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P3 Toolkit

Guidance Documents

Risk Assessment for Public-Private Partnerships: A Primer

December 2012

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Appendix A - Glossary

Term Description
Bidder A respondent to a request for Expressions of Interest or an invitation to submit a bid in response to a Project Brief. Typically, a bidder will be a consortium of parties, each responsible for a specific element, such as constructing the infrastructure, supplying the equipment, or operating the business. Government normally contracts with only one lead party (bidder) who is responsible for the provision of all contracted services on behalf of the consortium.
Contingency An allowance included in the estimated cost of a project to cover unforeseen circumstances.
Concessionaire Private entity that assumes ownership and/or operations of a given public asset (e.g., train station, bus operation) under the terms of a contract with the public sector
DB Design-Build: Under a DB, the private sector delivers the design and construction (build) of a project to the public sector. The public sector maintains ownership, operations, and maintenance responsibilities of the asset.
DBB Design-Bid-Build: Under a DBB, the private sector delivers a design and bids for a project in two separate processes. Once the private sector has been awarded the contract, it assumes responsibility of project construction (build).
DBFOM DBFOM, the private sector delivers the design and construction (build) of a project to the public sector. It also obtains project financing and assumes operations and maintenance of an asset upon its completion.
Discount rate The discount rate is a percentage by which a cash flow element in the future (i.e., project costs and revenues) is reduced for each year that cash flow is expected to occur.
Leveraging Leveraging is the degree to which an investor or business is utilizing borrowed money.
OIPD Office of Innovative Program Delivery: The OIPD is a part of the FHWA that provides tools and expertise regarding P3 approaches.
Opportunity risks A risk may be categorized as an opportunity risk if it has the potential to have a positive impact on the project. Opportunity risks are intrinsic to the project. If an agency quantifies risks differently for different procurement structures, the potential for double-counting efficiencies that are provided through the risk allocation for a procurement structure (as part of the VfM Analysis process) can exist.
Non-technical risk Risks posed by political, regulatory, economic, and social conditions, or stakeholders.
NPV Net present value.
PAB Private Activity Bonds are a new type of financing that provides private developers and operators with access to the tax-exempt bond market, lowering the cost of capital significantly.
PSC Public Sector Comparator: A PSC represents the most efficient public procurement cost (including all capital and operating costs and share of overheads) after adjustments for competitive neutrality, retained risk and transferable risk to achieve the required service delivery outcomes. This benchmark is used as the baseline for assessing the potential value for money of private party bids in projects.
Retained risk The value of those risks or parts of a risk that a government proposes to bear under a P3 arrangement.
RFP Request for Proposals.
RFQ Request for Qualifications.
Risk allocation The process of assigning operational and financial responsibility for specific risks to parties involved in the provision of services under a P3. Also see risk transfer.
Risk Allocation Matrix A table used as a management tool throughout the procurement process to provide an overview of the major risk categories to be considered when developing procurement, to explain why the risks are transferred, shared, or retained under different procurement options. As each deal will have project-specific risk, the Risk Allocation Matrix is only a tool to help understand the principles regarding risk allocation. For each project, the actual risk allocation will need to consider the principles of allocation and the circumstances of the deal.
Risk Register A document which identifies the bearer of a particular risk and which will also contain quantitative assessments (i.e. costs and likelihoods) of the characteristics of the risks).
Risk transfer The process of moving the responsibility for the financial consequences of a risk from the public to the private sector.
SPV Special Purpose Vehicle: An SPV is a legal entity comprised of multiple shareholders created for a specific project to reduce risk exposure of its individual members and to protect the project from unrelated liabilities of its individual members. In a typical P3, an SPV is created to bid on a project and to obtain project financing.
Technical risk Risks arising from deviations from the project's original technical assumptions, specifications, or requirements.
TIFIA Transportation Infrastructure Finance and Innovation Act: The TIFIA program provides Federal credit assistance in the form of direct loans, loan guarantees, and standby lines of credit to finance surface transportation projects, such as P3s, of national and regional significance.
Transferrable risk The value of any risk that is transferable to the bidder.
Value for Money (VfM) The procurement of a P3 project represents VfM when, relative to a public sector procurement option, it delivers the optimum combination of net life cycle costs and quality that will meet the project objectives. 7

 

Footnotes:

7. Office of Transportation Public-Private Partnerships, PPTA Value for Money Guidance

 

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