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P3 Toolkit

Guidance Documents

Establishing A Public-Private Partnership Program: A Primer

November 2012

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Chapter 3 - Program Development Strategies

The public agency is responsible for protecting the public's interest, setting policy goals and objectives, administering the procurement process, and overseeing the agreement. Other efforts can be outsourced or handled in-house, depending on the anticipated volume of work to be done. It may not be worthwhile for an agency to hire in-house experts or create a P3 unit for a single transaction.

Public agencies have acquired new capabilities through outsourcing, developing internal capacity or establishing new P3 units. While not mutually exclusive, each approach has its strengths and limitations as indicated in Table 3-1 and discussed further below.

Table 3-1: Comparison of P3 Program Capacity Building Approaches
Capacity Building Model Strengths Cautions/Constraints
Hire Consultant Advisors Can be quickly acquired as needed.
  • Need to select effective advisors.
  • Services may be perceived as expensive.
  • Risk of real or perceived conflicts of interest.
  • Use of consultants is often regulated by statutes/rules outside the P3 statute.
Train Internally and/or Hire New Staff Builds bottom-up capacity to identify P3 projects as well as capacity to manage external advisors.
  • Takes time and resources to train staff, so outside advisors still required to start.
  • Staff may lack incentives or background to learn new material.
Establish State P3 Unit
  • Can address P3 needs programmatically.
  • Enhances private sector confidence that the public sector will be a strong client/partner.
  • P3 opportunities may be sporadic and may not justify a dedicated unit.
  • Even with a specialized unit, additional expertise may be needed from other government agencies or through consultants.
  • May be politically complicated where public facility ownership or governance is fragmented.

Potential Roles for Consultant Advisors

Especially when a public agency is just beginning a P3 program, the needed skills, knowledge and perspectives will not be easy to cultivate in-house, so the agency will likely bring on consultant advisors for legal, technical, and financial advice. While qualified consultant advisors in the P3 arena may be more costly on a per hour basis than public agency employees, they usually bring specialized skills that may not be cost-efficient for the agency to maintain in-house on a permanent basis. This is because opportunities to work on a P3 project may be sporadic, making it difficult for public agencies to develop and maintain the specialized skills necessary to develop and negotiate a P3. Consultant advisors can bring expertise from other engagements and do not need to find continuing roles in the agency once their work is complete.

Agencies need to understand how to select competent advisors whom they can trust. There is no certification process for P3 consultants. Many consulting firms do not have expertise in implementing a full range of financial tools and arrangements; as a result, they may recommend only the approach they know best, ignoring potentially better opportunities. Furthermore, while many advisors in the P3 arena may have international experience, international firms may lack an understanding of the U.S. market and potential financial tools.

When hiring external advisors, it is important to consider which roles are appropriate for the consultants and which are more appropriate for a public agency to keep in-house, as shown in Table 3-2.

Table 3-2: Typical Public Agency and Consultant Roles
Role Public Agency Consultants
Program Direction Sets overall program direction and program and project goals. Not applicable.
Project Selection Screens and selects projects. Technically evaluates potential projects.
Project Evaluation and Structuring Makes decisions regarding the structure of the agreement based on evaluation.
  • Prepares traffic and revenue studies.
  • Conducts risk assessment, financial feasibility and value for money analyses and provides financial advice.
Project Procurement
  • Sets RFQ and RFP goals.
  • Selects partners and bids.
  • Leads final negotiations.
  • Develops language for RFQ and RFP.
  • Advises on contract structure and risks.
  • Assists final negotiation.
Project Monitoring Monitors performance and administers contract. Assists with inspections and performance monitoring.

Some roles are inherently a public sector responsibility. A public agency should drive and manage the process, set the program's direction, identify potential projects, select bidders, and manage contracts. Private consulting expertise is more often used for well-defined tasks, such as developing a financial model, advising as to the optimal financial structure and contract provisions, and assisting with the negotiation of the final agreement. However, the public agency will still need sufficient expertise in-house to keep consultants on track and ensure that their advice is consistent with agency goals.

Public agencies also need to be aware of potential conflicts of interest with any outside advisors it hires. In order to ensure independent advice and analysis, public agencies need advisors who do not have any conflicts with advising private sector partners either engaged in or bidding on a potential P3 project. It is important to worry about both the substance and the optics of who an agency hires.

Training or Hiring New Staff to Build Capacity

Whether or not public agencies use external advisors, they will need to train or hire internal staff to be capable of understanding and managing the project development process and managing the agreement once it is signed. Developing the skills to manage the P3 process can be done through training existing staff as well as hiring new staff. In some cases, external advisors hired to assist on a P3 project for their technical, legal or financial expertise can also be used to conduct training of internal staff.

As the P3 market matures in the United States, agencies can learn from reviewing case studies and from exchanging lessons learned with their peers.

Specialized P3 Units

In the United States, the authority to develop transportation P3 agreements typically rests with the State DOT or with another department within the State with the power to issue debt - typically the Administration and Finance or the Treasury Department. The authority is sometimes extended to municipalities or regional authorities.

A model increasingly used by States and other countries to address P3 organizational capacity is the specialized P3 unit. A P3 unit can be any institution, office, or team set up to support the development, implementation and evaluation of P3s. P3 units are typically staffed with transportation sector-specific and other sector experts (as appropriate) as well as experts in economics and finance, regulation, procurement, communications and training. Many of the countries that are the most active users of P3s for project delivery have P3 units.

P3 units can facilitate a programmatic approach to project identification and assessment. Programmatic evaluation has the advantage of allowing P3 projects to be identified earlier in the planning and scoping process, allowing the public sector to better manage its limited resources. P3 units may raise private sector interest and confidence in P3 investments because potential partners may feel they have a more experienced and capable client team with whom to negotiate agreements.

P3 units can be housed within government departments, or run as privately or publicly owned corporations funded by fee-for-service. In the United States, P3 units are State-based and typically have a small dedicated staff with engineering, legal and financial specializations who report to a CEO or Executive Director. The P3 staff is generally supplemented by expert advisors (government employees or consultants) who may be relied on for specific technical, legal and financial tasks. The P3 unit typically reports to a board or committee charged with oversight responsibilities. Authority to sign P3 agreements may rest with the director of the P3 unit, the commissioner of the board, or the director of the agency where the P3 unit is housed.

The roles and responsibilities of a P3 unit may include:

  • Providing technical assistance and training on P3 project development and procurement.
  • Helping to identify a pipeline of potential P3 projects and to prioritize those opportunities.
  • Providing regulatory oversight of P3 projects.
  • Promoting the P3 program by soliciting projects, attracting potential partners and investors, and educating the public.

 

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