A public-private partnership (P3) is a contractual arrangement between a public agency (federal, state or local) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public.

2. Mark Van Vleck Liza Wisner

4. P3 Overview: OUR AGENDA
1. What is a P3?
2. Value for Money
3. Risk Transfer
4. P3 Project Structure
5. Summary

5. Write down some projects that may be P3.

6. What is a P3?

7. Background
• Governments struggling to keep up
– Aging infrastructure
– Growing popula6on
– Budget constraints and deficits
– Risk of project delays and cost overruns
• Roads, bridges, hospitals, schools, etc. need to be built
so governments looking for innova6ve approaches

8. What is a P3?
● Based on Public-Private Partnerships Reference Guide V2.0
(World Bank 2014)
– A long term contract between a public party and a private party for
the development and/or management of a public asset or service,
in which the private agent bears significant risk and management
responsibility throughout the life of the contract, and remuneration
is significantly linked to performance and/or the demand or use of
the asset or service.
● Finance is not a requirement
● Risk Transfer is important
● Used for both infrastructure and service
● NOTE: PPP is not privatization

9. What is a P3?
Example Assets:
● Railroads
● Prisons
● Schools
● Hospitals
● Motorways or multi-lane
highways
Example Services:
● Education
● Emergency Services
● Security
● Defense
● Law Enforcement
● Public transportation etc.
A Legal Term?
– Maybe.
– In some jurisdictions it is a legal term defined in legislation
–

10. What is a P3?
• Integra6on of roles (Design, Build, Finance, Operate, Maintain)
• A long-term dura6on
• The provision of goods or services to meet a defined output specifica6on
(i.e., define what is required rather than how it is to be done)
• A transfer of risk to the private sector anchored with private sector capital
at risk
– Throughout the project life-cycle
• Entered into by a compe66ve process
• Simply an addi6onal way governments can deliver infrastructure

11. Two Types of PPP
1. User-Pays
– Revenue from public users
2. Government-Pays
– Revenue paid by government
– Also known as a PFI (Private Finance Initiative)

12. Options that are Not PPPs
B & DB
• Build-only (B)
– Design already available
• Design-Build (DB)
– Includes both aspects

13. • Design-Build-Finance (DBF)
– As DB with the contractor providing ini6al finance
– Finance repaid in instalments star6ng in the
commissioning phase
– Increased cost of finance
Options that are Not PPPs
DBF

14. Infrastructure Procurement OpUons that
are PPPs – DBOM or DBM
• Design, Build, Maintain (DBM)
• Design, Build, Operate and Maintain (DBOM)
• Design, Build, Finance, Operate, and Maintain (DBFOM)
• Government finance design & build
• Payments for O&M based on performance

15. P3 OpUons
DBOM
• Design-Build-Operate-Maintain (DBOM)

16. P3 OpUons
DBFOM
• Design-Build-Finance-Operate-Maintain (DBFOM)
• Government Pays

17. P3 OpUons
DBFOM
• Design-Build-Finance-Operate-Maintain (DBFOM)
• User Pays

18. Perceived Benefits
1. Cost savings
2. Time savings
3. Projects begin sooner
4. Effec6ve risk transfer
5. Value for money
6. Improved price and schedule certainty
7. Infrastructure funds aYract investors

19. Perceived Benefits
8. User pay op6ons (e.g. tolls)
9. Innova6on through integra6ng phases
10. Redeployment of government resources
11. Improved asset maintenance
12. Improved quality
13. Lifecycle cost considera6ons.

20. Perceived Concerns
1. Addi6onal costs
– Risk premiums, higher financing costs for private sector,
higher procurement and monitoring costs for government
2. Longer upfront procurement/nego6a6on process
3. High cost to renego6ate long-term contracts when
policy changes occur
– Termina6on is costly and complex

21. Perceived Concerns
4. Foreign control of domes6cs assets
– Issue when foreign companies are involved
5. Public may not accept private sector’s role
6. Risk of private partner bankruptcy
– Risk is low in today’s P3 domain
7. High level of government exper6se required
– Skills in P3 procurement, nego6a6on, and project
management.

22. When do we use P3?

23. When do we use P3?
• P3 benefits do not always outweigh costs
– Screening process is required to determine if the P3 method is
appropriate
• P3 method is suitable for a project when:
– It is feasible to develop output specifica6ons and performance
requirements
– Risks can be iden6fied and transferred
– Deal size is large enough to offset bidding costs
– Project is highly complex
– Compe66ve market exists (mul6ple bidders)

24. When do we use P3?
– Value for money
– Risk transfer to the private partner
– Schedule certainty
– Sufficient project size/scope
– Sufficient private sector compeUUon
– Benefits for taxpayers
– Lower total-life costs (capital,
construcUon, operaUons and
maintenance, rehabilitaUon)
– Private sector innovaUon
– Measurable outputs
– Public ownership of the
infrastructure
– OperaUon and maintenance
components
– No outstanding issue that would
prevent project
– No legislaUve or legal impediments
– Clearly defined private partner’s
responsibiliUes
– The maintenance of public sector
accountability
– A transparent process.

25. P3 Success Factors
ü Strong poli6cal and public sector leadership and support
ü Clear legal and administra6ve framework
ü Ac6ve public involvement
ü Skilled government personnel
ü Well defined outcomes
ü Oversight of public interest, appeal processes
ü Rigorous analysis - objec6ve technical and financial
analysis/value for money

26. P3 Success Factors
ü Clear risk transfer
ü Whole-of-life cos6ng
ü Performance-based contract, including non
performance penal6es
ü Efficient and compe66ve procurement
ü Stable and predictable processes
ü Transparency, accountability and monitoring systems
(e.g. use of an independent fairness advisor)

27. Private Sector’s Interests
• Projects must be:
– Feasible and Bankable
– Right project
– Affordable
• Process must have a reliable timeline

28. What can go wrong in a P3?
• Contracts can fall through
– Lack of public support
– Lack of poli6cal support
– Policy/government changes
• Delays can occur in star6ng work
– Lengthy proposal/nego6a6on process
– Inexperience in P3 contracts
– No one will bid if contract/pricing isn’t done well

29. TradiUonal vs. P3 Procurement
Assets
Input terms (prescriptive)
Components of delivery are separated
Paid for during key construction milestones
Life-cycle risks are retained
Assets and services
Output terms (performance)
Components of delivery are bundled
Paid for once asset is delivered and over the life of the
asset – payments linked with operational performance.
Life-cycle risks are transferred
TRADITIONAL
P3

30. Value for Money
Consider the total cost of ownership over the life of the asset adjusted to
consider total cost of risk and expressed in present value terms

31. Value for Money Analysis
• Estimated costs to the public sector of
delivering the project as a P3
• Estimated costs to the public sector of
delivering the project based on the
public sector’s traditional method of
procuring public infrastructure.
Costs of Traditional Procurement
Costs of P3 Procurement
A VfM Analysis
compares these two

32. Risk Transfer

33. Risk Transfer
• What does it mean to transfer risk?
• What does the cost of risk mean?
• What does it mean to assume risk in a project?
• What is a risk premium?

34. Risk Transfer: Car Insurance Analogy
• Risk Transfer:
– A person who drives a car is at risk of causing a collision
– This person enters into a contract with an insurance
company to transfer that risk from the person to the
insurance company
• Cost of Risk:
– The person pays the insurance company a yearly fee for
this risk transfer, thus assigning a cost to the risk
– This cost is calculated based on the type of risk and the
probability of a collision (driver history)

35. Risk Transfer: Car Insurance Analogy
• Assuming a risk:
– The contract will s6pulate which risks the insurance
company will assume and which risks the person is
s6ll responsible for.
• Risk Premiums:
– Built into the yearly fee is a premium the insurance
company charges to make it worth their while to
assume the risk.

36. P3 Project Structure

37. P3 is Chosen.
What Next?
• Market soundings
– See if anyone is interested
• Request for Qualifica6ons
– Make sure those interested are capable
• Request for Proposals
– Qualified bidders prepare detailed proposals
– Interim/final submissions received and evaluated against predetermined
criteria
– Fairness advisor oversees process
• Closing
– Agreements, financing in place, contract signing
• Project Starts!

39. Five Necessary Elements of a P3 Framework
1. Strategic and founda6onal outlines that set the boundaries for using the PPP as a
procurement op6on.
• The “ImplemenUng Principles” - include the overall objec6ves for the tool, scope,
procurement and tender processes and associated regula6ons.
2. The “OperaUonal Framework or Process Management Framework”.
• Rules and procedures to iden6fy, prepare and assess or appraise the projects
• Informa6on about preparing the PPP contract, the RFP structure and the management
of the tender and subsequent contract.
3. The “Fiscal Management Framework”
• The rules and procedures that control the aggregated exposure to PPPs.
4. The “InsUtuUonal Framework”
• Any government specific rules rela6ng to the management and governance of
the PPP
5. “Other Governance Related Macers”
• Any other rules, processes, procedures and responsibili6es

40. Stages of Contract Management
3 Main Stages / Phases:
• Preparation
– Identifying projects and screening as a PPP
– Appraising and preparing the project contract
• Implementation and Procurement
– Structuring, drafting tender and contract
– Tender, award and contract sign up
• Contract Management or Contract Term
– Managing contract – developing and commissioning and
– Managing contract – operating, maintaining and handing back

42. Threats to Sound Process Management
• Poorly structured contract
• Contract risk
• Defects in assessment of the project
• Poor contract management
• Lack of suitable skills to run the PPP process
• Essential to build up skills in PPP management

43. Risk Factors
• The lack of a standardized process
• A complex and unclear institutional framework
• The lack of an institutional organization
• Absence of a fiscal management framework
• The lack of clear policy guidelines regarding the objectives of PPPs
• In the absence of an appropriate PPP framework, a ministry that believes
that it can shift the costs to other sectors
• A ministry that does not directly bear project-related risks may not be
sufficiently diligent
• Individual agencies may operate within “silos”, with little information sharing
or co-operation with other agencies
• Lack of transparency due to inappropriate framework for disclosure programs
• Lack of audit
• Lack of sound long-term planning and the creation of PPP

44. Summary

45. Summary
• What is a P3?
• Why/When P3s are they used?
• What can go wrong in a P3?
• The Value for Money Analysis
• Risk Transfer/Cost of Risk
• P3 Framework and Process Management

46. ADDITIONAL RESOURCES
q PPP Cer6fica6on Training and Guide:
q hYps://ppp-cer6fica6on.com/training
q Texas Facili6es Commission Guidelines
q hYp://www.lc.state.tx.us/divisions/facili6es/prog/planning/p3/
q PPP World Bank Knowledge Lab
q hYps://pppknowledgelab.org/learning
q The World Bank Resources:
q hYp://www.worldbank.org/en/topic/publicprivatepartnerships