A Public Private Partnership Approch to Climate Finance
The ABCs of P3 What it Means for Cities and Towns
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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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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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