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Introduction to Public-Private Partnerships (P3s) - Transcript

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IPD Academy Web-Based Course
February 16, 2012

Presented by
Patrick DeCorla-Souza
P3 Program Manager
Office of Innovative Program Delivery

Deborah Brown-Davis
Strategic Delivery Team Leader
Office of Innovative Program Delivery


Slide 1 - Introduction to Public-Private Partnerships (P3s)
Slide 2 - Course Outline
Slide 3 - Course Objectives
Slide 4 - OIPD- Role in Transportation P3s
Lesson 1: Definitions
Slide 6 - Did You Know?
Slide 7 - What is a P3?
Slide 8 - Project Procurement and Delivery
Slide 9 - P3's Are Not...
Slide 10 - Definitions- Terminology
Slide 11 - Definitions- Terminology
Slide 12 - Definitions- Terminology
Slide 13 - Why P3s Now?
Slide 14 - Why Undertake a Project as a P3?
Slide 15 - P3s: Procurement Approach
Slide 16 - Test Your Knowledge
Slide 17 - Questions
Lesson 2: Benefits and Challenges
Slide 19 - P3 Benefits to Public Sector
Slide 20 - P3 Benefits to Public Sector
Slide 21 - P3 Benefits to Private Sector
Slide 22 - Challenges of Using P3s
Slide 23 - Challenges of Using P3s
Slide 24 - Summary: Key Questions for Considering a P3 Approach
Slide 25 - Test Your Knowledge
Slide 26 - Questions
Lesson 3: Types of P3s and Examples
Slide 28 - Types of P3s by Range of Risk Transfer
Slide 29 - Risks Associated with P3s
Slide 30 - Types of P3s by Payment Model
Slide 31 - Types of P3s by Project Scope
Slide 32 - Greenfield Example
Slide 33 - Brownfield Example
Slide 34 - Hybrid Example
Slide 35 - Test Your Knowledge
Slide 36 - Questions
Lesson 4 - Financing Tools
Slide 38 - USDOT Financing Tools Supporting P3s
Slide 39 - Example: I-595 Corridor
Slide 40 - I-595 Corridor
Slide 41 - I-595 - Project Financing
Slide 42 - Example: Capital Beltway HOT Lanes
Slide 43 - Route 495 - Project Financing
Slide 44 - Test Your Knowledge
Slide 45 - Questions
Lesson 5 - Course Summary
Slide 47 - Course Summary
Slide 48 - Course Summary
Slide 49 - For More Information
Slide 50 - Upcoming IPD Academy Webinars
Slide 51 - Contact Information
Slide 52 - Questions

Slide 1 - Introduction to Public Private Partnerships (P3s)

Michael Kay - On behalf of the Federal Highway Administration's Office of Innovative Program Delivery, I'd like to welcome everyone to today's IPD Academy webinar, Intro to Public-Private Partnerships, or P3s. My name is Michael Kay, I'm with the U.S. DOT's Volpe Center in Cambridge, Massachusetts, and I'll be moderating today's webinar as well as facilitating our question and answer periods and helping to address any technical problems.

Our presenter for today is Patrick DeCorla-Souza. Patrick currently serves as the Program Manager for P3s in the Office of Innovative Program Delivery. In this capacity he oversees research and provides technical assistance to Federal, state, and local government staff on P3s. His ideas and research have been published in numerous professional and trade journals, on topics ranging from road pricing and P3s, to multi-modal transportation evaluation using benefit-cost analysis, travel demand modeling, air quality analysis, and public involvement. Patrick has Master's degrees in transportation planning and civil engineering.

Before we begin, I would like to just point out a couple of key features of our webinar room. First, in the top left corner you will find the audio call-in information in case you should get disconnected. Below that is the list of attendees where you can see who else is participating. On the bottom left is a chat box that you can use to submit questions of Patrick throughout the webinar. You will receive further instructions later on regarding asking questions over the phone. If you are having any technical difficulties, please submit a private message in the chat box to myself, Michael Kay.

Our webinar will run until roughly 3:30 PM Eastern time today. The course is divided into five sections. We will queue up any questions for Patrick at the end of each section, and we also anticipate having about 15 minutes at the end of the course for additional Q&A. I want to mention there are many people who are unable to take part in today's webinar and therefore we are recording the session so they can listen at a later date.

Before we begin, we have three quick poll questions we would like to pose to you. The first question is to inquire about your affiliation, whether you are with a Federal Highway Division office, Federal Highways outside of the Division, another DOT, another Federal agency, a state agency, MPO, or other. We will leave that open for about ten more seconds. It appears we have a real wide range of participants today, which we like to see.

Our second question will help us get an indication on how many people are participating with you today. We know that some of you are participating alone at your desk, but we are also happy to learn that many of you are participating in groups of five or even six or more. We'll leave that open for 5 or 10 seconds or so. And I'll go ahead and close out.

Finally, we would like to inquire as to your level of knowledge with P3s, whether you have no prior knowledge, a very basic understanding, some knowledge, a lot of direct knowledge, or whether you're already an expert and looking to refresh your skills. This will help Patrick tailor his comments accordingly. We'll leave this open for another 10 seconds. I will close it out now. Thank you.

With that, I would like to turn the webinar over to Patrick, who will go over the course outline and objectives and begin the first section of the course on definitions. Patrick, it's all yours.

Slide 2 - Course Outline

Patrick DeCorla-Souza - Thank you, Michael. Again, just by way of introduction, as Michael mentioned I have Masters degrees in planning and civil engineering, but not an MBA in finance. As many of you know, P3s, or public-private partnerships, is a very finance-oriented type of topic. So the bad news is I will not be able to answer very many finance-related questions, or it would be very difficult for me to do so.

But I have some good news. With me to help answer those difficult questions is Deborah Brown-Davis, who is also with the Office of Innovative Program Delivery. She has an entire career in the finance area, and has also worked with public-private partnerships in her former capacity in the finance office at the Virginia Department of Transportation. We are very fortunate to have Deborah with me to help answer questions.

This first slide gives you an outline of how this webinar is structured. We are going to go through some basic definitions. For those of you that don't have any prior knowledge, no problem, we will explain it to you.

In lesson two we will talk about the benefits of doing P3s, as well as some of the issues you'll face when you attempt to get into P3s.

In lesson three, we will talk about various types of P3s and how you pay the private sector, and we will provide examples of various P3 projects.

In lesson four we will go into finance tools. These are the mechanisms by which you bring forward revenues that you will be getting in the future from the project or from other sources, but you need to build the project today. You bring that money forward in the form of some type of a loan or bond. So that's what we will cover in lesson four.

And finally, of course, we will have a course summary.

Slide 3 - Course Objectives

The objectives of this course, as you see in slide three, is to simply give you a basic understanding of P3s and how they can play a part in delivering the project. We will also identify when P3 arrangements have been used in the past, as well as the appropriateness of different P3 project types. We will learn how to understand the benefits and drawbacks of P3s. Because these are not very easy to use, what are the challenges you face? Finally, as I said, we will also give you a little bit of a background on the financing tools that help you implement P3s.

Slide 4 - OIPD - Role in Transportation P3s

The graphic on the right of this slide explains the delivery process. As I indicated, you have a revenue stream that may be going out into the future for 30, 40, 50, 100 years. We need to bring that forward, so you need financing. Then, in order to build the project and bring the private sector onboard, you have a procurement process.

Our office, the Innovative Program Delivery Office, attempts to bring these three different aspects of project delivery together in one office. Our office provides assistance. We are here to answer your questions on the various topics that you see on the right-hand side - revenue, finance, and procurement. We conduct webinars and workshops, and we have a website that has a lot of information on all of these topic areas.

We also help P3s get implemented directly through means such as loans to the private sector. In some cases there might be some rules and regulations that may need a waiver, so we help in that way too.

It's sort of a one-stop shop where we deal with all of the innovative aspects of project delivery which you will have to face if you're trying to implement a public-private partnership.

Lesson 1: Definitions

Slide 6 - Did You Know?

P3 stands for public-private partnership. In the past few years this term has become common, but the concept is not new. Prior to 20 years ago, we really hadn't been doing any P3s for a long time because we had plenty of resources through the Highway Trust Fund. All of our highway projects were built through grants.

But there was a time way back when our country was just beginning when we didn't have the resources and we relied on the private sector to build our infrastructure, including roads and railroads. In 1792 the first P3 was built in Pennsylvania as a turnpike. There was a barrier across the road which turned, which is how the term turnpike originated. You had to pay a toll in order to get the toll operator to turn that barrier.

Slide 7 - What Is a P3?

Let's define P3s. It's a contract, or an agreement between a public agency and a private entity (we'll talk a little bit more about what this private entity is) to deliver financing, but not provide revenue. This is very important. The revenue comes from the public sector, from tax dollars or user fees. All the P3 can do is finance and deliver the project.

As I said, ever since we've had a Highway Trust Fund we've been procuring projects with a method called design-bid-build. That is where you have one consultant or contractor who designs a project, you estimate what it might cost and put it out to bid, you get bids from various contractors, and then they build the project. This was been going on until at least about 20 years ago, when we found that we were running short of funds.

Slide 8 - Project Procurement and Delivery

What we started to do about 20 years ago was to look to the private sector to help finance these projects. In the process, we also gave them full responsibility not just to finance but also to design, build, operate, and maintain, as you see on the right-hand column in this graphic on slide eight.

This is a comparison of this new method that we have been beginning to use. There are variations on this method that I will talk about later in this webinar, but this is the basic structure. We focus on this design-build-finance-operate-maintain, which is also called DBFOM, in the IPD office because the focus of our office is finance.

There are other forms of P3s too. You might just do design-build or design-build-finance, and then have the public sector operate and maintain. Or you might have projects that do a design-build-operate-maintain, and the public sector takes out bonds or loans to finance the project. These are all variations of the types of P3 projects you might see. But I will show you in this graphic how DBFOM differs from the conventional approach.

People consider the main difference of P3s being the fact that we share more of the risks with the private sector. In the conventional approach the public sector takes on all the risk basically, not just the construction risk but also financing risk and revenue risk if it is toll project, for example. But in P3s a lot of those risks are shifted to the private sector, or shared.

Then we have in the second row that a benefit of P3 is the integration of two or more project phases. I talked about design-build, for example. There is evidence that when you combine phases you are able to get some efficiencies. For example, when design can be done alongside the construction process you don't have to wait until the design is completed, so you save time and delays, and we know delays cause project costs to increase and cause the project to not be available to users in a timely fashion. So we increase efficiencies, reduce costs, and get a project implemented more quickly when we combine phases such as design-build.

Additionally, when you turn operation and maintenance, along with design-build, to the private sector, there are benefits there because the private sector will try to make sure that the operation and maintenance costs are as low as possible in the future. They may actually put in extra features when they construct a project to reduce the costs in the future for operation and maintenance.

These are some of the ways that P3 projects are different from the conventional approach where you do design with one contractor, construction with another, and perhaps operation and maintenance with a third contractor. In this approach, you are losing the efficiencies that you get when you combine phases.

P3s bring in a new source of financing. One benefit of getting the private sector involved with private financing is you can actually bring in more money. You can finance more of the revenue stream. Some of you may know about something called bond coverage ratios. If you have a stream of revenues that you expect to get in the future from tolls or other sources, if you go to the bond market, they are not going to give you the entire amount that you could normally get if you brought all those revenues back to the present value. The reason is because bond markets want some comfort. They want to be sure they will get paid. So they will loan you less money than they think you have revenues to pay back the loan from.

With the private sector coming in though, they are willing to take more risk. Unlike the bond market or banks, they are willing to show that money upfront and bring it to the table to build your project and take the risk that they may not be paid because revenues may be less than forecasted. Here is a benefit of private sector financing that you do not get from public financing. In other words, you can finance more of the project costs if you use private financing.

With conventional projects, as we have said, it's very simple to select the contractor. You just choose the one with the lowest bid. You seldom look at other things, as long as the contractor is qualified. In the case of the private sector in the fourth row, you see something where we say "best suited". Now every contractor, P3 or public venture, will have an opportunity to come in with innovation so you don't have a fixed project with a fixed design that someone is bidding on. That contractor can bring in innovations that reduce costs. So someone might be coming in with a lower bid perhaps, but are perhaps also bringing in better quality that you would not have gotten with a public sector project. So you wouldn't necessarily go with the lowest bidder because the one who has a little more cost may give you better quality. The selection criteria may be different.

Finally, one of the things that the public sector has to do in the conventional approach is oversee each individual contractor at the design, construction, operation, and maintenance stages, so they have a lot of oversight. In the case of the private sector or in a public-private partnership, the private sector takes more of that role in overseeing all of the different stages of project design, construction, and operation, taking some of that burden off from the public sector. The public sector still has to make sure that the project is performing according to standards, so it does need to monitor the private sector, but it does reduce the amount of oversight that the public sector normally has to do.

Slide 9 - P3's Are Not...

There are a lot of misconceptions out there about what P3s are. This slide makes some of these clear.

P3s are not easy. In other words, there is a lot of upfront work you have to do to get to the point where you can issue a request for proposals. We will talk more about that but you need all types of expertise which can increase your upfront costs for the procurement process.

There is a big misconception that P3s can bring you money. Very often you hear that we don't have money from the Highway Trust Fund or wherever, so let's do this project with a P3. The private sector does not do projects for free. They need revenue from somewhere. They will build a project for you but they will want to be paid. They get paid either directly from users through toll revenues or from tax dollars through something called availability payments. I will explain those later. They may be paid over a period of time but they are still paid.

Another thing you often hear about P3s involves privatization of public infrastructure and loss of control. This is not accurate because the government still owns of the facility. In a privatization, you turn over ownership to a private entity. In the case of public-private partnerships, the public sector is still the owner of the facility. It is simply giving the private sector the right to build and operate that facility and to collect any tolls from that facility if it is a toll road. This is not something that they can do forever. There is a certain time limit, at the end of which they have to give up that right and the facility is turned back to the public sector.

Finally, P3s are not an answer to all of your problems. P3s might be appropriate, for example, in large projects, complex projects, and projects where innovation would help. As I said, because of all of these upfront costs that you have to incur before you even get to the request for proposals stage, it may not be worth even thinking about a P3 if the total cost of the project is too small. The upfront procurement cost would be a huge percentage of the actual cost of the project.

Normally projects have to be a certain size. It varies in different countries, and some countries it's as low as $50 million, for other countries it's $100 million. In the US, it is normally $400 million or more before P3s are thought of as viable because of these upfront costs.

Slide 10 - Definitions - Terminology

Now let's get to the terminology that we use in public-private partnerships. I know most of you probably have heard these terms before but I am going to try and explain them.

First, a concession is a long-term lease. It can be either of an existing facility, and you saw that for example on the Indiana Toll Road, where an existing facility was turned over to a private entity to operate. That's called a brownfield P3, or a brownfield facility. In the case of a new facility, if the private sector is going to build a new facility and get the right to collect tolls or get paid in other ways over a period of time, that concession is called a greenfield concession.

A Special Purpose Vehicle, or SPV, is a consortium of different types of private partners. As I indicated earlier, you have a finance component, so you might have a bank as one of the members of that consortium. Since there is construction involved you may have a construction contractor being part of that consortium. And if you've got tolls, you may have a toll operator being part of the consortium. They simply come together and form this Special Purpose Vehicle. If for any reason that facility goes bankrupt, like if the toll revenues are not enough to pay back the bonds that are taken out, the bondholders aren't going to be able to go to the parent companies, to the investment bank or to the contractor or to the toll operator, to get back any monies that it cannot collect from toll revenues. It's a limited liability issue.

Finally, leveraging is a term you will hear a lot. Leveraging is simply how much money the investor puts down. In other words, these consortiums may put down a certain amount of money towards equity. As I said, it's the portion that is not covered by debt. For example, you might need even more money to pay for construction than from what you can get from bonds.

This extra money is called equity and it is at great risk. But by putting down this equity, the folks who are giving loans or providing bond revenues to the consortium will in this case feel more confident that there is some extra money in there from these equity investors and might have more comfort and be more willing to even provide lower coverage ratios, which means financing even more of the debt than they would normally do. The thinking is that if these private folks are willing to lose money, they must have done their homework to make sure that the revenues are high enough. So they have more faith in a project that is financed by equity. You might be able to leverage a lot more if you have equity.

Slide 11 - Definitions - Terminology

Debt is the portion that is loaned and is not equity. It's at a fixed interest rate unlike equity where you might get huge returns, 12% or 15%, or whatever. In the case of debt, you are guaranteed a certain rate of return as long as there are revenues. So you're guaranteed your interest but it is much smaller because you're not taking a huge risk that the equity investors are taking. Examples of debt are private activity bonds, which are types of bonds that are subsidized by government through tax deductions, and TIFIA loans, which are low interest loans provided by the FHWA Joint Program Office to private partners. Debt is almost essential in order to build these projects because equity investors wouldn't be able to come up with all of the money they need simply by investing their own money.

We talked about equity previously so I will skip that.

Internal rate of return, which is the last term on that list, is simply just like your interest rate. Your interest is a rate of return on your bonds or your loan. In the case of equity, though, it's not fixed. It can be high, low, or negative in the sense that in some cases you could actually lose all of your investment.

It is similar to what happened recently when homeowners' home values dropped. Many people had more in loans out there than the value of their house. So if they attempted to sell their house, they wouldn't get back whatever equity they had put into their house, and they might have actually had to pay their mortgage holders. That is the risk that equity takes and therefore equity expects a higher rate of return.

So what is the weighted average cost of capital, or WACC? This is project-wide. It's combining the bond or loan rate of interest, and you may have many sources with different interest rates. So you combine all of those along with the equity, and equity expects a certain rate of return, or otherwise they are not going to invest. An example of an equity investor is a pension fund. They are not going to invest unless they expect to get, let's say a 10% rate of return, whereas the bondholders might be satisfied with 3-5%. When you combine all of these you get something called weighted average cost of capital. Capital is not just the equity part, but also the bond and loan part. So the weighted average cost of capital is an average of all of these various sources of financing.

Slide 12 - Definitions - Terminology

Now we get to more definitions. I explained what a greenfield is. It is a new facility. A brownfield is an existing facility.

But we also now have been seeing more hybrids. What are hybrids? Some of you may be familiar with HOT lanes or managed lanes that are being built in many cities. These are on existing facilities but they are actually new lanes on those existing facilities. So they are neither new facilities nor are they existing facilities. They are a hybrid. In some cases you might have a facility that exists and it has to be extended or expanded. That's another example of a hybrid P3.

I mentioned the term availability payments. Many of us are familiar with tolls and how that works to compensate a private owner or private operator of a facility. Many in the US are not familiar with the term availability payment, though. It is repaying the private sector with revenues from some other sources, such as tax dollars. But in this case, instead of relying on user revenues from the toll facilities, the public sector allocates a certain portion of its future budget for a certain number of years, the term of the concession, and guarantees to the private sector that it will pay those payments annually until the term of the concession ends. The facility may not have tolls at all, or it may have tolls but the toll revenue may actually go to the public sector. You have the first example of that in Florida where they are in the process of building managed lanes on I-595. Those new managed lanes will be tolled, but the revenue will all go to the public sector even though the private sector is going to build and operate the facility.

Shadow tolls are another term that is not very well known in the US. It is a form of payment where you need not have user charges or tolls on the facility, but yet you pay the private sector for all of the costs they have incurred to construct and operate the facility over a period of time, but you pay them based on the number of vehicles using that facility.

Basically, you're shifting some risk to the private sector. In the case of an availability payment the private sector does not care how many vehicles use that facility, but in the case of shadow tolls it will be concerned about how many vehicles use the facility and will try to attract traffic to the facility. This has been a technique used a lot in the UK, primarily to ensure that these facilities are used optimally instead of, if you had to put in a toll for example, that facility not getting its full use if people are using other facilities to avoid the tolls. What a shadow toll does is encourage people to use the facility and there is no diversion. The downside is that money has to come from somewhere and therefore the public sector has to dip into its tax dollars to pay the private sector.

Slide 13 - Why P3s Now?

Why P3s now? We know that congestion is growing. Managed lanes to expand highway capacity are being done in many cities. There have been higher and higher costs to operate and maintain facilities. And as we know there have been reduced receipts from tax dollars because of vehicles getting more fuel-efficient and people are driving less, especially during this recession. State DOTs are facing a lot of budget pressures. They are looking to new ways of getting money to build the facilities that they need to build.

Also, one of the issues, not necessarily in the US but in places such as Canada, is that they are also concerned about long-term maintenance. If you pay the private sector based on performance, in other words the condition of the facility, they are going to be more careful to make sure that facility is maintained. That ensures the motorist that they are getting a good high-class facility that will be maintained.

Slide 14 - Why Undertake a Project as a P3?

Why would we in the US want to undertake a project as a P3? The answer is that the public sector can get more value using the P3 approach. What is value in this instance? How do you know if a P3 has more value than doing it the old-fashioned way with the conventional approach?

Well, I pointed out that sometimes we can actually get a lower cost simply because of efficiencies when we combine different phases of a project. We can reduce delays, and often when you reduce delays you might actually avoid inflationary cost increases. Of course the project is open sooner so that is a value to the user when you wish to use that facility sooner. With P3s we usually select innovative proposals, so they compete on the basis of innovation. We might be able to get better quality because of the private sector trying their best to give us a winning project.

The public sector must properly assess the value though. This is not easy. How do you forecast what reduction in costs you're going to get from a P3? There are tools and techniques. I won't go into a lot of details. We are doing some research at FHWA to help develop something called the Public Sector Comparator. That tool will evaluate what a project would cost the public sector if it were to do it itself. That not only includes construction but also design, operation, maintenance, financing, etc. We know there are risks there will be delays and costs may go up, so we put in a factor for that. We come up with the true cost of highway delivered the normal, conventional way.

We compare that to what the private sector might give us in terms of cost and quality. The extra value from quality is also important. So we make that comparison. It's not easy to do. You need experts to help you out. That's again one of the reasons as I said you have to spend a lot of extra time and effort upfront to figure out what type of P3 you're going to do and whether it will be worthwhile or not. This is part of the reason why it costs so much upfront to get a P3 going.

Slide 15 - P3s: Procurement Approach

I am going to go through what this procurement approach is.

Of course, we need legislation and the ability to do a P3 first. A lot of times these are proscribed by statute or state guidelines that need to be changed. Sometimes, in the case of use of federal funds, there may be some waivers needed. That is what SVP-14 means. Some states may allow something called unsolicited proposals, so you don't have an RFP out there, but nevertheless private sector consortiums are at liberty to come in and propose building or adding lanes or whatever to any facility they think they can get a profit on.

Consortiums come in and the public sector does an evaluation to figure out whether that unsolicited proposal results in best value. They have to decide whether they want the project in the first place. If they want the project, then they have to figure out whether it is a good value. They may want to put that project out to bid so that they can see whether other proposals can do the same thing for less.

In procurement, how do you select a winning bidder? One common method is to look at the net present value of the availability payment if it is an availability payment model, or net present value of tolls that might be charged by the private sector over the period of time. Best overall value involves qualitative factors.

Most of these projects actually cannot be done just with equity and loans from banks or bonds. The public has to come in and provide some support with tax dollars. So one of the criteria if you have various proposals might be which consortium is willing to take the lowest amount of subsidy.

Largest upfront payment to the project sponsor is a payment from the private sector to the public sector. This type of criterion would apply only if you have an existing facility, for example the Indiana Toll Road. If an existing facility is turned over to the private sector to collect tolls, they are not really making a lot of investment and they don't have a lot of expenses other than operation and maintenance, so they're willing to pay the public sector some more money to get the right to collect those tolls.

Slide 16 - Test Your Knowledge

That is the end of the first part. I turn it over to Michael now to do the test your knowledge questions.

Michael Kay - Thanks Patrick and we do have some test your knowledge questions. We will try to get to these quickly because we are short on time. The first question: P3s may only be done on greenfield facilities. True or false?

It looks like almost everybody has chimed in with the correct answer being false. They can be done on both brownfield and greenfield facilities.

The second question is multiple choice: among the considerations for entering into a P3 are budget pressures, upgraded long-term performance, improved risk allocation, or all of the above. We'll leave that open for a moment.

I want to mention if you have any questions that you would like to submit through the chat box you're welcome to do so - that is on the bottom-left of your screen. You can also do so over the phone. We will provide instructions on that later, but let's hold off on questions for the time being and move on, circling back to questions later in the interest of time.

So to close this poll the answer is all of the above. Most everybody had the correct. Good job there.

Slide 17 - Questions

I did want to mention that on March 14 we will hold an Office Hours webinar with several IPD staff members where you can come on into a webinar format and ask questions that you were unable to get answered today. That is geared towards GARVEEs and SIBs primarily, but we will be able to entertain your P3 questions then as well.

So we will have a Q&A later on but at this point, in the interest of time, Patrick let's move on to lesson two.

Lesson 2: Benefits and Challenges

Slide 19 - P3 Benefits to Public Sector

Patrick DeCorla-Souza - Thanks Mike. We have covered a lot of the benefits before. I am going to go through these quickly and as a summary explain these to you.

We talked about the fact that you can get construction done much faster. We talked about shifting risks to the private sector such as the revenue risk from tolls. We talked about efficiencies in construction and operation where we can get the cost of these activities down. If you go this route with P3s you may be able to save money which you then could use to build other projects because you had saved money, so that is one way you might be able to increase investment in transportation assets. The projects that are revenue-producing really suggest where there is most value to the motorist. If they're willing to pay, that means that those assets are important to provide. That's one way P3s indicate where investment is appropriate.

I talked about the opportunities for new money from equity investors and bringing together multiple financing sources. In other words banks might provide some of the money, and bonds might provide some of the money. Since these consortiums come together in advance, they've brought financing in from various sources, and the public sector doesn't have to worry about how all of these things will come together. The private sector takes care of that by forming partnerships with these various banks and other loan sources.

Slide 20 - P3 Benefits to Public Sector

Other benefits to the public sector include cost control. We know how costs seem to be going out of control. During the construction phase, with changes due to design, the public sector may instinctively accept those costs whereas in the case of the private sector doing everything, they will absorb those costs and try to make sure that they are better controlled.

We talked about costs and schedules. We talked about innovation. We talked a little bit about the lifecycle perspective and I said that we are able to reduce operation and maintenance costs by investing more in the construction phase to, for example, make pavement stronger.

Improved customer focus really arises from the fact that the private sector is more attuned to providing quality of service and making sure that its relations with the public are good, especially since, at least in toll facilities, they need to attract people to their facilities. They try to keep the customer happy, which is sort of second nature to them.

Leveraging of each partner's strengths. As I said, the private partners might be good in innovation, so they might bring that to the table. The public partner might be an expert in the environmental phase, so they will take care of that.

Of course one important factor is conserving public sector debt capacity. If the private sector is financing everything the loans and the bonds don't get counted against the public sector. They don't have to worry about exceeding their debt limit.

Slide 21 - P3 Benefits to Private Sector

Of course the most important benefit to the private sector is the returns. That is what the private sector is in it for. But in particular the private sector, and especially certain types of investors such as a pension funds, really like infrastructure projects because they ensure a long-term return on investment that is stable. They think they're a lot more predictable and stable than the other types of investments that they might be faced with, like the stock market for example. They also think of them as moderate risks. So there are a lot of investment banks, pension funds, foundations, etc., that have money to invest that look to infrastructure financing and investment as a good deal.

Of course another way they can make more profit is by introducing efficiencies. They like the opportunity of bringing their innovation to basically save money and therefore have more profits. The downside to that sometimes is if the profits are perceived to be too high they can be controversial to the public.

Slide 22 - Challenges in Use of P3s

So this brings us to challenges. There are all these benefits but for every great thing there are always some downsides.

First, public acceptance. Lots of issues have been raised which I'm not going to go into here.

You need to have enabling legislation at the state level before you can move forward.

I mentioned how you need the expertise to even begin to think about public-private partnerships. So state and local governments that want to do a P3 will need to do a lot of learning and organizing, and will need to hire experts before they can move forward.

Finally one of the issues, at least in the past, has been the high cost of private capital. I mentioned how equity investors need a higher rate of return. But before we had these government-subsidized loans, the private investors had to go into the normal bond market, which was not tax-exempt, to get their debt. And of course if debt is not tax-exempt, it will cost more in terms of interest. So they had to pay higher interest costs.

This was a big issue in the past. It's less of an issue today because now these public-private partnerships have access to private activity bonds, which I will talk about later, which are subsidized by the government. It's very similar to the tax-exempt bonds that local governments and state governments issue.

TIFIA loans, which are loan from the federal government given to private partners at the treasury rate, which is a AAA rating, have the lowest interest rates and get excellent terms. TIFIA is something called a patient lender. They will wait to get paid. You don't have to pay it in year one. You can start paying in year five and then you can schedule your payments based on how much revenue you are expecting. There are lots of good benefits in addition to being low cost.

Slide 23 - Challenges in Use of P3s

Key challenges here are the fact that you need a revenue stream. Actually, public acceptance is more of an issue here than federal and state toll restrictions. I would say that we have plenty of ways, pilot programs for example, where people can charge tolls and plenty of tolling authority from the federal government. It's just that the public acceptance prevents those programs from being used to their fullest extent.

Revenue shortfalls due to lower tax receipts is an issue if you are looking at availability payments rather than total revenues as a source of funding.

There is difficulty in predicting traffic and revenue. Toll forecasting is an art rather than a science. There are a lot of variables that come into play and several facilities have produced less revenue than forecasted, which have caused many problems recently in the US market.

I didn't talk about this but risk allocation was part of the Public Sector Comparator. It's a way of trying to figure out what something is really costing the public sector. Risk valuation is putting a monetary value to those risks and allocating it appropriately. Understanding where the private sector can manage those risks and control those risks, instead of just throwing all of those risks over to the private sector, is important. So risk allocation is extremely important and a big challenge in the use of P3s.

There have been some agreements that have been set for as long as 99 years and have caused a bit of concern in the public. They're concerned about giving up control over a facility for that long a period of time. However, more recent contracts have been allowing for renegotiation in case things change. There are attempts being made to address this issue.

And the private sector of course needs a higher return, which can cause public concerns as we mentioned earlier.

Slide 24 - Summary: Key Questions for Considering a P3 Approach

To summarize then, if you are considering going forward with a P3 what are some of the key things you have to understand?

First, you need to have the legislation. You need to have the institutional framework in place to move forward.

Second, very importantly, you need to have a revenue stream. These are not free.

Finally, you have to do your homework to figure out whether a P3 is really the right approach for the particular project that you're looking at. It is not automatically the best solution. You may not be getting the best value for your money. But you won't know that unless you spend a lot of time upfront doing the analysis.

So with that we go to testing your knowledge. Michael?

Slide 25 - Test Your Knowledge

Michael Kay - Great, thanks Patrick. I think we will skip the test your knowledge because I want to leave enough time for Q&A. At this point let's change our view slightly so we have expanded our chat box. It's in this box you can submit your questions via chat. I will ask our operator to provide instructions regarding asking questions over the phone.

Slide 26 - Questions

Operator - Ladies and gentlemen, if you wish to ask a question please press *1 on your touch tone phone. You will hear a tone indicating when you have been placed in queue. The voice prompt on your phone will prompt when you're voice line is open. If using a speaker phone, please pick up handset before pressing the corresponding digits.

Again over the phone lines it is *1 to ask a question at this time.

Michael Kay - Great, thanks. In the meantime I will run down some of the questions and comments we've received in the chat box.

The first one I think is a comment. It says I'd like to use design-build for a million dollar stream repair. Access to the site is difficult and they are thinking that design-build would result in an economic design and construction. I think that was somebody advocating for design-build on a stream repair project. I don't think there's any question there but if there is please do clarify for us.

The next question is can this model applied to other types of non-construction projects, such as research and development for example?

Patrick DeCorla-Souza - That is an excellent question. I am not an expert in this area. Research and development, as with any other thing, if you can get efficiencies through this process, combining phases or whatever, feel free to take a look at it. But I don't know of any examples of this approach being used for research and development. Does anybody else have any thoughts on that?

Deborah Brown-Davis - This is Deborah. Just like you I am not aware of any specific examples of where it's been applied, but P3s have been utilized in a wide array of arrangements and I can't think of a reason why they could not be applied to an R&D project.

Michael Kay - If anybody has any suggestions that they want to submit in the chat box, please feel free to do so.

The next question of Patrick is that we are interested in one of the selection criteria and performance standards to the degree to which the private concessionaire encourages mode shift from single occupancy vehicles up to multi-occupancy vehicles in a managed lane being added to an existing interstate. Are you familiar with any kind of project where that has been an issue?

Patrick DeCorla-Souza - I am aware of a couple of HOT lanes projects, both in Dallas, TX as well as the I-495 project here in Washington DC area. Both of them are not operating as of now but P3 contracts have been awarded.

The question is the degree to which the private sector encourages mode a shift from SOVs to multi-occupant vehicles. At least in the case of Virginia, the opposite is true. HOVs are going to be free. It's defined as HOV3, meaning three occupants of more would be free of charge. So at least in the I-495 Beltway Project, there is no incentive for the private sector to encourage people to shift from single occupant vehicles to multi-occupant vehicles because they would lose revenue. It is true that once the HOV exceeds a certain percentage, something like 24% of the capacity, at that point they would be compensated for any additional HOV vehicle above that percentage. They would be compensated not at 100% but at 70% of the toll rate. Even in that case I'm not sure it would not be advantageous at that point for them to be satisfied with 70% of the tolls versus 100%. In Virginia I don't think there would be any incentive.

In Dallas they are going to give discounts initially to multi-occupant vehicles. So again, there is no incentive to make less money because that vehicle will be giving you half the toll you could have gotten from an SOV.

So similarly I think there is no incentive at least in the projects that exist right now. It has been an issue related to the fact that any time you give free service to HOVs that's less revenue in the form of tolls. That is why in the case of the Beltway they had this criterion that anything more than 24% has to be compensated to the private sector.

Michael Kay - Thanks for clarifying that.

The next question is what was the motivation for the private sector to invest in the Miami managed lane project if the public sector gets all of the toll revenues? I'm curious because it looks like their main motivation would be the promise of returns from revenues.

Patrick DeCorla-Souza - That's correct. They don't get any of the revenues. What they get paid through is an availability payment. In other words, it is as I said better than toll revenues because with toll revenues you don't know for sure how much you're going to get. The forecasts have generally not been very accurate.

In the case of an availability payment you have in writing in your contract with the public sector how much money you will get on an annual basis. Of course if you don't keep the lanes open, that is what the availability means, availability of the lanes, if the lanes are not open or if they are not maintained to certain performance standards yes, you may not get the full amount of the availability payment. There will be some deduction. But this is something within your control. You can make sure that lane is open by maintaining it properly to make sure you get your full availability payment. It is a definitely better deal for the private sector and less risk than toll revenue.

With toll revenue there is also an upside possibility, in other words if tolls are higher than forecasted, which means the private sector would make a higher rate of return. But in this case the private sector actually preferred the availability payment to getting the toll revenue.

Michael Kay - Patrick, the next question is can the divisions receive assistance in evaluating the value of a P3 proposal from headquarters? Patrick or Deborah, would now be a good opportunity to describe some of the initiatives ongoing in the Office of Innovative Program Delivery in this area?

Patrick DeCorla-Souza - Sure. The P3 toolkit is one example. It is an evaluation toolkit. The Public Sector Comparator is something that is used in value for money analysis. This tool will be an educational tool. It will be something that will help Division offices and even state DOTs understand how value for money analysis works and to understand how sensitive various inputs can be with regard to outputs. We will be rolling out the Public Sector Comparator by the end of this calendar year. Division offices, state DOTs, and local governments will be invited to workshops and webinars, and we will make the tool available on the website.

I want to emphasize it will be an educational tool. To do an actual value for money analysis on an actual project, you will need expertise above and beyond what you can get with the very simple, packaged toolkit that we will be offering. The toolkit will be something to help you understand how this analysis is done and what to look for, but it will not help you evaluate an actual project.

Michael Kay - Thanks Patrick. The next question inquires about a contact at Florida DOT regarding availability payments. It seems that Marsha Johnson was suggested as a good contact there. If anybody else has any suggestions feel free to chime in but thanks to you all for answering that question.

I'd like to take one more question and then I think we need to move on. Alex Viteri is inquiring if you are aware of P3s that do not establish price and if so can you provide a few examples? I know there are a few out there that are based on IRR and not based on any dollar amounts. Are you familiar with any of those examples or others that don't involve an actual price, Patrick?

Patrick DeCorla-Souza - Well Deborah may be familiar with those in Spain, right?

Deborah Brown-Davis - I can't cite any specific project examples right now. We can maybe get a list of projects that have made their selection on a basis other than price and send that out later.

Michael Kay - Nor can I but I do know that in the international realm of there are some P3s not set by price but essentially an IRR is established and after such time when that percent IRR is reached, that is when the contract ends. So we can certainly follow up, Alex, if you would like more information on that.

I will ask our operator if we have questions in the phone queue?

Operator - No questions over the phone lines at this time.

Michael Kay - Patrick looking at the clock we are eight minutes before the hour and we are going until 3:30 Eastern time, so lots to get through in our remaining 37 minutes or so. Let's move along to lesson three and see if we can get through the rest of the presentation.

Lesson 3: Types of P3s and Examples

Slide 28 - Types of P3s by Range of Risk Transfer

Patrick DeCorla-Souza - I think I've covered most of the concepts so this is just going to be a summary and review of material I've already talked about before.

There are various ways you can classify P3s. I've mentioned design-build and DBFOM. What this graphic is showing is how risk is transferred depending on what kind of P3 you have. In the traditional design-bid-build, the only risk that is transferred to the private sector is during construction. For example, you may have penalties on the contractor for not delivering on time. So that's one way you can control some of that delay risk. When you do design-build, which is a form of P3s, you shift the design risk to the contractor, in addition to the construction risk.

When you go the full length and do DBFOM, you shift not just the design risk but also the construction risk and the risk of bringing in finances and making sure you have bonds issued. There are operation and maintenance risks that the costs might go up. In case there are tolls, the risk of traffic may be shifted to the private sector. If it's an availability payment, the private sector bears the risk if it doesn't maintain the facility to standards, because you would then reduce their availability payments.

Slide 29 - Risks Associated with P3s

This slide shows you the various types of risks. Environmental permitting delays, unknown conditions in the soil, and geological conditions are all risks after the EIS has been completed and the ROD done. There are some forms of the P3s which have been executed in Texas where there is some risk taken on by the private sector even in the environmental phase, but we won't get into it. We are talking about P3s after a ROD is signed.

Political risk can happen if a project, for example, has tolls and the state agency balks at the last minute. Sometimes support is lost at the last minute. We had a recent situation in Georgia where the I-75 managed lanes, the North by Northwest Corridor, was going to be a P3. In the last minute, after proposals had already begun to be developed, the procurement was pulled back. So there is a political risk to private parties.

Demand we talked about. That is simply your traffic forecasting not panning out.

Financing - the fact that you may not get the bonds and the loans you were expecting.

Cost of construction and operation and maintenance could go up due to inflation.

And there are risks associated with certain technological features, and that's not just limited to tolling technologies but could be a new type of technology used in construction, could be shifted to the private sector.

Slide 30 - Types of P3s by Payment Model

This slide shows you the types of P3s by payment model. There are three basic types: a toll concession, shadow toll, and availability payments. These are the three basic types in highway use. There are others used, for example in transit, where you might have joint development where the private sector is paid by being allowed to develop the site where it builds a transit station, for example, and collect rents on the property that it builds.

In toll concession, there is an issue that revenues can be either too low or much lower than expected, or much higher than expected. Either way is an issue. If it's much higher than expected, the public feels they are being gouged and there have been excess profits for the private sector. If it is too low the public doesn't care, but the private sector could go bankrupt.

Some techniques have been developed to address this uncertainty. In Spain they have what might be called revenue bands. If the revenue exceeds a certain maximum, any excess goes to the public sector. On the other hand, if revenue from tolls is below a certain amount, the public sector comes in and provides a subsidy to the private sector. So that's one way of addressing the issue.

Other ways of addressing inability to forecast revenues is to simply say the concession term will last as long as revenues are sufficient to pay back the contractor. So what you have to do is take the revenues into the future, find out what the net present value is in the base year, so apply a discount rate to get the value in today's dollars, and then once a certain net present value is reached, the concession term automatically ends. So the concessionaire is not going to get any more revenue beyond the amount they agree to begin with.

Another way of addressing this issue is revenue sharing by rate of return. So there is a set rate of return, let's say 12%, that serves as a threshold that the concessionaire is allowed to get. Once the rate of return for the concessionaire exceeds that threshold, any excess revenue has to be shared with the public sector. That way at least the public is getting some benefit from the excess revenue and it's not all going to be private sector.

Slide 31 - Types of P3s by Project Scope

I talked about greenfield, brownfield, and hybrid facilities. Here are some examples.

Slide 32 - Greenfield Example

This is an example from Virginia. This was before we had TIFIA loans and private activity bonds. It was built by the private sector getting financing from the regular markets, not being tax-exempt. The toll revenues weren't adequate to pay back those bonds and they had to restructure, which is forgiving debt or extending the period of time over which it can be paid. There is a net loss to the debt holders one way or the other.

Their debt was restructured and finally in 2005 Macquarie Infrastructure Group, which is an investment bank based in Australia that has been trying to invest a lot of money all over the world. Macquarie has so much extra money to fund because in Australia, instead of a Social Security system, people have to set aside their own money for retirement accounts. So Macquarie is charged with investing this money from these pension funds.

Another interesting feature is that it has variable tolls in the peak period.

Slide 33 - Brownfield Example

With brownfields, I mentioned that a good example was the Indiana Toll Road but another one here is Northwest Parkway in Colorado. It's very similar to the Indiana Toll Road. It's a long, 99-year lease with the public getting a lot of money up front.

Slide 34 - Hybrid Example

Pocahontas Parkway is an example of a hybrid facility in the Richmond, Virginia area where an existing facility was actually a 63-20 partnership. This was in the early days before we had all of these tax-exempt loans that P3s now have access to. A 63-20 is a nonprofit organization that is able to get tax-exempt loans. That is the way we did projects in the old days.

The state was still going to be liable for those loans, so they decided to turn the facility over as a P3 and pull out of its debt. So here the private sector concessionaire paid off the debt and extended the road an extra length of 1.6 miles to the Richmond Airport. So the hybrid is because it was an existing facility with revenue coming in and they extended it.

Let's now go to test your knowledge Michael.

Slide 35 - Test Your Knowledge

Michael Kay - We go ahead and do this test your knowledge question. It's a multiple answer question. Which of the following risks may be transferred in a P3 agreement: design, environmental, construction, financial, operations and maintenance, or revenue? Click all that apply, but it doesn't mean that every one applies.

We will close that. We set this up as a multiple answer question to try to stump you a little bit and to see if some of you thought not to click on all of the options, but any of these risks can indeed be transferred. I noticed fewer of you put environmental and that is perhaps because that is one of the risks the public sector would normally tend to retain and prefer to do so, but it is transferred or at least part of it is in some instances. Patrick, anything to add on this question?

Patrick DeCorla-Souza - No, that is good. I think people would be looking at environmental as the environmental phase, so they are really correct, those who were doubting. But the fact is that most environmental phase or EIS risk nowadays is taken over by the public sector. As I said, in Texas, they try to do that through something called a CDA, a comprehensive development agreement. But generally speaking the public sector takes the risk.

It doesn't mean, like in the case of the Beltway, the environmental phase still had to be reevaluated and perhaps even a supplemental EIS is done after the private sector came in with their proposal. So you could say that they were still at some risk there that things wouldn't work out, so they were accepting some risk. But the public sector of course was conducting the environmental process.

Slide 36 - Questions

Michael Kay - Great. I appreciate that clarification.

We will do a quick Q&A here before we move on. I didn't see any substantive questions that have come in since our last Q&A session. The question that came in was regarding the availability of the presentation. It will be available for download at the conclusion of the webinar about 20 minutes from now, or you can come back to this webroom any time between now and about tomorrow afternoon at this time and you will be able to download it there.

Towards the end of this webinar we will have a list of the upcoming webinars, but I wanted to provide everyone a link to the NHI web conferencing calendar, which is the location from which you can register for any of our upcoming IPD Academy webinars. The link is provided there in the Q&A box.

I will ask our operator if we have any questions in the phone queue?

Operator - None of this time.

Michael Kay - What we will do is move on to the financing tools and then time permitting we will return to Q&A towards the end.

Lesson 4: Financing Tools

Slide 38 - USDOT Financing Tools Supporting P3s

Patrick DeCorla-Souza - All right, thanks Mike. We should be able to cover this pretty quickly and get to questions. I have talked about and covered most of these so this is just a refresher.

I mentioned that we are here to help facilitate P3s and one way we do that is with TIFIA loans. As I've mentioned, they're flexible. You don't have to start paying it back immediately as soon as the facility is open. You can begin paying for it five years down the road, for example. This is very important, for example on toll facilities, because generally there is something called a ramp-up period. During this ramp-up period traffic is pretty low as people adjust and begin to figure out how to use and whether they want to use the road. It takes a few years for traffic to get to the level that is forecasted. So you really need a lot of support in the first years.

What TIFIA does is absolves you from paying the first few years. You can start paying back in year six, for example. And even in year six you can pay a lower amount before paying later on when toll revenues increase. It is an excellent tool to use to match toll projects.

The most important thing about private activity bonds is it addresses the tax-exempt issue. Before private activity bonds, the private sector had to pay higher interest rates in the market because they were not eligible for tax-exempt debt. With private activity bonds, they're eligible to receive tax-exempt debt.

Other innovative finance tools can be used to put a package of financing together because a lot of times we know that P3s can't pay for the entire construction just with the equity and debt from the market. So the state has to come in with some funds. These are some additional tools that can be used to get even more financing.

A state infrastructure bank is a bank basically run by the state where they put in monies, and it could be federal monies or state monies, and those monies are then loaned out to projects. It can be a private project or a public project.

Section 129 loans are not used as much anymore. The term comes from Title 23, Section 129 of the US code which deals with tolling, but this is a loan program because at that time it was assumed that you would be paying back these loans, which are actually federal funds, from toll revenues. That is why it was in that portion of the act.

Grant anticipation revenue vehicles are another way of bringing forward revenues that you expect to get from Federal-aid over the next several years. It's usually six or 12 years, looking forward into the reauthorization periods. So that is another way to get money upfront to pay for costs which you need to pay for today while using revenues over the next 12 years.

Slide 39 - Example: I-595 Corridor

I will talk I-595, the Florida project, with tolls going to the public sector even though the facility will be operated by the private sector.

Slide 40 - I-595 Corridor

It's a 35-year concession. This is the first availability payment-based P3 in the US. Prior to that, we were doing toll-based P3s. This is an availability payment because people are getting more leery of toll revenue forecasts.

There were substantial cost savings in this project because they were able to do today what they would otherwise have extended over a period of 15 years using the normal Federal-aid process. The interesting thing is we have this a financial crisis and they were still able to get financing, which really speaks to how interested investors are in investing in infrastructure projects because they feel there is a real asset where there will be revenue.

Slide 41 - I-595 - Project Financing

This is again showing you the different sources of money for financing. You see how much it came from bank debt, a TIFIA loan, equity, where the private partner that put in $200 million for a $1.6 billion project. You can see more than 10% was equity.

Slide 42 - Example: Capital Beltway HOT Lanes

The Capital Beltway lanes are also discussed. It's an 80-year concession. The important thing here is it used both private activity bonds and TIFIA loans. These are the great sources we talked about that give you low interest rates and have been the key to making P3s possible.

Slide 43 - Route 495 - Project Financing

So here you see the breakdown on the left-hand side. Private activity bonds, TIFIA, VDOT's subsidy of $400 million. Here equity was almost 20%. You look at the $2 billion and of that $348 million was equity. It's a little higher than what we see in Florida.

Just think about why that might be. In this case the revenue to the private sector is not coming from an availability payment, which we know is more stable and more predictable. In this case, the revenue to pay back the private sector is going to come from tolls. So here you see the bond markets were saying they were less comfortable and didn't believe the forecasts, and that more coverage was needed. So they weren't going to loan you 90% like in the case of I-595 and Florida, but they will loan you maybe 80% or something like that. Actually it wasn't even that because VDOT's contribution was $400 million. If you add the two, the equity is about 30%.

So both are HOT lane projects but the contrasts are interesting because one is being paid by an availability payment and the other is being paid back through tolls.

So we go now to test your knowledge Michael.

Slide 44 - Test Your Knowledge

Michael Kay - Thank you Patrick and I will pull up our final two test your knowledge questions now. We have one for each of the two projects. The first: Florida I-595 is the first availability payment-based P3 in the US. True or false?

Most everybody got that right. It is true. It is the first availability payment-based P3 in the U.S.

The next one is also true or false: the Capital Beltway HOT lanes concession agreement used financing from both PABs and TIFIA.

Waiting about five more seconds. More confusion on this one. It is true that it did use both PAB and TIFIA. Patrick, do you have anything to add?

Patrick DeCorla Souza - No, that's correct, it used both of those and I think most people got that right.

Slide 45 - Questions

Michael Kay - Let's go ahead and get through the course summary and then we will have one final Q&A session after which I will ask that everyone stick around for an extra few minutes to complete an evaluation. At that time you will be able to download today's presentation.

Let's go ahead with the course summary Patrick.

Lesson 5: Course Summary

Slide 47 - Course Summary

Patrick DeCorla-Souza - So this is easy, basically reviewing what we have learned so far.

P3s are not a source of free money. You need a source of repayment revenues.

They don't work for every project. They are suitable mainly for large costly projects, complex projects, and often for projects that have a source of revenue such as tolls.

One size does not fit all. You will find that every P3 is different simply because even the timing of when you are in the market looking for financing can be critical to how these are packaged. I mentioned for example the availability payment versus use of toll revenue. The Beltway agreement was signed much before the I-595 agreement. In the meantime, a few toll projects started not making their forecasts and there was a lot of concern in the markets about this form of repayment of their bonds.

Decisions are local and state, not federal. Since there are so many FHWA folks on this webinar, it's important to understand that the federal government really is not involved in making decisions on whether or not to go a P3, or which P3 proposal to select. We are simply there to ensure that the regulations are followed. That is still critical and we actually had a webinar for Federal Highway Division folks on how and what to look for on January 19. It's available on Staffnet for those of you that are from the Federal Highway Administration. If you're interested in that I would encourage you to look for it, or give me a call or send me an e-mail and I will send you a link.

P3s are more like outsourcing than pure privatization. Ownership is not given out by the state or the local government. It is a temporary thing. Nowadays people like to think of DBFOM as service delivery for it is outsourcing of a provision of a mobility service for a certain number of years.

And finally, we have seen only through experience that projects have come in on budget and on time much more often with P3s than with publicly procured or traditionally procured projects. So it has been true to its advertisements in most cases. Folks who have gone the P3 route are satisfied.

Slide 48 - Course Summary

I put this graphic up in the beginning. This is just a reminder that we are here to answer your questions. I'm the P3 program manager so feel free to send me any questions. I am here to help you answer them.

I mentioned the webinars and the next slide will have a list of webinars that we have coming down the pipe over the next few months.

We actually do facilitate P3s through TIFIA loans and other activities here at our office.

Slide 49 - For More Information

Here is our website information. The first one is the main IPD portal. Then the P3 website. For FHWA employees who have access to Staffnet, there's a link there where you can find that webinar that we did last month that I mentioned.

Other sources are AASHTO's Center for Excellence in Project Finance. Feel free to go there and look at what they've got.

Thay Bishop is our general contact on anything to do with our office. On P3 questions, feel free to email me.

Slide 50 - Upcoming IPD Academy Webinars

Here is a list of upcoming webinars going through May 9. I will leave that up for a minute so you can take a look at it. This presentation is available so feel free to download it.

Slide 51 - Contact Information

And finally here is my email address and telephone number at the bottom. Feel free to call me any time.

With that Michael, I turn it over to you.

Michael Kay - Thank you Patrick for your presentation. I wanted to return back to the schedule of upcoming webinars for a moment only to mention that we had scheduled a SIBs 101 webinar for March 7. That has been postponed. We're looking for a rescheduled date.

This webinar has been delivered several times before, including once back in January. That is archived for the benefit of FHWA staff on the Staffnet website which I've into the Q&A box for us.

Slide 52 - Questions

We have about four minutes left and I want to make sure to leave at least one or two of those minutes for the evaluation and for people to download the presentation. I will first ask for the final time perhaps if we have any questions in the phone queue?

Operator - We have no questions in the queue at this time.

Michael Kay - Thank you. We did have a question from Jay Moore in Missouri. Do have any good examples of value for money studies? Thay Bishop pointed everyone to the value for money analysis on the Port of Miami tunnel project, but there are several others as well. Patrick, do you want to describe other VFM studies that you're aware of or know that are coming online soon?

Patrick DeCorla-Souza - Yes. The I-595 project that I mentioned had a value for money study. There was one on the Presidio Parkway in the San Francisco area that I am aware of. And we also have accumulated as part of our P3 evaluation toolkit development a value for money guidance from several sources. For example the Virginia Department of Transportation has a website with a lot of these documents and guidelines for value for money analysis.

British Columbia in Canada also has a website with some of these documents. Some of the better ones can be found in Australia. These may actually be more applicable to our context because they do use tolls as a revenue source unlike Canada, which uses availability payments.

Over a period of time we will be accumulating these. Send me an e-mail and I will be happy to send you all of these links.

Michael Kay - Thanks Patrick. With that we will move to our evaluation layout and I want to point out a couple of things on this page. First, we would appreciate if you take a moment to fill out the evaluation. It's simple and asks about eight questions.

Now at this point there is a presentation download box on the middle-left of your screen. You'll want to click the file there that says "Intro to P3s" and click save to my computer. A new browser will open on your computer and you essentially click to download and you're able to save that locally.

We will leave this page open for about the next 24 hours or so after which time we will need to get it ready for next week's webinar. But if you want to return back to this webroom for the next 24 hours to download the presentation in case you're unable to do so now, you're more than welcome.

With about a minute left Patrick, you have any parting words for today?

Patrick DeCorla-Souza - No, thank you. I want to thank you Michael and I want to thank Deborah Brown-Davis, who agreed to help me out with the answers on this webinar. And I want to thank the operator for helping us put all of this together, and I'm not sure if Aaron Jette is with you today.

Michael Kay - We have Michael Clark here from our office helping us today.

Patrick DeCorla-Souza - I want to thank him for excellent support to this webinar and of course I want to thank those who listened in and provided questions and I look forward to hearing more from you with questions and further discussion. Thank you.

Michael Kay - Thanks again Patrick and I hope everyone has a great afternoon.

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