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P3 Toolkit

Analytical Tools

P3-VALUE: Shadow Bid Tool User Manual

December 31, 2013

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Chapter 3. Shadow Bid Development Overviews


A public agency that is considering delivering a project as a P3 may choose to conduct a VfM analysis to identify the comparative value that different delivery structures may provide. The key stages of a VfM analysis are:

  1. Conduct a risk assessment to identify, quantify, and allocate risks between the public and private partners.
  2. Develop a PSC estimate that indicates the potential cost of public delivery.
  3. Develop a P3 estimate (or "shadow bid") that indicates the potential cost of private delivery.
  4. Conduct a VfM analysis that compares the PSC and P3 Estimate (or "shadow bid") outcomes to assess whether the public or P3 delivery option provides greater value for money to the public agency.
Developing a P3 Estimate

The User Manual focuses on the development of the P3 estimate, or "shadow bid." The key components that comprise a P3 Estimate are discussed below.

  • P3 Contract Payment reflects an amount that the public agency may pay to the private sector P3 partner to make private investment in the project financially viable. Under the P3 contract, the private sector incurs the costs of delivering the project as well as associated financing costs and equity returns. These costs are considered when calculating that P3 contract payment. If the private sector P3 partner receives revenues from tolls and other sources in the arrangement, the revenues that it receives are subtracted from the costs it incurs to indicate the net revenue or payment required for it to invest in and to deliver the project. If the project revenues are sufficient to cover the costs incurred by the private sector in delivering the project and an acceptable equity return, then it may not be necessary for the agency to provide a P3 Contract Payment. (In fact, the concessionaire would be willing to pay the public partner for the right to keep surplus toll revenue.)
  • Retained Risks reflect the construction and operation phase risks that the public agency would remain responsible for under the P3 delivery structure.
  • Other Project Costs can include costs such as right-of-way (ROW) acquisition costs, procurement costs, and other costs incurred by the public agency in facilitating project delivery.

Public agencies may take different approaches to prepare a PSC and P3 Estimate. They can:

  1. Develop the PSC and P3 Estimate using unique assumptions for each delivery structure;
  2. Utilize the same project assumptions (such as construction length, construction costs, operation and maintenance costs, revenues, risks) for the PSC and the P3 Estimate and make adjustments to the P3 Estimate to reflect the private sector's likely approach to delivering the project; or
  3. Utilize the same project assumptions for both the PSC and the P3 Estimate and adjust the P3 Estimate for the cost of private financing to account for the difference in costs between a publicly financed project and a privately financed project. A qualitative assessment is then conducted to consider the potential for the private sector to generate the level of savings or efficiencies necessary to overcome the differences in financing costs and to meet public sector goals for the project. Appendix A contains an example checklist for estimating qualitative factors for a VfM analysis and Chapter 8 of the Primer provides additional guidance on qualitative VfM assessments.
Using the Shadow Bid Tool

As outlined in Figure 2, the Shadow Bid Tool contains four major classes of worksheets that are color-coded by purpose. It is important to note that although the PSC and Shadow Bid Tools in the P3-VALUE Toolkit generally adopt the same structure, there are variations in the worksheets and outputs to reflect the different delivery options. Therefore, it is essential that users refer to the appropriate manual for each respective tool.

Figure 2: Key Components of the Shadow Bid Tool

Function The green worksheets allow users to accept the Shadow Bid Tool's disclaimers, review key terms and definitions, and navigate through the Shadow Bid Tool via an "Index" sheet. It is important to note that users must accept the disclaimer on the "Introduction" sheet before accessing the remaining content of the Shadow Bid Tool.
Assumptions & Examples The blue worksheets provide users with an editable template of key project assumptions regarding project costs, funding, and revenue. Users may edit assumptions in blue-shaded cells or select inputs from available drop-down menus.
Cash Flows The gray worksheets present the hypothetical project's cash flows based on the assumptions inputs. Users cannot alter data in the gray sheets.
Outputs The yellow worksheets calculate the hypothetical project's net present cost (NPC). Users can conduct a sensitivity analysis and a scenario analysis on the NPC. There is another disclaimer users must accept prior to viewing the outputs.


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