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Center for
Innovative Finance Support
FHWA Office of Innovative Program Delivery
Center for Innovative Finance Support
U.S. DOT Build America Bureau

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P3 Benefit-Cost Analysis Using P3-VALUE 2.1

April 26, 2018
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Related Materials

Prior Webinars

  • Basics of P3-VALUE: Webinar on Project Delivery Benefit-Cost Analysis, February 22, 2016
  • P3-VALUE 2.1 Enhancements:
    • Simplified input sheet, reviewed in webinar on February 22, 2018
    • Transparent output for value for money analysis, Reviewed in webinar on March 22, 2018
  • All prior webinar presentations, recordings and transcripts are available on FHWA's web site at:

Instructors

Patrick DeCorla-Souza

Patrick DeCorla-Souza
P3 Program Manager
USDOT Build America Bureau and FHWA Office of Innovative Program Delivery

Wim Verdouw

Wim Verdouw
Financial Modeler
IMG/Rebel

Webinar Outline

Part 1 Overview of Benefit-Cost Analysis (BCA)

Part 2 P3-VALUE 2.1 BCA Enhancements

Part 3 Illustrative Application of Benefit-Cost Analysis

Part 1: Overview of P3 Benefit-Cost Analysis

P3-VALUE 2.1 Webinar

Financial vs. Economic Evaluation

  • Financial Evaluation
    • Considers financial elements only, i.e., "ash flows"
    • Perspective is that of the procuring agency
  • Economic Efficiency Evaluation
    • Considers full range of costs and benefits to society
    • Perspective is that of society as a whole

Types of Project Delivery Evaluation

Project Delivery Evaluation chart

Text of "Types of Project Delivery Evaluation" chart

Financial Evaluation*   Economic Efficiency Evaluation**
Financial Viability Assessment ↔ Project Delivery Benefit-Cost Analysis (BCA)
↓  
Value for Money (VfM) Analysis ↔

*Cash flow analysis

  ** Net economic benefits excludes transfers and financing cash flows

Benefit-Cost Analysis (BCA) Process

BCA Process Chart

Text of Benefit-Cost-Analysis Process chart

  • Step 1 - Project BCA
  • Step 2 - Impacts of Funding Constraints
  • Step 3 - Impacts of P3 Delivery
    • Timing impacts
    • Cost impacts
    • Quality impacts
    • Scope optimization

Project Delivery BCA Framework

BCA Framework flow chart

Text of BCA Framework flow chart

Cost and benefit comparison between No Build and Delayed PSC connecting arrows No Build Step 1: Evaluate Project Benefits/Costs
Step 1 indicator
Cost and benefit comparison between Delayed PSC and PSC connecting arrows Delayed Public Sector Comparator (PSC) Step 2: Evaluate Impacts of Funding Constraints
Step 2 indicator
Cost and benefit comparison between PSC and P3 connecting arrows Public Sector Comparator (PSC)

Step 3: Evaluate P3 Delivery Effects

  • Cost
  • Schedule
  • Quality of service
Step 3 indicator
P3

Project Delivery BCA Output

In P3-VALUE, all three options are compared to No Build

BCA Output graphs showing costs and benefits

Text summary of Project Delivery BCA Output chart

*Actual numerical values are not indicated on chart.

  • Delayed PSC - Benefits display as 4 units, Costs display as 2 units
  • PSC - Benefits display as 6 units, Costs display as 3.5 units
  • Public-Private Partnership - Benefits display as 6.5 units, Costs display as 3 units

Perspective Considerations

Perspective Financial Analysis (VfM Analysis) Economic Analysis (BCA)
Agency Costs to Agency's balance sheet Agency costs plus societal benefits
State Costs to State State costs plus societal benefits
National Societal costs Societal costs and benefits (true BCA)

For More Information

FHWA's Benefit-Cost Analysis for P3 Project Delivery: A Framework

Part 2: Introduction to P3- VALUE 2.1 Enhancements

P3-VALUE 2.1 Webinar

What is P3-VALUE 2.1?

  • An analytical tool
  • Educational
  • Quantitative screening

Tool and References

P3-VALUE 2.1 Excel Spreadsheet

User Guide, Quick Start Guide, FAQs

Primers & Guidebooks

P3-VALUE 2.1 Tool Structure

P3-VALUE 2.1 Tool Structure model

Text description of Tool Structure flow chart

Inputs:

  • Simplified (new)
  • Detailed
  1. Inputs » Cost, timing, revenues » Value for Money Analysis
  2. Inputs » Financial Viability Assessment » Subsidy, Bid » Value for Money Analysis
  3. Inputs » Risk Assessment (only in detail level analysis) » Financial Viability Assessment » Subsidy, Bid » Value for Money Analysis
  4. Inputs » Risk Assessment (only in detail level analysis) » Risk Values & Allocation » Value for Money Analysis
  5. Inputs » Risk Assessment (only in detail level analysis) » Risk Values & Allocation » Project Delivery Benefit-Cost Analysis
  6. Inputs » Cost, timing, benefits » Project Delivery Benefit-Cost Analysis

P3-VALUE 2.1 Enhancements

  • Simplified input sheet
    • Reviewed in webinar on February 22, 2018
  • Transparent output for value for money analysis
    • Reviewed in webinar on March 22, 2018
  • Benefits from ridesharing (carpools and transit) included in benefit-cost analysis
    • To be reviewed in today's webinar

Transit and Carpool Inputs in Simplified Input Sheet

Benefit Cost Inputs (Transit & Carpool) No Build ML/TL GPL
Additional passengers carried by transit (% of vehicles) 2.00% 4.00% 1.50%
Additional passengers carried by carpools (% of vehicles) 2.00% 4.00% 1.50%

Detailed Inputs for Transit and Carpools

  • Approach is similar to the approach for vehicular traffic (covered in webinar on February 22)

Transit Passenger Forecast

Average Weekday Transit Passenger Forecast in thousands

Breakdown of Transit Travel Forecast into Time Periods

breakdown of transit travel forecast into time periods chart

Text of Breakdown flow chart

  • Average weekday transit passengers (forecasted)
    • Weekday passengers (100% of forecast)
      • Peak period passengers (30% of forecast)
      • Off-peak passengers (70% of forecast)
    • Weekend passengers (60% of forecast)
      • Weekend passengers
Detailed Input for Transit
Transit Passenger Forecast Year No Build ML/TL GPL
Weekday daily transit passengers in model start year (in thousands) 2018 2.4k 1.0k 1.6k
Weekday daily transit passengers in input year 2 (in thousands) 2020 2.5k 1.2k 1.7k
Weekday daily transit passengers in input year 3 (in thousands) 2030 2.8k 1.4k 1.8k
Weekday daily transit passengers in input year 4 (in thousands) 2040 3.0k 1.6k 2.0k
Weekday daily transit passengers in input year 5 (in thousands) 2050 3.2k 1.8k 2.1k
Annual transit passengers growth after last input year (in percent) > 2050 0.50% 1.00% 0.50%
Transit Passengers Shares   No Build ML/TL GPL
Peak transit percentage (of total transit passengers)   30.00% 30.00% 30.00%
Off-peak transit percentage (of total transit passengers)   70.00% 70.00% 70.00%
Weekend transit percentage (of total transit passengers)   60.00% 60.00% 60.00%

Carpool Passenger Forecast

Average Weekday Carpool Passenger Forecast in thousands

Breakdown of Carpool Travel Forecast into Time Periods

flow chart - Breakdown of Carpool Travel Forecast into Time Periods

Text of Carpool Travel Forecase Breakdown flow chart

  • Average weekday carpool passengers (forecasted)
    • Weekday passengers (100% of forecast)
      • Peak period passengers (80% of forecast)
      • Off-peak passengers (20% of forecast)
    • Weekend passengers (15% of forecast)
      • Weekend passengers
Detailed Input for Carpool
Carpooling Passenger Forecast Year No Build ML/TL GPL
Weekday daily carpooling passengers in model start year (in thousands) 2018 2.4k 1.0k 1.6k
Weekday daily carpooling passengers in input year 2 (in thousands) 2020 2.5k 1.2k 1.7k
Weekday daily carpooling passengers in input year 3 (in thousands) 2030 2.8k 1.4k 1.8k
Weekday daily carpooling passengers in input year 4 (in thousands) 2040 3.0k 1.6k 2.0k
Weekday daily carpooling passengers in input year 5 (in thousands) 2050 3.2k 1.8k 2.1k
Annual transit passengers carpooling after last input year (in percent) > 2050 0.50% 1.00% 0.50%
Carpooling Passengers Shares   No Build ML/TL GPL
Peak carpooling percentage (of total carpooling passengers)   80.00% 80.00% 80.00%
Off-peak carpooling percentage (of total carpooling passengers)   20.00% 20.00% 20.00%
Weekend carpooling percentage (of total carpooling passengers)   15.00% 15.00% 15.00%

Please stand by while we open the P3-VALUE 2.1 tool to show the enhanced features

Part 3: Illustrative Application of P3-VALUE 2.1 for Project Delivery Benefit-Cost Analysis

P3-VALUE 2.1 Webinar

Example hypothetical project

  • Managed lanes added to existing facility
  • Delayed construction completion under PSC

Project Information

  • 20 miles highway expansion, from 3 lanes to 5 lanes in each direction
  • 3 General Purpose Lanes (GPL); 2 new Managed Lanes (ML)
  • Costs under PSC (including contingencies for risks):
    • Pre-construction $25M
    • Construction: $400M
    • Routine O&M: $4M per year
    • Major maintenance: $10M every 8 years
  • Timing:
    • Preconstruction start: 2018 (2 years duration)
    • Construction duration: 4 years for PSC, 3 years for P3
    • Concession term: 46 years
    • Delay in start under PSC 5 years

Assumptions

  • No difference in traffic volumes, carpooling and transit for conventional delivery vs. P3
  • P3 option provides better service quality through:
    • Reduced construction-related traffic delays due to better work zone practices
    • Reduced incident-related traffic delays due to better incident response
    • Reduced vehicle operating costs due to better pavement quality

Benefit-Cost

Benefit Cost Inputs (Delays & Pavement Quality) No Build PSC P3
Average duration of construction activity (in hours) 0.00 hours 8.00 hours 7.50 hours
Average duration of O&M activity (in hours) 4.00 hours 3.00 hours 2.75 hours
Speed adjustment factor for incident delays (in percent) 18.00% 9.00% 8.50%
Pavement quality (IRI, in inch/mile) 150 inch/mile 140 inch/mile 130 inch/mile
Benefit Cost Inputs (Transit & Carpool) No Build PSC P3
Additional passengers carried by transit (% of vehicles) 2.00% 4.00% 1.50%
Additional passengers carried by carpools (% of vehicles) 2.00% 4.00% 1.50%

Risk Inputs

Lifecycle Performance Risk & Revenue Uncertainty Adjustment Inputs
Lifecycle performance risk calculation method (see options below) Option 1
Lifecycle performance risk aggregate premium (in million $, option 2 only) $400.0M
Revenue uncertainty adjustment calculation method (see options below) Option 1
Delta between availability payment & toll concession WACC (in percent, option 1 only) 1.60%
Revenue uncertainty adjustment (% of toll revenue collection, option 2 only) 28.00%
Guidance for Valuation Options
Option 1: WACC-based risk premium is calculated to determine the value of lifecycle performance risks/revenue uncertainty adjustment
Option 2: User to provide a risk premium for the value of lifecycle performance risks/revenue uncertainty adjustment
Option 3: Lifecycle performance risks/revenue uncertainty adjustment are ignored in the analysis

Review of Model Outputs

  1. Delayed PSC (Delayed Conventional Delivery)
  2. PSC (Conventional Delivery)
  3. P3 Delivery

Delayed PSC (Delayed Conventional Delivery)

  Benefits & costs under Delayed Conventional Delivery NPV @ 2.00% Real total  
  ∆ Travel time cost $1,828M $3,251M  
  ∆ Delays due to construction ($48M) ($57M)  
  ∆ Delays due to O&M $10M $17M  
  ∆ Delays due to incidents $1,360M $2,388M  
  ∆ Non-fuel costs $111M $193M  
  ∆ Fuel costs ($109M) ($176M)  
  ∆ Accident costs $292M $507M  
  ∆ Emissions cost ($127M) ($226M)  
  Highway benefits subtotal $3,318M $5,898M  
  ∆ Transit passenger benefits $22M $40M  
  ∆ Carpooling passenger benefits $20M $36M  
  Transit and carpool passenger benefits subtotal $43M $76M  
right arrow Total benefits $3,360M $5,974M  
  O&M No Build cost savings $205M $350M  
  Real construction costs ($370M) ($435M)  
  Real operations costs ($104M) ($180M)  
  Real base variability - -  
  Real pure risks - -  
  Lifecycle performance risk ($86M) ($140M)  
right arrow Total costs ($354M) ($516M)  
  Total net benefits / (costs) under Delayed Conventional Delivery $3,006M $5,458M blue arrow
  Benefit cost ratio under Delayed Conventional Delivery 9.48 N/A  

PSC (Conventional Delivery)

  Benefits & costs under Conventional Delivery NPV @ 2.00% Real total  
  ∆ Travel time cost $2,058M $3,521M  
  ∆ Delays due to construction ($50M) ($54M)  
  ∆ Delays due to O&M $11M $19M  
  ∆ Delays due to incidents $1,573M $2,639M  
  ∆ Non-fuel costs $132M $217M  
  ∆ Fuel costs ($140M) ($213M)  
  ∆ Accident costs $345M $568M  
  ∆ Emissions cost ($147M) ($250M)  
  Highway benefits subtotal $3,781M $6,446M  
  ∆ Transit passenger benefits $25M $43M  
  ∆ Carpooling passenger benefits $23M $39M  
  Transit and carpool passenger benefits subtotal $48M $82M  
right arrow Total benefits $3,829M $6,528M  
  O&M No Build cost savings $248M $400M  
  Real construction costs ($408M) ($435M)  
  Real operations costs ($128M) ($210M)  
  Real base variability - -  
  Real pure risks - -  
  Lifecycle performance risk ($104M) ($160M)  
right arrow Total costs ($392M) ($516M)  
  Total net benefits / (costs) under Conventional Delivery $3,437M $6,012M blue arrow
  Benefit cost ratio under Conventional Delivery 9.76 N/A  

P3 Delivery

  Benefits & costs under P3 Delivery NPV @ 2.00% Real total  
  ∆ Travel time cost $2,103M $3,569M  
  ∆ Delays due to construction ($36M) ($38M)  
  ∆ Delays due to O&M $14M $22M  
  ∆ Delays due to incidents $1,673M $2,780M  
  ∆ Non-fuel costs $136M $221M  
  ∆ Fuel costs ($148M) ($221M)  
  ∆ Accident costs $356M $580M  
  ∆ Emissions cost ($151M) ($255M)  
  Highway benefits subtotal $3,946M $6,660M  
  ∆ Transit passenger benefits $26M $44M  
  ∆ Carpooling passenger benefits $23M $40M  
  Transit and carpool passenger benefits subtotal $49M $83M  
right arrow Total benefits $3,995M $6,743M  
  O&M No Build cost savings $257M $410M  
  Real construction costs ($388M) ($410M)  
  Real operations costs ($119M) ($193M)  
  Real base variability - -  
  Real pure risks - -  
  Lifecycle performance risk ($90M) ($136M)  
right arrow Total costs ($340M) ($516M)  
  Total net benefits / (costs) under P3 Delivery $3,655M $6,227M blue arrow
  Benefit cost ratio under P3 Delivery 11.73 N/A  

Summary of Costs and Benefits

Costs and Benefits of Alternative Delivery Methods in millions of dollars (present value)

Text summary of chart

Costs and Benefits of Alternative Delivery Methods in millions of dollars (present value)
  Delayed PSC PSC P3
Costs ~400 ~450 ~390
Benefits ~3400 ~3700 ~4000

Patrick DeCorla-Souza

P3 Program Manager
USDOT Build America Bureau
& FHWA Center for Innovative Finance Support
(202) 366-4076
Patrick.DeCorla-Souza@dot.gov