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Value for Money 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. 2
Brownfield Brownfield projects focus on improving, operating and/or maintaining an existing asset (contrast to greenfield). P3 brownfield projects in transportation typically are long-term operation and maintenance contracts or lease concessions. Blended greenfield-brownfield projects also exist - for example, improving an existing asset by adding new capacity (e.g., more lanes).
Concession Period Total construction and operating periods.
Concessionaire Private entity that assumes ownership and/or operations of a given public asset (i.e., train station, bus operation) under the terms of a contract with the public sector
Contingency An allowance included in the estimated cost of a project to cover unforeseen circumstances.
CPI Consumer Price Index
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 and operations and maintenance of the asset. Build refers to constructing the road, which includes reviewing conditions at the building site, providing construction staff and materials, selecting equipment, and, when necessary, amending the design to address problems discovered during the construction phase.
DBFOM Design Build Finance Operate Maintain: Under 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.
Debt Financing Percent Active financing percentage.
Debt Tranche Interest Only Period Interest only period for project bond.
Debt Tranche Maturity Maturity date for project bond.
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.
Discount Rate Nominal Discount rate factoring in the inflation rate.
Discount Rate Real Discount rate that does not account for inflation.
DSCR Debt Service Cover Ratio
Finance Finance refers to the phase or delivery aspect of the project that includes providing capital for the project, which may include issuing debt or equity and verifying the feasibility of plans for repaying debt or providing returns on investment.
Greenfield Greenfield projects focus on developing and/or building a new asset (contrast with brownfield). Many P3 structures are available for greenfield projects, including design-build, design-build-operate-maintain (DBOM), design-build-finance-operate-maintain/manage (DBFOM) and others. Blended greenfield-brownfield projects also exist.
Inflation Consumer Price Index Inflation Consumer Price Index used as a base rate for inflation assumptions.
Leveraging Leveraging is the degree to which an investor or business is utilizing borrowed money.
Maintenance The maintenance phase includes keeping the project in a state of good repair, which includes filling potholes, repaving or rebuilding roadways, and ensuring the integrity of bridges and highways.
Net Present Cost (NPC) Net Present Cost is the estimated present value of expected future cash flows associated with PSC and Shadow Bid analysis without considering revenues.
Net Present Value (NPV) Net Present Value is the present value of the expected future revenues minus the Net Present Cost.
PAB Private Activity Bonds refer to 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.
Public Sector Comparator (PSC) The Public Sector Comparator (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 Transferrable 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 government proposes to bear itself under a partnership arrangement.
Revenue Leakage Assumed annual revenue losses for a tolling facility.
RFP Request for Proposal
ROW Right of Way (in reference to a type of Project Cost in the Assumptions sheet of the VfM Tool).
Risk Allocation The process of assigning operational and financial responsibility for specific risks to parties involved in the provision of services under P3. Also see risk transfer.
Risk Transfer The process of moving the responsibility for the financial consequences of a risk from the public to the private sector.
Routine Maintenance Routine Maintenance is defined as work that is planned and performed on a routine basis to maintain and preserve the condition of the highway system or to respond to specific conditions and events that restore the highway system to an adequate level of service.
Technical Risk Risks arising from deviations from the project's original technical assumptions, specifications, or requirements.
T&R Traffic and revenue.
Transportation Infrastructure Finance and Innovation Act (TIFIA) 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 of national and regional significance. 3
Transferrable Risk The value of any risk that is transferrable 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 objectives of the project. 4

 

Footnotes:

2. The Transportation Infrastructure Finance and Innovation Act (TIFIA) program provides Federal credit assistance in the form of direct loans, loan guarantees, and standby lines of credit to finance surface transportation projects of national and regional significance.

3. FHWA, Center for Innovative Finance Support, http://www.transportation.gov/tifia

4. Virginia Office of Transportation Public Private Partnerships, PPTA Value for Money Guidance

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