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:
- Conduct a risk assessment to identify,
quantify, and allocate risks between the public and private
- Develop a PSC estimate that indicates the
potential cost of public delivery.
- Develop a P3 estimate (or "shadow
bid") that indicates the potential cost of private delivery.
- 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
Public agencies may take different approaches to prepare a PSC
and P3 Estimate. They can:
- Develop the PSC and P3 Estimate using unique assumptions
for each delivery structure;
- 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
- 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
||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
|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
||The gray worksheets present the hypothetical
project's cash flows based on the assumptions inputs. Users
cannot alter data in the gray sheets.
||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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