Demystifying the Public-Private Partnership        An Overview of the Model and its            Application in QuebecPhilip...
What is a Public-Private Partnership?– An alternative mode of public procurement– A bottom-up performance-based method of ...
But it is not:– A privatization of public infrastructure– A substitution of the private sector for the  delivery of govern...
How do P3s Work?– Output/performance based contracts– Allocation of risk between public and private  parties– Integration ...
The Experience in Quebec andCanada (“DBFMO”)– “Design - build – finance – maintain – operate”  DBFMO model most prevalent ...
The DBFMO Model– Forces the public entity to clearly define the  output and performance expected of the  infrastructure– O...
The DBFMO Model (con’t)– Forces the private party to consider cost over  the entire life of the project  life cycle  cons...
The DBFMO Model (con’t)– Lends itself well to proper allocation of risk   “packages risk” properly in the concessionaire–...
Drawbacks of the P3 Model– Risk premium– Private sector’s higher financing cost– Higher transaction costs inherent to the ...
When Are P3s Appropriate?– For larger infrastructure projects– Complex projects or projects presenting  timing/cost certai...
The Procurement Process– Each of B.C., Alberta, Ontario, Quebec and the  federal government have bodies responsible for  e...
Role of Infrastructure Québec– Responsible for major public infrastructure  projects ($40M+)– Works with and advises the c...
Role of Infrastructure Québec (con’t)– First stage involves a strategic presentation of the  project with preliminary budg...
Role of Infrastructure Québec (con’t)– Third stage involves complete and final detailed  business case for project, with e...
The Selection Process– Preparation of preliminary output specifications and  design requirements– Preparation of a Request...
The Selection Process (con’t)– The RFP is released to qualified bidders   • includes full output specifications   • includ...
The Selection Process (con’t)– Process necessarily expensive for both public  and private parties– Bidding agreement provi...
The Selection Process (con’t)– Delivery of proposals– Proposals examined for compliance with RFP– Compliant proposals subj...
Preferred Proponent Stage– “Preferred Proponent” selected– Negotiation of final documents adapted to  winning proposal– Fi...
The Project Agreement– Together with schedules is the “Bible” of the  project– Allocates risk between public and private  ...
The Project Agreement (con’t)– Requirements Program (output specifications)– Payment mechanism (and failure points)– Varia...
The Project Agreement (con’t)– Energy– Collateral agreement with design-builder and  service provider with step-in-rights ...
The Canadian Experience– Conference Board Report of 2012– Examined 55 infrastructure P3s– “Value for money” analysis point...
The Canadian Experience (con’t)– Penalty regime seems to be working– Suggests that first wave (pre-2004) of P3s was  less ...
Projects in Quebec– Maison Symphonique  • delivered September 2011  • Gold CCPPP award winner– Autoroute 25   • delivered ...
Projects in Quebec (con’t)– Autoroute 30   • to be delivered December 2012– CRCHUM  • projected delivery autumn 2013      ...
Municipal Project Opportunities– 2012 report of Canadian Construction  Association, Canadian Public Workers  Association, ...
Municipal Project Opportunities (con’t)– Challenge for P3 model is size vs. cost:  • process is expensive  • need larger p...
Municipal Project Opportunities (con’t)– CCPPP points to several successful smaller  projects:   • Vancouver Landfill Gas ...
Municipal Project Opportunities in Quebec– Infrastructure Québec available to provide  services and support to municipalit...
Summary–   Alternative form of procurement–   Value for money–   Accountability and responsibility of private sector–   In...
Questions?             32
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Demystifying The Public Private Partnership

  1. 1. Demystifying the Public-Private Partnership An Overview of the Model and its Application in QuebecPhilipp Duffy December 5, 2012
  2. 2. What is a Public-Private Partnership?– An alternative mode of public procurement– A bottom-up performance-based method of designing and evaluating infrastructure projects– A means of better accessing private sector innovation and discipline– A means for government to achieve time and cost certainty 2
  3. 3. But it is not:– A privatization of public infrastructure– A substitution of the private sector for the delivery of government services– A simple method of financing or ability for governments to finance off balance sheet 3
  4. 4. How do P3s Work?– Output/performance based contracts– Allocation of risk between public and private parties– Integration of design, build, operation and maintenance phases– Private financing– Payment upon delivery 4
  5. 5. The Experience in Quebec andCanada (“DBFMO”)– “Design - build – finance – maintain – operate” DBFMO model most prevalent • asset is at all times owned by the public entity • incorporates all of the foregoing elements • allows achievement of all of the theoretical benefits of a P3 Model • makes concessionaire responsible 5
  6. 6. The DBFMO Model– Forces the public entity to clearly define the output and performance expected of the infrastructure– Output specifications and performance requirements provide benchmarks for performance of private partner to be measured against (and penalties assessed) 6
  7. 7. The DBFMO Model (con’t)– Forces the private party to consider cost over the entire life of the project  life cycle considerations become much more important and feed innovation/efficiency– Enforces discipline as a result of financing component 7
  8. 8. The DBFMO Model (con’t)– Lends itself well to proper allocation of risk  “packages risk” properly in the concessionaire– Is easy to monitor for performance– Is inherently suitable to performance based incentive/disincentive measures/accountability of private partner 8
  9. 9. Drawbacks of the P3 Model– Risk premium– Private sector’s higher financing cost– Higher transaction costs inherent to the model 9
  10. 10. When Are P3s Appropriate?– For larger infrastructure projects– Complex projects or projects presenting timing/cost certainty risks– Projects with potential for tapping private sector innovation or specialized know-how– Where a competitive market exists for private party services 10
  11. 11. The Procurement Process– Each of B.C., Alberta, Ontario, Quebec and the federal government have bodies responsible for evaluating, planning, procuring and overseeing major public infrastructure, including by way of P3– In Quebec, handled by Infrastructure Québec– Infrastructure Québec replaced “The Agence des partenariats public-privé du Québec” in 2009 11
  12. 12. Role of Infrastructure Québec– Responsible for major public infrastructure projects ($40M+)– Works with and advises the client to develop a 3- stage business care for the project– Each stage is followed by ministerial approval 12
  13. 13. Role of Infrastructure Québec (con’t)– First stage involves a strategic presentation of the project with preliminary budget ranges– Second stage provides for tighter budgeting, a rigorous “value for money” analysis and I.Q.’s recommended model for procurement.– It is within I.Q.’s mandate to recommend: • traditional design-bid build; • the “project management” method; • turn-key procurement, or • public-private partnership 13
  14. 14. Role of Infrastructure Québec (con’t)– Third stage involves complete and final detailed business case for project, with estimated budget at ± 5%– After approval any increases in cost of more than 5% must be reported to the government– Where project proceeds either by PPP or turn-key, I.Q. coordinates the selection process 14
  15. 15. The Selection Process– Preparation of preliminary output specifications and design requirements– Preparation of a Request for Qualifications (RFQ) package– Review of responses to qualify a shortlist of consortia invited to participate in the RFP 15
  16. 16. The Selection Process (con’t)– The RFP is released to qualified bidders • includes full output specifications • includes form of legal agreements • provides timetable:  for various workshops (legal, design, engineering, etc) and technical proposals  for delivery of financial and technical proposals • provides for transparent Q&A/R.F.I. mechanisms designed for fairness 16
  17. 17. The Selection Process (con’t)– Process necessarily expensive for both public and private parties– Bidding agreement providing for deposit guarantees and compensatory payment to losing consortia 17
  18. 18. The Selection Process (con’t)– Delivery of proposals– Proposals examined for compliance with RFP– Compliant proposals subjected to “best value” analysis 18
  19. 19. Preferred Proponent Stage– “Preferred Proponent” selected– Negotiation of final documents adapted to winning proposal– Finalizing financing arrangements by private party– Execution of Project Agreement (“Financial Close”) 19
  20. 20. The Project Agreement– Together with schedules is the “Bible” of the project– Allocates risk between public and private partners– Site condition, design and construction obligations, works schedule, commissioning, deficiencies, services during operational term, maintenance and conservation, end of term requirements (handback) 20
  21. 21. The Project Agreement (con’t)– Requirements Program (output specifications)– Payment mechanism (and failure points)– Variations procedure 21
  22. 22. The Project Agreement (con’t)– Energy– Collateral agreement with design-builder and service provider with step-in-rights in favour of public party– Lender’s direct agreement 22
  23. 23. The Canadian Experience– Conference Board Report of 2012– Examined 55 infrastructure P3s– “Value for money” analysis pointed to savings for taxpayers over conventional procurement– Noted a high degree of cost and time certainty through delivery 23
  24. 24. The Canadian Experience (con’t)– Penalty regime seems to be working– Suggests that first wave (pre-2004) of P3s was less successful since: • was driven by off balance sheet issues • attempted to transfer inappropriate risk • didn’t properly transfer financing risk 24
  25. 25. Projects in Quebec– Maison Symphonique • delivered September 2011 • Gold CCPPP award winner– Autoroute 25 • delivered may 2011 25
  26. 26. Projects in Quebec (con’t)– Autoroute 30 • to be delivered December 2012– CRCHUM • projected delivery autumn 2013 26
  27. 27. Municipal Project Opportunities– 2012 report of Canadian Construction Association, Canadian Public Workers Association, Canadian Society for Civil Engineering and Federation of Canadian Municipalities rates 30% of existing municipal water and roadway infrastructure in 123 participating municipalities as in “fair” to “very poor” condition– Replacement cost of $172Bn 27
  28. 28. Municipal Project Opportunities (con’t)– Challenge for P3 model is size vs. cost: • process is expensive • need larger projects to attract private lenders 28
  29. 29. Municipal Project Opportunities (con’t)– CCPPP points to several successful smaller projects: • Vancouver Landfill Gas Cogenerating Project • Ottawa Paramedic Headquarters • Moncton Water Treatment Facility • Goderich Water and Wastewater System 29
  30. 30. Municipal Project Opportunities in Quebec– Infrastructure Québec available to provide services and support to municipalities– Can also help in obtaining Federal funds– Advantage of transparency 30
  31. 31. Summary– Alternative form of procurement– Value for money– Accountability and responsibility of private sector– Innovation and discipline– Not a panacea– Canada and Quebec good at this– Opportunities exist 31
  32. 32. Questions? 32

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