7.5 keys to PPP Success - Moreland Advisors

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7.5 keys to PPP Success - Moreland Advisors

  1. 1. 7½Keys to Public-Private Partnership Success - A Public Agency Perspective - Brad Rodgers March 17, 2011 Advisors www.morelandadvisors.com
  2. 2. 7 ½ Keys to PPP Success for a Public Agency I n every Public-Private Partnership (PPP or P3) there is delicate balance between protecting the public’s interests while attracting private sector participation and competition. When they are executed correctly, PPP’s can bring a wealth of talent, resources and creativity to public sector projects. However, when they are poorly executed they can fail to safeguard the public’s interests and breed frustration and contempt across all stakeholders.Below are 7 ½ strategies you can follow to help ensure that your next PPP project is a successful one.1) UNDERSTAND WHAT PPP’S CAN AND CANNOT DO:Public-Private Partnerships are an alternative form of procurement available to public agencies that enables privatesector participation while maintaining a predictable and repeatable procurement process. Currently, 28 stateshave enacted PPP legislation allowing both solicited and unsolicited proposals, and several additional states havePPP legislation planned. By expanding private sector participation in transactions that have traditionally been theexclusive domain of the public sector, a variety of skills, resources, risks and rewards can be shared amongst the twogroups. This can result in a higher level of competition, creativity, innovation and financial resources than wouldotherwise be available.However, public-private partnerships are not a miracle tool and the PPP procurement process may not be suited forsome projects. The PPP process is complicated and can require significant additional effort to be successful. Publicsector partners should be very careful to fully understand the requirements the process will impose on them beforeattempting a PPP.2) BUILD AN EARLY CONSENSUS AMONG STAKEHOLDERS:By their very nature, PPP’s involve a wide array of stakeholders and tend to be very political endeavors. As early aspossible in the process it is critical to build both an internal and external consensus in favor of the project. In caseswhere the public agency is soliciting proposals, there is frequently already a unified internal desire to see the projectthrough; however that is unlikely to be the case when an unsolicited proposal is received. The ability to quicklyreact to an unsolicited proposal, build an internal supportive coalition, and demonstrate unity to the market willdramatically enhance the number and quality of the additional responses received.In both cases, it is critical to gain the support necessary from external stakeholders - regional governmental andnon-governmental bodies, constituents, affected citizens. The responsibility falls to the public sector to conduct theprocess in an open and transparent manner that includes community involvement. As soon as possible, the publicagency should make the proposals available and conduct a detailed community awareness campaign to explain theproject, the goals and the upcoming process. Again, if the public sector can work to reduce the real and perceivedrisk from stakeholder opposition, the quantity and quality of competitive proposals will increase.3) PAIR THE RIGHT PROJECT WITH THE RIGHT DEAL STRUCTUREPublic-private partnerships can operate under a wide variety of transaction structures, but not every project typeworks with every deal structure. In situations where the public partner is actively soliciting proposals, it is importantto analyze early in the process exactly what transaction structures are appropriate. These should be clearly outlined 1
  3. 3. 7 ½ Keys to PPP Success for a Public Agency in the Request for Proposals. Set the expectations early in the process and identify which risks and benefits are intended to be transferred to the private sector and which will be retained by the public sector. In other scenarios where the public partner receives an unsolicited proposal, the public agency should seriously consider whether the proposed transaction is suited to a PPP procurement. Notevery proposal received should be accepted and sometimes the project just isn’t a good fit for a PPP. In the caseswhere the proposal is accepted, the public agency should be very explicit in setting transaction structure expectationsin its request for competing proposals.4) CLEARLY OUTLINE THE REQUIREMENTS, BUT INVITE CREATIVITYThe enabling public-private legislation provides the broad framework within which PPP deals must operate. Withinthese boundaries, however, there is intentionally the opportunity for a significant amount of public and private sectorinnovation and creativity. Generally speaking, the most successful PPP’s are ones where one or both partners bringnew and innovative structures, concepts and perspectives to the project. One of the challenges is that this creativitycan result in private sector proposals that are not easily comparable. In some cases, the received responses could failto adequately address the project objectives, wasting valuable time and resources.Throughout the PPP process, the public sector partner should focus on a “results oriented” transaction structure,clearly articulating the project objectives that absolutely must be met. The details of “how” these needs are met arewhere the private sector can differentiate itself through its creativity and innovation. While it is frequently difficultfor the Public sector to relinquish control over the “how” aspects of the project, this is an excellent opportunity forthe private sector to add significant value to the project. A project scope that is too narrowly defined can choke thecreativity of the private sector, reducing the benefits to the public partner and its constituents.5) MAKE THE MARKET AWAREWhether you are actively soliciting PPP proposals or are responding to an unsolicited proposal, generally morecompetition is better. The responsibility falls onto the public agency to make the broader market aware of the PPPopportunity, the project goals, requirements, and timeline. Simply listing the project on the State’s web-basedprocurement site will not garner the level of interest and competition that will truly benefit the public sector and theproject. The public partner needs to actively market the project to the PPP community and in doing so demonstrateto them this is an important and viable project they should invest in.Private sector PPP partners are typically inundated with potential projects and opportunities across a widegeographic region. It is all too easy for any single project to be overlooked or dismissed. The more you can do tograb their attention and demonstrate this is a worthwhile use of their resources, the more successful PPP processyou will have. In some cases, it may make sense for the public partner to hold informational sessions and activelyfacilitate teaming opportunities amongst the private sector companies. In every case, the public sector should havean “open door” policy for questions, emails and meetings that invites the private sector to better understand theproject and its objectives. 2
  4. 4. 7 ½ Keys to PPP Success for a Public Agency 6) CONDUCT A FAIR, OPEN AND CLEAR PROPOSAL REVIEW One of the primary criticisms of the public-private partnership process is the misconception that PPP’s are unfair competitions and predisposed to cronyism. A recent informal survey revealed that one of the primary reasons for private sector partners not submitting a proposal on a project was a belief that the public sector had already identified their “preferred partner” and theproject was “hardwired”. It is the responsibility of the public sector partner to dispel this misconception of unfaircompetition and cronyism.It is critical for the Public sector to commit to, and conduct, a fully transparent PPP process with clearly articulatedcriteria for how each proposal will be reviewed. Engaging an independent third-party advisor to lead the reviewprocess also serves to alleviate many of the private sector concerns. Requests for Proposals should highlight theinvolvement of an independent reviewing party. Again, the idea is to create an environment where competition canand will flourish and private sector creativity will be rewarded. Addressing the private sector concerns regardingfairness up front and early in the procurement process will attract more bidders and potentially better proposals.That being said, confidentiality is an important component of the PPP process. The public agency needs to grant theprivate sector the ability to retain portions of its submitted proposal as “confidential”. This protection assures theprivate sector that the financial details and innovative strategies they present cannot be cannibalized by competingfirms – otherwise creativity will be stifled. The public sector partner needs to actively manage this balance betweenconducting a transparent PPP process and protecting the private sectors innovative ideas.7) PROVIDE CLEAR, CONCISE YET DETAILED PROJECT DOCUMENTATIONOnce a private sector partner has been selected, it is important to make sure roles, responsibilities, deal termsand expectations are clearly documented. These are complicated transactions and it is critical to ensure everyoneunderstands what will be expected of them. This is not the time for either party to be operating under unconfirmedassumptions.During the marketing phase of the PPP procurement, the Public sector should finalize the draft documentation for theproject, including both an interim and comprehensive agreement. These draft documents should be provided to theselected bidders as they proceed into the second, detailed phase of the procurement. By providing the documents atthis phase of the process, the bidding teams can incorporate the effects of any substantive clauses into their detailedproposals. Depending on the final private sector team selected, there will certainly be necessary modifications tothese documents, but this should work towards eliminating surprises and delays later in the process.7 ½) ALWAYS BE AWARE AND RESPECTFUL OF THE TIME AND MONEY BIDDERSARE INVESTING IN YOUR PROJECTExecuting a public-private partnership is certainly a significant commitment for the public sector. Bidding on a PPPis also a significant time and resource commitment on the part of the private sector. Public sector partners should bevery cognizant of the time and money that the private sector is expending to put together a PPP proposal. These arecompanies that take a tremendous amount of pride in the quality of their work product and their PPP proposals are 3
  5. 5. 7 ½ Keys to PPP Success for a Public Agency no exception. The cost to prepare these bids includes thousands of man hours and can run into the hundreds of thousands of dollars for larger projects. In recognition of this, the public sector partner should make every effort to structure the process such that it minimizes the “high-risk” costs that are incurred early in the PPP process. One way this can be done is by segmenting the review and approval process to quickly eliminateunqualified teams or undesirable transaction structures. The private sector will be more willing to spend increasinglevels of capital for a project if they feel there is a higher probability of being selected as the winning bidder. Incases where the private sector needs to expend considerable out of pocket expenses, providing a stipend should beconsidered.CONCLUSIONMuch of the discussion surrounding public-private partnerships centers around the transfer of risks betweenthe public and private sectors. By following these 7 ½ Keys to PPP Success and administering a well run PPPprocurement process, the public sector can effectively eliminate many of the up front risks that deter private sectorparticipation and stifle competition. With an increased level of private sector involvement and competition, thepublic agency is afforded a wider array of options to better serve to public’s needs and protect their interests.Public-private partnerships may not be ideal for every project. However, when used appropriately, a PPP can be atremendous way to utilize private sector skills, resources and creativity for the public good. M oreland Advisors is a full service consulting firm providing advice and guidance on infrastructure assets, including the application of Public-Private Partnerships, to both public agencies and private sector clients. The Company has extensive experience working on both sides of the PPP process and can help make them a successful, cost effective and maybe even enjoyable experience. To find out more information please visit www.morelandadvisors.com or email Brad Rodgers at brad.rodgers@morelandadvisors.com. 4

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