December 31, 2013
The Shadow Bid Tool User Manual is an educational resource part of FHWA's P3-VALUE suite. This User Manual corresponds to the FHWA Shadow Bid Tool, providing an overview of the value for money (VfM) process with instructions for utilizing the Shadow Bid Tool to construct a P3 Estimate. Together, these educational resources provide users with a better understanding of the process for evaluating the costs of P3 procurement against the costs of traditional procurement methods.
The information and examples outlined in the User Manual do not encompass all issues and options for constructing a P3 Estimate for a highway project. The FHWA P3 Toolkit contains additional information, as does Appendix A and Appendix C of the User Manual, for further guidance.
The Shadow Bid Tool has been designed for use in FHWA-sponsored training. FHWA anticipates that at the conclusion of the training, users will have a greater understanding and appreciation of the VfM analysis process and of several key considerations when developing a P3 Estimate. FHWA encourages users to engage appropriate experts (either in-house or external) to develop their own tools and processes for evaluating potential P3 projects. The level of knowledge gained from the FHWA training should help in such an effort.
To provide a notional example of a functioning and interactive Shadow Bid Tool, a number of assumptions and formulas are included in the Shadow Bid Tool that relate to the "Example Scenario" and may not be suitable for all potential scenarios. For example, the cost, revenue, taxation and depreciation assumptions notionally provided in the tool may not be applicable for a project where the private entity is providing an upfront payment to the public entity to lease an existing asset.
The structure of a financial tool to model a P3 estimate is highly customized to reflect the unique project structure, the entities involved in the delivering the project and to maximize the funding and financing available to deliver the project for the lowest cost. The Shadow Bid Tool as well as the P3-VALUE suite have also been constructed with minimal 'black box' formulas, so users are able to view each step in the analysis process. While this provides greater clarity to users in how the outputs from each tool are produced, it also limits the flexibility of the P3-VALUE tools to accommodate a large variety of project options, or to produce highly efficient results. For example, the financing structure presents one debt facility which is not optimized to make most efficient use of financing throughout the construction phase. Because the financing structure of the Shadow Bid Tool does not allow for interest earnings on bond proceeds or a subordinate debt tranche, project financing costs may be higher than might be expected for an actual project. This is particularly true for non-toll projects, because the tool has been designed for use with toll projects in which a revenue stream from the project is available to support costs over the life of the project.