1. Demystifying the Public-Private Partnership
An Overview of the Model and its
Application in Quebec
Philipp Duffy December 5, 2012
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. 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. 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. The Experience in Quebec and
Canada (“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. 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. 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. 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. Drawbacks of the P3 Model
– Risk premium
– Private sector’s higher financing cost
– Higher transaction costs inherent to the model
9
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. 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. 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. 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. 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. 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. 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. 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. The Selection Process (con’t)
– Delivery of proposals
– Proposals examined for compliance with RFP
– Compliant proposals subjected to “best value”
analysis
18
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. 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. The Project Agreement (con’t)
– Requirements Program (output specifications)
– Payment mechanism (and failure points)
– Variations procedure
21
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. 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. 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. Projects in Quebec
– Maison Symphonique
• delivered September 2011
• Gold CCPPP award winner
– Autoroute 25
• delivered may 2011
25
26. Projects in Quebec (con’t)
– Autoroute 30
• to be delivered December 2012
– CRCHUM
• projected delivery autumn 2013
26
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. 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. 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. 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. 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
