P3 Panel Report – Sept. 2014
• States and Munis (35 states plus Puerto Rico)
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9. Adoption of P3s (cont’d)
 Massachusetts P3 authorizing legislation
Chapter 149A of the General Laws (Design Build)
Special Act/Home Rule Petitions
MassDOT – P3 Oversight Commission (G.L. c. 6C, sec. 62-73)
Chapter 259 of the Acts of 2014 – Water Infrastructure Bill
S.D. 1209, An Act Providing for Alternative Delivery of
Infrastructure Projects
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10. Massachusetts P3 Authority
 Chapter 259 of the Acts of 2014 – Water Infrastructure Bill
• Section 73. Notwithstanding any general or special law to the
contrary, any design and construction services included in a public-
private partnership development agreement seeking assistance under
chapter 29C may request technical assistance from the public-
private partnership infrastructure oversight commission, established
by section 73 of chapter 6C, on all requests for proposals for
design-build-finance-operate-maintain or design-build-operate-
maintain services.
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11. Massachusetts P3 Authority
S.D. 1209, An Act Providing for Alternative Delivery of
Infrastructure Projects
• Establishes G.L. c. 40X for public agencies to use P3 project
delivery for water, stormwater, and wastewater projects
• Authority similar to special acts used by several munis
• Provides statutory guidance for solicitation, evaluation, and
implementation of P3 projects
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12. P3 Financing Structures
 Basic P3 Project Financing Elements
• Multiple public and private financing sources from primary or
secondary private sector partners or other related entities (i.e. state
and federal agencies)
• GARVEE
• Direct user charges/availability payments
• TIFIA/WIFIA
• Private Activity Bonds (PABs)
• Qualified Public Infrastructure Bond (QPIB), proposed
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13.  Parties to a P3 transaction
• Sponsors, government entity, concessionaire/DBOM team, equity
investors, debt investors, labor unions
 Transaction process
• Government Capacity, Project Assessment, Economic Feasibility,
Environmental Permitting, RFQ/RFP Procurement Process,
Selection/Award, and Financial Close
 Proper risk allocation among all stakeholders
 P3 Documentation
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Practical P3 Transaction Issues

14. Challenges Facing Municipal P3s
 Political support and leadership is critical and has varied from state to
state
 Statutory frameworks for P3 procurement and other applicable laws
vary from jurisdiction to jurisdiction as do other related laws and
regulations that may apply to a P3 project
 Several early P3 projects ran aground and many viewed P3s to be too
complex and not worth the trouble
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15. Challenges Facing Municipal P3s (cont’d)
 Capacity building on the public side to effectively engage with the
private sector
 Education and public perception is an important factor
 P3s will not, without more, close the funding gap
 High transactional costs need to be overcome/mitigated
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16. Strategies for Successful Municipal P3s
 Focus on the project life cycle
 Initial in the ground costs are a fraction of facility life cycle cost
 Transferring the finance, operations, and maintenance obligations to
the private partner creates an incentive to minimize life cycle costs
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17. Strategies for Successful Municipal P3s (cont’d)
 Together with performance-based contracting, the public partner will
receive the highest ROI
 Real estates offers an opportunity for monetization of municipal assets
 P3s, including small project, municipal P3s, can be used to unlock
significant real estate assets
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18. Elements in Successful P3 Transactions
Public Sector Leadership and Education
Public Sector Dedicated P3 Team
Detailed P3 Contract
Clearly defined revenue stream
Public support
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19. Conclusion/Takeaways
 P3 Delivery Models = a viable alternative for certain municipal projects
 Stakeholders need to consider methods to make projects attractive
 Develop methods and procedures that promote consistency and
standardization
 P3 has the ability to offer flexibility, creativity, and innovation exceeding
traditional procurement methods
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20. Conclusion/Takeaways
 Focus on (i) water/wastewater/stormwater and (ii) real estate assets
 Water/Wastewater
• Special Acts grant extensive authority
• Develop knowledge and understanding of P3 model
• Conduct project assessments and economic feasibility assessments
 Real Estate Assets
• No authority and few models
• Special act
• Monetization of underutilized land/facilities
• Performance-based buildings
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