P3 Toolkit
P3-VALUE Webinars
Webinar - Evaluating P3 Options: An Overview
Presentation: PDF
Transcript: HTML
Webinar recording: Audio
Q&A: HTML
P3-VALUE Webinar - September 5, 2013
Patrick DeCorla-Souza
P3 Program Manager
Center for Innovative Finance Support
P3-VALUE Webinars
- P3: Public Private Partnership
- P3-VALUE: Set of four integrated analytical
tools to help practitioners understand processes used to quantitatively
evaluate P3 options
- This is the first of four webinars on P3-VALUE
- P3 Evaluation Overview (today)
- Risk Assessment 201 (September 20, 2013)
- Value for Money Analysis (January 23, 2014)
- Financial Structuring and Assessment (March 13, 2014)
Course Outline
- Lesson 1 - Introduction to P3 Evaluation
- Lesson 2 - P3 Financial Evaluation
- Lesson 3 - Value for Money Analysis
- Lesson 4 - FHWA's P3 Toolkit and P3-VALUE
- Summary
Course Objectives
After taking this course you should be able to:
- Identify the purpose of P3 evaluation
- Describe the P3 evaluation process
- Identify the challenges and limitations of P3 evaluation
- Explain the role of the P3-VALUE suite of tools
- Access the tools and supporting information
Lesson 1 - Introduction to P3 Evaluation
Project vs. Procurement Evaluation
- Project Evaluation:
- Is the project worthwhile for society?
- Definition of "society" can vary
- Procurement Evaluation:
- Would P3 procurement add value relative to conventional
procurement?
- Which of several P3 options would add most value?
Procurement Evaluation
- Financial Assessment:
- Considers financial elements only, i.e., "cash
flows"
- Focuses on costs and revenues; "benefits"
to society (e.g., travel time savings from accelerated
project delivery) not assessed quantitatively
- Perspective is that of the procuring agency
- Employs value-for-money (VfM) analysis
- Economic Efficiency Assessment:
- Considers full range of costs and benefits to society
- May include financial elements, but some such elements
may not be included, e.g., tolls
- Employs benefit-cost analysis (BCA)
Financial Evaluation Questions
- Is the project affordable to the public agency?
- Financial feasibility analysis
- Will P3 procurement enhance the financial position of the
public sponsor?
- Value for Money (VfM) analysis
- If P3 procurement is selected, is the dollar value that
the private entity offers (or is willing to accept) a good value
from the viewpoint of the public agency?
- Asset valuation (for "net revenue" projects)
- Subsidy and availability payment valuation (for "net
cost" projects)
Economic Efficiency Questions
- Does the project yield benefits to society that exceed the
costs to society?
- Assessment of the full range of economic costs, risks
and social benefits
- When should a project be undertaken?
- What is the best project design alternative?
- Will a P3 option increase net benefits to society compared
with conventional procurement?
- P3 costs and benefits would be compared to conventional
procurement costs and benefits
- Goes beyond procuring agency's perspective
- Considers externalities and user benefits
- FHWA is conducting research to develop this approach
Evaluating a P3 Option: Summary
| Question |
Analysis Approach |
| What are the financial consequences of the procurement
option from the perspective of the agency's financial position? |
Financial (VfM) |
| Which procurement method is better from society's perspective? |
Economic (BCA)* |
* FHWA research is underway to develop this approach
Test Your Knowledge
True or False:
Financial evaluation considers the full range of costs and benefits
to society.
Questions?
Submit a question using the chat box
Lesson 2 - P3 Financial Evaluation
Evaluation at Every Stage
Planning
↓
Project Development
↓
Procurement
↓
Design & Construction
↓
Operations and Handback
Planning Questions
| Project Screening |
Is the project appropriate for a P3?
- Scale
- Long-term nature of service
- Complexity of risk profile
- Potential for innovation
|
| Can the whole-life costs be reduced through integration
of design, construction and operations? |
Planning Phase Screening
- Project Characteristics: Does delivery
of the project as a P3 represent a value proposition* for the
public sector?
- Legal Framework: Is there the necessary
legal and institutional framework in place to support a P3 arrangement?
- Institutional Capacity: Does the agency
have the organizational capacity to deliver a P3?
- Market Interest: Are there a sufficient
number of qualified bidders who are interested?
* Value = cost and schedule efficiencies, innovation, budget certainty,
accelerated delivery, etc.
P3-SCREEN Screening Tool
- P3-SCREEN is a simplified P3 screening tool to
assist in preliminary screening evaluation of the suitability
of a highway project for a P3 option.
- Highlights key criteria and questions relevant to assessing
the viability of delivering a highway project using a P3 approach.
- May be used in conjunction with the development of an Initial
Financial Plan for major projects to assist in meeting the Federal
requirements under Moving Ahead for Progress in the 21st
Century (MAP-21).
Project Development Questions
| Quantitative Analysis |
| Would a P3 add value? |
| If so, what type of P3 is best? |
| Is the project worthwhile for a private entity to deliver?
How much subsidy would be required? Is it affordable? |
Project Development Phase Evaluation
-
Detailed
Evaluation:
- Traffic and revenue
- Cost estimates
- Risk assessment
- Comparison of P3 vs. public delivery (VfM)
- Affordability to public agency and/or to traveling
public (i.e., for tolls)
- Market outreach:
- Market analysis
- Market outreach
VfM Analysis in Project Development
Is a potential P3 bid likely to generate value for money?
Procurement Questions
| Quantitative Analysis |
| Would the contract terms proposed in the RFP ensure
value for money? |
| Does the preferred bid provide value? |
| Is the bid price reasonable and fair? |
| Does the actual P3 agreement add value? |
VfM Analysis in Procurement Phase
- Re-run VfM evaluation before RFP release and upon receipt
of price proposals to ensure VfM is maintained.
Procurement Transparency
- Benefits to public sector:
- Offers legitimacy with facility users, elected officials
and the general public
- Benefits to private sector:
- Makes process and rules of the game clear, builds confidence
in reliability of getting to decision
Maintaining Transparency
- Establish process to review P3 proposals, incorporating
transparency and public participation, e.g., VDOT process
- Be clear up-front about what type of information should
remain confidential and provide an explanation as to why confidentiality
is necessary during the proposal process.
- Temporary confidentiality could be balanced with full disclosure
of selection criteria, scoring, and agreement terms
Summary of Evaluation Process
| 1. Planning |
Apply high level preliminary screening
criteria to all major capital investment projects |
| 2. Project Development |
Develop quantitative and qualitative
VfM assessment and gauge competitive interest through market
sounding |
| 3. Procurement |
Refine P3 contractual terms, revisit
VfM analysis and evaluation as cost estimates are refined |
Evaluation in Implementation Phase
| 4. Design & Construction |
| Has the anticipated value been
realized at construction completion? |
| ↓ |
5. Operations & Handback
|
| Has the anticipated value been realized
throughout the project's life? |
Test Your Knowledge
True or False:
Value for Money analysis may be used to help make a decision on whether
to use a P3.
Questions?
Submit a question using the chat box
Lesson 3 - Value for Money Analysis
Definitions
- Value for Money (VfM)
- The optimum combination of life cycle costs and quality
of a good or service to meet the user's requirements
- Generally expressed as the dollar difference or % difference
between present value of costs for P3 vs. present value
of costs for conventional project delivery
- VfM Analysis
- Quantitative analysis to compare the financial impacts
of procurement alternatives for a project
- Financial analysis
- Impact on balance sheet of the procuring agency
- Other benefits (e.g., to users) considered in qualitative
assessment
- Public Sector Comparator
- Conventional procurement's baseline cost against which
P3 option will be compared
- Shadow Bid
- Cost of P3 option
- Includes estimated payments to private partner as well
as other costs incurred by public sponsor
Timing
- Agencies typically conduct VfM analyses once they decide
to undertake a project and wish to assess delivery options
Text of the graphic
Project Development
- Develop PSC
- Develop shadow bid
- Compare with shadow bid to determine option with greater
VfM
Procurement
- Refine P3 contractual terms for RFP and revisit VfM analysis
- Compare PSC with actual bids and final negotiated agreement
Implementation
- Compare PSC with actual P3 experience throughout project's
life
VfM Analytical Process
- Identify potential procurement options
- Identify, monetize and allocate project risks
- Develop public sector comparator (PSC)
- Develop P3 option ("shadow bid")
- Compare public sector comparator to P3 option
- Consider qualitative factors (e.g., benefits to users from
accelerated project delivery)
1. Identify Procurement Options
- Conventional procurement options:
- Design-Bid-Build
- Design-Build
- Design-Build-Finance
- Other (e.g., Contract manager at risk)
- Common P3 procurement options:
- Design-Build-Finance-Operate-Maintain (DBFOM) with
toll concession
- Design-Build-Finance-Operate-Maintain (DBFOM) with
availability payments
- Design-Build-Finance-Operate-Maintain (DBFOM) with
shadow tolls
2. Risk Assessment and Allocation
- Risk identification
- All phases - design, construction, operation
- Risk quantification
- Probability of occurrence
- Range of cost and schedule impacts
- Aggregate risk valuation
- Formula-based
- Monte-Carlo simulation
- Risk allocation
- Transferrable to private sector
- Retained by public sector
3. Develop Public Sector Comparator
- Estimate the present value of hypothetical, risk-adjusted
cost of a project delivered through the conventional approach:
- Base costs
- Financing costs
- Cost impacts of risks (including financing)
- Procurement and oversight costs
- Competitive neutrality adjustments
- Assumes project can be completed to the same standards anticipated
by P3 delivery
- Assumes same time frame, i.e., funding or financing issues
will not delay conventional procurement
4. Develop a Shadow Bid
- Estimate the present value of total costs to the public
agency for delivering the same project
as a P3
- Components include:
- P3 contract payment: Amount that would
be demanded by private sector to deliver the project based
on its costs and desired rate of return
- Retained risks: Value of risks retained
by the public sector in P3 delivery structure
- Other project costs: Costs incurred
by the public agency to facilitate project delivery and
oversight
5. Compare PSC with Shadow Bid
6. Qualitative Assessment
- Key qualitative considerations related to project goals:
- User benefits from accelerated project delivery
- Safety
- Service quality
- Reliability
- P3 contract-related considerations:
- Viability: Ability to formulate a
sound contract
- Performance: Provides opportunity
for innovation
- Achievability: Accounts for public
agency's capabilities and those of the private sector
- Flexibility: Maintains ability of
the public agency to coordinate regional network policies
Hypothetical Illustration
- Conventional procurement option - Design-Bid-Build
- P3 options: (1) Availability payment (2) Toll
- Illustrative assumptions:
- P3 options reduce life-cycle costs
- Risks transferred to P3 concessionaire are managed
at lower cost
- P3 concessionaire may increase toll revenue in a toll
concession
1. Initial Cost Estimate
- P3 costs may appear higher despite lower life cycle costs
-- Transferred risks are accounted for either explicitly in
cash flows or in the financing cost
2. Total Cost to Public Agency
- Retained risk in PSC may increase cost relative to P3
3. Adjusted Total Public Cost
- Adjustments for taxes and toll risk further increase PSC
costs
4. Final Agency Cost
- P3-Toll may generate higher toll revenues, reducing the
P3 bid price
VfM Analysis Challenges
- Representing the conventional delivery option for comparison
to P3
- Identifying and pricing risk
- Allocating risk to the party best able to handle it
- Predicting traffic and revenue
- Sensitivity of results to key assumptions (e.g., discount
rates)
- Analytical process to assess costs and risks is resource-intensive
and may require outside expertise
VfM Analysis Limitations
- Analysis results are entirely dependent on the assumptions,
especially regarding risk transfer
- Choice of discount rate can skew the results - extreme care
is needed to ensure risk costs are not double-counted in the
discount rate
- Does not quantitatively assess non-financial costs and benefits
of a project (e.g., benefits of project acceleration) - must
be addressed in qualitative evaluation
Test Your Knowledge
True or False:
The PSC assumes that the project can be delivered and operated to
the same quality as the P3 option.
Questions?
Submit a question using the chat box
Lesson 4 - FHWA's P3 Toolkit and P3-VALUE
FHWA's P3 Toolkit
- P3 Toolkit provides educational tools and guidance documents
to enhance the capacity of public sector decision-makers to
analyze procurement options
- Will address four key phases of P3 implementation:
- Legislation and policy
- Evaluation
- Procurement
- Monitoring and oversight
Legislation and Policy
Evaluation
- Resources include:
- Fact Sheets
- Primers
- Guidebooks on Risk Assessment and VfM (under development)
- P3-SCREEN: P3 Screening Tool
- P3-VALUE: A suite of educational tools
and accompanying user guides
Procurement & Oversight
- Educational model contracts (under development)
- Toll concession
- Availability payment concession
- Best Practices Guidebook (under development)
- Legislation and policy
- Evaluation
- Procurement
- Monitoring and oversight
What is P3-VALUE?
- A set of integrated analytical tools to help practitioners
understand processes used to quantitatively evaluate procurement
options
- Educates users so they can understand assumptions and results
of analyses performed by experts
- Major component of FHWA's P3 Toolkit
P3-VALUE Tools
- Risk Assessment Tool
- Assists in identifying risks, risk allocation, mitigation
strategies, potential cost and schedule impacts
- Public Sector Comparator (PSC) Tool
- Calculates risk-adjusted life cycle costs of conventional
procurement
- Shadow Bid Tool
- Calculates costs of P3 procurement, including payments
to private partner
- Financial Assessment Tool
- Compares PSC and Shadow Bid costs to calculate value
for money
P3-VALUE Tool Structure
P3-VALUE Tools are accessible at:
http://www.fhwa.dot.gov/ipd/p3/toolkit/analytical_tool/
P3-VALUE Limitations
- P3-VALUE is for educational purposes only and is not intended
to guide decisions on actual projects
- Provides only a rudimentary measure of potential differences
in financing costs
- Not applicable for brownfield or asset monetization P3s
(i.e., P3s for existing revenue generating facilities)
- Financial analysis only in current version - a new version
will include a benefit-cost analysis module
Test Your Knowledge
True or False:
P3-VALUE is a learning tool and should not be used to evaluate actual
projects.
Questions?
Submit a question using the chat box
Course Summary
Course Recap
- Lesson 1 - Overview of P3 Evaluation
- Lesson 2 - P3 Financial Evaluation
- Lesson 3 - Value for Money Analysis
- Lesson 4 - P3 Toolkit and P3-VALUE
- Summary
Resources
Center for Innovative Finance Support Website:
http://www.fhwa.dot.gov/ipd/
P3 Website:
http://www.fhwa.dot.gov/ipd/p3/
FHWA Value for Money Primer:
http://www.fhwa.dot.gov/ipd/p3/toolkit/publications/
FHWA Financial Assessment Primer:
http://www.fhwa.dot.gov/ipd/p3/toolkit/publications/
FHWA Economic Analysis Primer:
http://www.fhwa.dot.gov/infrastructure/asstmgmt/primer05.cfm
P3-VALUE Website:
http://www.fhwa.dot.gov/ipd/p3/toolkit/analytical_tool/
Upcoming P3-VALUE Training
- September 20: Project Risk Assessment 201
- October 29-30: Advanced P3 Evaluation Pilot
Training*
- January 23: Value for Money Analysis 201
- February 21: Office Hours: VfM Homework
Review
- March 13: P3 Financial Structuring &
Assessment
- April 18: Office Hours: Financial Assessment
Homework Review
To register for the P3-VALUE webinars, please visit http://www.nhi.fhwa.dot.gov/resources/webconference/eventcalendar.aspx
*To register for the two-day workshop, please visit https://www.pcb.its.dot.gov/IPDRegistration/regional.asp
Contact Information
Patrick DeCorla-Souza
P3 Program Manager
Center for Innovative Finance Support
Federal Highway Administration
(202) 366-4076
Patrick.DeCorla-Souza@dot.gov
Thay N. Bishop, CPA, CTP
Senior Program Advisor/Capacity Builder
Center for Innovative Finance Support
Federal Highway Administration
(404) 562-3695
Thay.Bishop@dot.gov
