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Public-Private Partnership (P3) Procurement: A Guide for Public Owners

March 2019
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5. Developing the Draft Request for Proposal

The term "RFP" refers to the entire set of documents issued to proposers for purposes of soliciting proposals. The RFP documents typically include instructions to proposers (ITP), contract terms and conditions, multiple volumes of technical provisions and other documents that are also considered part of the contract, and reference information documents that are outside of the contract.

The main objective of the RFP step is to obtain competitive proposals that meet the agency's requirements, allowing the agency to make an intelligent decision regarding proposer selection. The RFP also serves to communicate updated project information and information about the procurement process to the shortlisted teams and to establish rules for communications with the proposers.

Table 10 presents the key goals and activities for the procurement phase through issuance of the final RFP.

Table 10. Goals and Activities – Procurement through Request for Proposal Issuance
Goals for the Request for Proposal Process Activities
Develop Request for Proposal (RFP)
  • Develop draft RFP procurement terms
  • Develop draft RFP contract terms
Develop Final RFP
  • Industry review process
  • Develop final RFP procurement terms
  • Develop Final RFP contract terms
  • Continued project due diligence
Seek necessary approvals
  • Update management and stakeholders and obtain required approvals required to issue the RFP

5.1. Developing Draft Request for Proposals - Key Considerations

5.1.1. Schedule

The RFP should update the agency's schedule for major steps in the procurement, with appropriate caveats making it clear that the dates remain subject to change. As an example, the ITP for the Florida DOT's I-4 Ultimate P3 project identified three rounds of pre-RFP industry review activities and provided estimated dates for the proposal request and response process (shown in the box). Various activities during the procurement process may result in changes to the procurement schedule as the procurement proceeds. These include activities that are typically started during the pre-procurement phase once the project delivery strategy is finalized or in parallel with the decision. Table 11 presents the key schedule drivers during the P3 procurement phase and their potential for delaying the schedule. While developing the procurement schedule, it is important to be mindful of dependencies- particularly dependence on external factors outside of the control of the procurement team and the agency-and activities that pose a high schedule risk. It is important also to recognize the schedule impacts of the technical details of the procurement. For instance, if the RFP is developed with a "non-commercial position" (i.e., transfer of risk to the private entity that the entity has no ability to control), significant time may be required to negotiate with the proposers. Furthermore, external factors such as political support and public opinion can also impact the procurement schedule. The Maryland Purple Line project was impacted by the State gubernatorial election that occurred while the procurement was underway, and the subsequent request by the Governor to re-evaluate the project's merit added an approximately 12-month delay in the schedule for award of the contract and financial close.

Activities Included with Dates in Instructions to Proposers (ITP) for the Florida DOT's I-4 Ultimate P3 Project

Issue Final RFP

Exchanges regarding rate tables

ATC and AFC meetings (multiple)

One-on-One Meetings (two rounds)

Identification of underwriters and underwriter counsel

Provision of market pricing updates

FDOT responses to ATCs and AFCs

One-on-One Meetings (Fourth Round)

Last day for Proposers to submit questions under ITP Section 2.3

Request for approval of changes in organization

FDOT provision of wage rate tables

Administrative and Technical Proposal Due Date

Submittal of Model Auditor details

Exchange regarding Bond Financing Base Interest Rates, TIFIA Rates, and Bank Debt Financing Benchmark Rate(s)

Financial Proposal Due Date

Selection/Award

Best Value Proposer submittal of information and documents

Execution of Agreement and Financial Close


Table 11. Key Schedule Drivers at the Request for Proposal Stage
Key Schedule Drivers (Procurement Phase) Potential for Schedule Risk Notes / Dependencies
Approval of elected officials High This can potentially be a high risk at any stage of the procurement. Seeking legislative approvals to the extent possible prior to procurement and keeping legislators informed and on-board throughout the procurement process can help mitigate this risk.
Federal agency approvals Medium to High Early involvement of Federal Regional or Division Office Staff is recommended.
Federal funding/financing (e.g. grants/TIFIA/RRIF/PABs) application (if relevant) High Engage staff/ advisors experienced with application process and procedures for the appropriate financing instruments.
Interactive one-on-one sessions with shortlisted proposers and ATC and AFC meetings. Medium The evaluation approach and procedures should be identified well in advance but also kept simple to accommodate the insights from these sessions.
Negotiations on final P3 agreement. Medium to High This can be a high schedule risk if the agency starts with a "non-commercial" position, leading to extensive negotiations. Pre-award negotiations with the selected or preferred proposer can proceed much more expeditiously than competitive negotiations with multiple proposers.
Commercial close Medium Appropriate risk allocation and starting the procurement process from a "commercial" position is key to achieving timely commercial close.
Financial close Medium to High Level of risk depends on number and type of financial instruments used, as well as market conditions.
5.1.2. Submittal Requirements

RFP submittal requirements are much more complex than those required by the RFQ, but the underlying concept is similar. Submittals must be tied to the evaluation criteria and enable the agency to determine which proposer best meets the agency's goals and objectives for the project. The submittal requirements vary significantly depending on the agency and its goals and objectives, the type of project, and the type of payment structure used.

To enables proposers to easily identify specific requirements for each element of the proposal, the agency may wish to include separate exhibits in the ITP identifying submittal requirements for the administrative submittal, technical proposal and financial proposal. This also helps to reduce the likelihood that the agency will have to ask proposers to correct errors in their submittals. For the I-4 Ultimate project, the exhibits included eight pages of instructions for the administrative proposal, plus forms; 14 pages of instructions for the technical proposal, plus forms; and 18 pages of instructions for the financial proposal, plus forms.

5.1.3. Cost and Pricing Data

Some agencies require cost and pricing data to be provided with financial proposals for P3 projects, while other agencies do not require any such data- other than the financial model-to be submitted. Cost and pricing data is not part of the proposal and therefore is not evaluated, but may be relevant to the agency for matters such as understanding the proposal, reaching financial close, negotiation or determination of payment adjustments, extensions of time, compensation, excuse from compliance, request for change proposals, agency changes, modification requests, refinancing gain calculations, calculation of termination compensation, and resolution or settlement of claims and disputes. Such data may be relevant even for revenue risk projects to the extent that the agency has agreed to make payments to the concessionaire for specified relief events. The data is held in safekeeping by the agency to ensure that the agency has access to contemporaneous information about pricing in the event of a future dispute.

In order to strengthen the concessionaire's position that such data constitutes proprietary information, the contract may provide for the information to be held in escrow or for the data to be held by the agency in a locked cabinet with the key held by the concessionaire. The information may also be provided electronically, with the concessionaire holding the password required to obtain access to the data. If electronic data is provided, the concessionaire should be obligated to maintain a hard copy set for future reference.

If the documents require cost and pricing data, the agency should conduct an initial review of the data to verify that it is complete, and index it to facilitate future reviews. The data should be supplemented when change orders are issued.

5.1.4. Disadvantaged Business Enterprise (DBE) Requirements

U.S. DOT DBE program requirements apply to P3 projects as they do to other highway and transit projects that receive Federal funding. The regulations applicable to the U.S. DOT's DBE program are found at 49 CFR Part 26. The DBE Program is designed to remedy ongoing discrimination and the continuing effects of past discrimination in federally assisted highway, transit, airport, and highway safety financial assistance in transportation contracting markets nationwide. 102

Under the Federal DBE program, recipients are required to set an overall DBE goal for their federally assisted programs. For FHWA recipients, the goal is reflected as a percentage of the State's apportioned highway funds and represents the relative availability of DBEs as compared to all contractors that perform the types of work relevant to the State's Federal-aid Highway Program. 103 The goal methodology must be submitted to FHWA for approval.

States are required to meet the maximum feasible portion of their overall goals through race-neutral means. 104 States must set DBE contract goals to meet any portion of their overall goal that cannot be met using race-neutral means. Contract goals vary depending upon the amount of subcontracting opportunities available under the particular contract and the number of DBE firms that provide those services. Thus, contract goals could be higher than the statewide goal, lower than this goal, or even zero percent, depending on the type of work required under the particular contract at issue.

The Federal DBE regulations also allow States to establish a "project goal" for complex projects. This goal is separate from the overall goal but still uses the same goal-setting approach as described in the paragraph above concerning a State's overall goal. 105 The funds for the project to which the project goal pertains are separated from the base from which a State calculates its regular overall goal, and progress toward meeting a project goal should be reported separately from the State's overall goal attainment report.

On P3 projects, depending on the circumstances, a State agency may choose to set a DBE contract goal or it may set a separate project goal, which could include both a race-neutral projection and a race-conscious projection. Where race conscious contracting efforts are contemplated on a P3 project, a State agency may need to adopt DBE procedures different from those implemented for design-bid-build projects that States typically undertake. In a design-bid-build project, the design and scope of the project are known at the time of bid, allowing bidders to identify up front DBEs that can be used on the project to meet the contract goal. U.S. DOT's regulations direct States to require bidders to submit their DBE participation information either at the time of bid or no later than five days after bid opening. 106 In a P3 project, the project design and the scope of construction are yet to be determined as of contract award. Thus, at the time of award, it may be difficult for a proposer to identify the specific DBE firms that will be used to meet the contract or project goal. Often only design/consultant DBEs can be identified prior to award. Thus, best practices typically require the developer to submit, usually with its response to the RFP, or otherwise at a time prior to award, a DBE Participation Plan that includes those specific, typically design-related DBEs, and work items for which DBEs will be solicited to perform.

A DBE Performance Plan should include a schedule by which the developer will identify specific DBE firms. The recipient must monitor compliance with the schedule, which becomes a roadmap for the developer to show ongoing good faith efforts to meet the goal. The DBE Performance Plan typically details the developer's oversight strategy to monitor requirements such as commercially useful function, procedures for termination of DBEs, and prompt payment of subcontractors.

For more details on best practices for integrating DBE considerations into P3 projects, developers should consult FHWA's "Disadvantaged Business Enterprise Program Administration and Oversight on Projects with Alternative Contracting and Procurement Methods: A Handbook for FHWA Civil Rights and Other Oversight Practitioners." 107

Small Business Enterprises (SBEs)

Small business programs do not trigger constitutional guarantees under the 14th Amendment or otherwise, and therefore are not subject to strict scrutiny standards. In addition, Congress has specifically authorized States to establish small business set-asides and other programs favoring small business, 108 which means that such programs are not prohibited by the competition requirements of 23 U.S.C. §112. Thus, States have wide latitude to establish small business requirements within the context of a P3 project. These may include training programs as well as goals and race-neutral set asides for small businesses. Many States have such programs, some of which are even more aggressive than the Federal programs.

5.1.5. Technical, Financial, and Administrative Proposals

As can be seen from the schedule for the I-4 Ultimate project in Section 5.1.1, some procurements ask proposers to segregate "administrative" submittals from the technical and financial proposals. This facilitates the pass/fail review of the proposal as the administrative and legal information does not need to be pulled out of the technical proposal.

The RFP may also provide for separate due dates for technical proposals and financial proposals. For the I-4 project, the financial proposal due date was approximately 1 month after the date for technical proposals and administrative submittals. This gives the agency the opportunity to review the technical proposals and administrative submittals for compliance and request clarifications and/or revisions before receipt of the financial proposal. This approach is particularly desirable for transit and other projects involving complex systems, since the complexity of the systems requirements increases the likelihood of technical errors. It also gives the proposers additional time to estimate costs after finalizing the technical proposal and has the added benefit of extending the bid validity period, which starts upon receipt of financial proposals. This approach has also been used for a number of other projects, including Maryland's Purple Line project (with a 3-week lag time between proposals) and the Los Angeles World Airports APM project (with over 2 months between proposals).

5.1.6. Financial Model

The FHWA P3 Toolkit website includes a primer on financial structuring and assessment for P3s that describes the function of a financial model as follows:

"Bidders, lenders and the public agency use financial models to determine a project's financial feasibility from their perspectives. Financial models of the project produce indicators that help private bidders determine the potential value of the project, help lenders check the project's capacity to repay debt, and help public agencies to determine the value of the concession or the amount of public subsidy that might be needed. Each party generally uses a financial model to test different scenarios of interest to it and their impacts on the indicators of interest.
The financial model is used by bidders to structure the proposed financing and review the impacts of different financial options. The financial structure of a project has to be consistent with its risk profile. Financial structures are tested based on scenarios in which various risks occur. Varying input assumptions and different financial structures are tested to assess the impacts on the bidder's projected cash flow throughout the project's life-cycle." 109

The financial model provides information critical to evaluation of the financial proposal and is typically required to be provided as an electronic document that can be manipulated by the evaluators. Refer to the FHWA financial structuring and assessment primer identified above for additional information regarding development of financial models, model inputs and outputs, and the importance of conducting a sensitivity analysis.

The financial model also serves a function over the course of the project's lifecycle and is used to price compensation payments required by the contract due to variations from base assumptions, and to make calculations such as for refinancing gains that are to be shared between the public agency and the concessionaire. In some cases, it may be necessary to rebuild the model included in the proposal so that it is suitable for periodic updates over the course of the project. Some agencies provide for the financial model to be placed into escrow upon award to preserve the concessionaire's position that the model constitutes proprietary information exempt from disclosure under open records laws.

5.1.7. Evaluation and Selection Process

The RFP must identify the evaluation criteria and major subfactors that will be used as the basis for selection and their relative weighting. As discussed in section 4.1, such criteria are typically set by senior management during the planning stages of the procurement process, but both the criteria and their relative weightings may be revisited over the course of the procurement.

The RFP also should include a general description of the process that will be followed in evaluating and selecting the preferred proposer (or "apparent best value proposer" or other descriptive term). Some agencies provide more detail than others regarding the process. In the interests of transparency, more detail is preferable, but the agency should recognize that its flexibility to address unanticipated issues arising during the evaluation and selection process will be circumscribed by the commitments included in the RFP.

If the agency intends to use a competitive negotiation process-which involves requests for revised proposals after discussions either with all proposers or proposers within a competitive range-the ITP should so advise the proposers. Most P3 RFPs reserve the right to request revised proposals but do not include detailed information about the process. If the agency is subject to legal constraints that preclude pre-award negotiations with the selected proposer, but has the ability to use competitive negotiations, it may wish to include a more detailed description.

Refer to section 4.4 for additional information regarding the evaluation and selection process.

5.1.8. Pre-award Process

The RFP should also describe the process to be followed during the period following selection and prior to award. If the agency would like the flexibility to negotiate with the selected firm, the RFP should make it clear that the agency reserves the right to enter into discussions in the agency's interest. The agency should preserve the ability to move to the next highest ranked proposer if negotiations fail with the highest ranked firm.

Where a DBE goal is contemplated, the RFP should include the DBE goal and DBE performance plan requirement. The expectations regarding the content of the performance plan should be clearly explained, e.g., specific DBE firms that will be used (typically design firms), specific work categories for which DBEs will be solicited, schedule for identifying specific firms, and how oversight will be performed and requirements will be monitored. Often, the RFP requires the responder to identify a full-time employee with the experience necessary to ensure DBE requirements are met.

The process for commercial close should also be described in the RFP. This involves finalizing the form of the contract documents, obtaining legal opinions, evidence of insurance, performance security, copies of key contracts, evidence of authority, and other information required as a condition to execution and delivery of the contract. For some projects, financial close occurs concurrently with commercial close, making the process even more complicated. Refer to section 7.5 for a description of financial close requirements.

5.1.9. Flexibility for Innovation

The RFP should be drafted so as to communicate the agency's willingness to allow the private sector to introduce alternative technical concepts (ATCs) or innovative designs and production processes that serve the agency's goals for the project, for example:

  • Cost reduction (TxDOT's LBJ TEXpress Lanes).
  • Access to technology needed to fulfill environmental requirements (FDOT's Port of Miami Tunnel).
  • Reducing right-of-way acquisition and environmental impacts (VDOT's I-495 Express Lanes).

To achieve such results, it is important for proposers to understand that the agency is willing to consider changes to its existing project plans. For the LBJ TEXpress Lanes, one of the teams responding to the RFP presented a design that differed from the one promoted by TxDOT. Instead of a tunnel approach, the team proposed a trench-cantilever design that would diminish cost by $900 million. TxDOT was willing to accept the new design, which required an environmental re-examination of the alternatives. Moreover, TxDOT showed flexibility in dealing with the effects of the Great Recession on the procurement process, extending the deadline to respond to the RFP, thus allowing the procurement to continue until market conditions became more favorable, and also extending the financial close deadline both during the procurement and after conditional award.

Virginia's I-495 Express Lanes provides another example of an agency's willingness to allow flexibility. For this project, an unsolicited proposal modified a project description that VDOT had evaluated as a publicly funded project and had determined to be unfeasible due to its high costs and ROW requirements. The unsolicited proposal included a reduced number of lanes and consequently a decrease in the ROW requirements and the number of homes that had to be demolished. But, to improve mobility, it introduced a series of measures to decrease congestion along the corridor, including high occupancy tolling (HOT) lanes with open road toll (ORT) collection and dynamic toll pricing. This not only meant that VDOT had to be willing to consider the changes to the project included in the unsolicited proposal but also that it was prepared to take the necessary steps to obtain approvals from the Federal Government and others to implement the changes.

5.1.10. Special Purpose Entity - Changes in Teams and Key Staff

Since P3 projects normally involve long-term operations and maintenance, the concessionaire is typically set up as a Special Purpose Entity (SPE), often a limited liability company (LLC). Since LLCs are generally not well capitalized, the agency may require guaranties from the LLC members or their parent companies. The concessionaire will typically enter into major subcontracts for performance of design-build services, acquisition of vehicles, and operation and maintenance services. The concessionaire's team will include financial advisors, and it will also need to identify proposed lenders. The RFQ requests information regarding the concessionaire, the concessionaire's equity members, the financial strength of the equity members and any proposed guarantors, and the experience and qualifications of the team members.

Because of the costs associated with formation of a special purpose entity for a P3, the equity members often submit a proposal along with a promise to form the SPE if selected. This requires some attention to detail in drafting the ITP and in reviewing the information provided when the proposals are received. The documents to be provided as a condition to commercial close will include the organizational documents for the concessionaire as well as evidence that the parties are authorized to execute and deliver the closing documents. Legal opinions are advisable due to the complexities of the transaction and should not present an undue burden on the proposers, since the lenders will require opinions in connection with the financing.

Typically, the proposer may change its team members following submission of the statement of qualifications and/or proposals only with the approval of the agency, and the proposer must provide support for any such proposed change with detailed information regarding the reason for the change and proposed replacement member(s). Agencies also usually reserve the right to impose terms and conditions on any such consent. In addition, proposers are also often required to notify the agency of any material change in circumstances to its members that adversely affect the proposer's ability to perform its obligations under the P3 agreement or to obtain financing.

5.1.11. Proposal Security

For large P3 projects in the United States, proposal security is typically required to be submitted with the proposal, either in the form of a bid bond or letter of credit in a specified amount and form. The amount of the proposal security varies depending on legal requirements and the purpose of the security. The agency has the right to draw on the security if the proposer fails to comply with its obligations under the RFP, including its obligation to execute and deliver the contract and ancillary documents. Proposal security is typically released after award of the contract to the successful proposer.

It should be noted that, for projects involving post-selection negotiations, the primary purpose of the proposal security is to ensure that the proposer negotiates in good faith, although it would also cover situations involving withdrawal of the proposal or failure to close the deal following successful negotiations. For such projects, the agency might wish to consider whether the benefit of having proposal security justifies the cost.

The amount of the security is typically set based on applicable legal requirements and the financial advisor's assessment regarding the amount and may be the subject of discussions with proposers in one-on-one meetings. For the NTE project, the proposer was required to submit a proposal bond in the amount of $35 million if the proposal included approved financing commitments or $50 million if the financing commitments were not approved. For FDOT's I-4 Ultimate project, the proposal security was in the amount of $20 million, and for the Purple Line project, the amount was $10 million.

For certain projects, including FDOT's I-4 Ultimate project and the NTE project, the RFP provides that the proposal security will remain in effect after commercial close for the purpose of securing the proposer's obligations under the P3 agreement through financial close. 110 In some cases the value of the proposal security must be increased as a condition to contract award (for the NTE project the value was increased by $25 million). For other projects, the proposal security is replaced with separate financial close security upon award. The Purple Line project required financial close security in the amount of $20 million.

In other countries, it is common to see letters of credit as bid security, but U.S. contractors generally provide proposal bonds even though the RFP may permit other forms of proposal security.

5.1.12. Proposal Validity Period

As is the case for all major construction projects, the agency should set the bid validity period for a P3 based on the agency's needs, taking into consideration the effect of a longer validity period on price as well as industry's ability to commit to pricing over a longer period. For design-build projects, the maximum limit appears to be 180 days from the bid date, as contractors are apprehensive about the effect of market changes on their costs and sureties are unwilling to issue proposal bonds for longer periods. If the agency is concerned that it may not be able to award the contract within the stated validity period, it can include a provision in the RFP stating that the agency may ask proposers to extend the validity period, in which case the extension is subject to approval by both the proposer and its surety. The effect of delay on proposer costs can be dealt with by including an escalation clause in the form of contract. As an example, for the Orange County Transportation Authority's I-405 project, the contract provides for the price to be escalated if the full notice to proceed is delayed beyond 300 days after the proposal due date, with escalation calculated based on the 3-year rolling average of the monthly Engineering News Record (ENR) Los Angeles Construction Cost Index (CCI).

For P3 projects the issue becomes even more complicated due to considerations associated with the finance component of the deal as well as the possibility that negotiations may extend beyond the bid validity period. Even after the contract is signed, it is possible that the selected firm may not be able to reach financial close, in which case the agency may want to be able to return to negotiate with the second ranked firm. The Purple Line RFP, which included a 180-day initial bid validity period, addressed this scenario by specifying that the procurement remained in effect until financial close and making it clear that the proposers had the right to extend their bid validity periods accordingly. Before agreeing to an extension, the proposer would need to assess current market conditions and the ability to hold its contractors to their prices. In fact, for the Purple Line, commercial close occurred 121 days after the proposal due date and the TIFIA loan closed 68 days later (189 days after the proposal due date).

5.1.13. Soliciting Teams for Multiple Project Delivery Structures

For most projects, the agency decides which delivery method to pursue before issuing the RFP, basing its decision on a thorough analysis of each delivery method and engaging in market soundings with industry and discussions with stakeholders. However, for some projects, the agency may wish to explore more than one type of project delivery structure.

The projects discussed below provide examples of procurements involving an assessment of the advantages and disadvantages of a revenue-risk P3 compared with a delivery model involving collection of toll revenues by the agency, with the agency bearing the risk that revenues will be less than anticipated.

Virginia's procurement process for Transform 66 Outside the Beltway, a project to expand 22 miles connecting the I-495 Capital Beltway to US-29 in Gainesville, was designed to increase competition and thus the benefits resulting from the project. The new procurement process used by VDOT responded to the political climate surrounding P3s in the state. The Transform 66 Outside the Beltway procurement promoted competition in three ways: 1) it included measures to address public skepticism that the P3 delivery method would deliver the best value for citizens; 2) it retained a State-funded public option as an alternative until financial close; and 3) the private sector had the opportunity to submit across different delivery methods: DB with public financing, DBOM with public financing, and toll concession (DBFOM). At the end of the procurement process, the DBFOM alternative submitted by Express Mobility Partners-a consortium of Cintra, Meridiam, Ferrovial Agroman US, and Allan Myers VA, Inc.-was the preferred proposer. This delivery option did not require up-front public funding whereas the public option required $400 to $600 million. One significant benefit was that the agency received an initial payment of more than $500 million that could be used for additional transportation improvements along the I-66 corridor.

Other agencies have also considered public alternatives in connection with P3 procurements. TxDOT's 2007 procurement for a concession for the SH-121 Toll Project was ultimately terminated after the North Texas Tollway Authority (NTTA), in exchange for the right to develop and operate the project, offered to pay the State an amount that exceeded the private sector's offer for the project ($3.196 billion vs. $2.8 billion).

In 2014, TxDOT issued an RFQ for the Grand Parkway that contemplated alternative delivery structures. However, after shortlisting teams for both a P3 and a design-build-maintain (DBM) approach, TxDOT opted to issue an RFP only for the DBM model. According to a TxDOT spokesman, the decision was attributable to the difficult financial climate and weak traffic and revenue forecasts for the Grand Parkway. In the end, the agency believed these factors made it unlikely that TxDOT would receive strong toll concession proposals, so it was not worth pursuing the P3 option. 111

Agencies interested in preserving the ability to use multiple procurement structures will need to consider the effect of the alternatives on the competition and should consult with their advisors and representatives of Federal funding agencies regarding measures that should be adopted to ensure that the procurement process remains fair, open, and competitive.

Some practitioners believe that use of multiple procurement structures may reduce the number of respondents interested in the procurement, as some firms may decide to respond only to their preferred structure due to proposal cost considerations, while others may decide not to respond altogether because they view the chances of success as significantly diminished. Proposers may perceive that they are competing not only against other firms but also against the other delivery methods being considered.

5.1.14. Reserved Rights

The ITP will typically include a list of reserved rights, for example the right to reject all proposals, waive deficiencies, and seek clarifications from proposers.

5.2. Developing the Draft Request for Proposal - Contract Terms

The discussion that follows is primarily directed at agencies that are using a P3 model for the first time or are embarking on a new P3 that differs in material respects from the agency's prior projects. If the agency has previously used the P3 methodology for a comparable project, it will probably be advisable to use the terms and conditions for the prior transaction as a starting point for the new project, with appropriate modifications to address lessons learned on the first project.

5.2.1. Agency Decisions - Commercial Terms

P3 projects differ significantly from other types of delivery methods due to the types of responsibilities assumed by the private sector. In particular, inclusion of financing in the contract and the long-term responsibilities undertaken by the private sector will require the agency to make numerous decisions regarding commercial terms, including terms that are not addressed in the agency's standard contracts as well as standard provisions that are not suitable for P3s. FHWA's Model Public Private Partnership Core Toll Concessions Contract Guide (2014) provides detailed guidance on developing concession agreements for highway transportation P3s. 112

A model P3 template for transit projects is on FTA's web site, 113 along with many other resources.

Issues to be addressed include:

  • The scope and term of the concession (see section 3.2.3).
  • Payments by the agency (including progress or milestone payments, mechanism for availability payments, deductions, escalation, payments for risks allocated to the agency).
  • Requirements relating to financial close.
  • Financing issues, including interest rate changes, changes to the baseline TIFIA term sheet (where TIFIA is used), issues associated with refinancing, and lender's rights.
  • Requirements for design, construction, equipment supply, and operations and maintenance.
  • Requirements relating to property acquisition, hazardous materials, site conditions, utility relocations, and third parties.
  • Agency changes, including the possibility of changes in required service.
  • Requirements to be met on handback.
  • Labor-related requirements.
  • DBE and subcontracting requirements (see sections 5.1.4 and 5.2.6).
  • Ethical requirements.
  • Indemnification.
  • Default provisions.
  • Compensation upon termination.
  • Dispute resolution.
  • Changes in ownership.
  • Insurance and performance security requirements (bonds, letters of credit, parent company guaranties).
  • Limitations on liability (consequential damages and caps on liability).
  • For revenue risk projects, provisions assuring the concessionaire that its future revenues will not be adversely impacted by future projects that affect ridership as well as policies, requirements and limitations on how charges/rates for revenues may be adjusted over the term of the concession.
  • Relief events and remedies.

Many of these issues will require legal analysis as well as analysis of the advantages and disadvantages associated with different alternatives. The agency's financial, legal and technical advisors can provide information regarding approaches used by other agencies, and can provide recommendations for the current project, but ultimately the business decisions will need to be made by the agency.

5.2.2. Agency Decisions - Risk Allocation

Much of the contract drafting will revolve around the agency's decisions relating to allocation of risk-that is, determining which of the parties to the contract (or third parties) will bear specific risks-as well as measures that can be incorporated in the contract to address risk. The process for risk management is discussed thoroughly in NCHRP Research Report 850. 114

One practice that has been successful in assisting agencies in making informed decisions regarding risk allocation is to hold a risk workshop early in the procurement process. At the workshop, decision-makers will obtain information regarding underlying risks affecting the project and their potential impacts, and input regarding which party is best able to manage risk, how to align risk allocation with project goals and objectives, and how to provide both parties with incentives to take appropriate steps to manage risk. Obtaining risk allocation decisions early in the procurement process will avoid the need for extensive redrafting once decisions are made.

The concessionaire's finance-related obligations are a major factor in risk allocation decisions due to the high cost to the concessionaire of delays that affect project completion, thus also delaying the start of the concessionaire's revenue stream. While relatively short delays in completion result in additional interest expense, extended delays may result in the need to modify the loan terms and an increased cost of financing. Sometimes the risk allocation involves "splitting" the risk between the parties. As one example, risk of utility delays may be shared, possibly with a utility delay "relief event" resulting in the concessionaire receiving a 1-day time extension for every 2 days of delay, and with the agency agreeing to pay interest owing to the lenders for each day of the extension period and the concessionaire bearing the interest risk for the other days of delay. Another commonly used approach is to establish "bands" for allocation of risk, typically with the concessionaire responsible for additional costs incurred up to a specified amount (the first band), the parties sharing the cost risk within an intermediate band, and the agency responsible for costs incurred in excess of the maximum limit in the intermediate band. There are many other ways to allocate risk, and the agency should be prepared to dedicate a significant amount of time to the workshop discussion.

Workshop attendees should include agency decision-makers, individuals on the agency's team with detailed knowledge about project risks, individuals who have experience with other P3 projects and can advise about approaches to risk allocation used for other projects, and individuals who can advise about statutory and case law issues affecting risk allocation. At the conclusion of the workshop, a summary of the decisions made should be circulated for further review. Contract drafting can start based on this summary.

The agency should establish a framework for initial risk allocation decisions to be revisited by the procurement team as additional information becomes available, including a process for responding to input received from proposers and a process for vetting recommended changes with the agency's senior management. The workshop decisions are often tracked in a risk/responsibility matrix that can be updated as the procurement proceeds and risk decisions are revisited.

5.2.3. Determine Precedent Documents

In determining the starting point for developing concession agreement terms for a P3 project, it is advisable for the drafter to consider whether forms used for other projects would be suitable for the current project, reducing the amount of time required to produce the documents. Factors that should be considered in making this decision include:

  • Similarities between the proposed risk allocation and business terms of the proposed P3 transaction and the risk allocation and terms of the precedent documents.
  • The level of effort required to modify the precedent documents to be suitable for use by the agency.

Ideally, initial decisions regarding risk allocation and business terms will be made before deciding what forms to use as the basis for the project documents. However, in some cases, agencies defer the risk allocation workshop until relatively late in the procurement planning process. When that happens, the procurement team will likely need to decide on the precedent and start drafting the contract documents even though the forms used may not be consistent with the decisions that are ultimately made. This approach may require extensive rewriting that could have been avoided had the drafters started with more appropriate precedent.

In some cases, precedent may be available for comparable projects undertaken by another agency in the same State. In that situation, conforming the document for use by the agency would require less effort than starting with a document from another State, as the precedent would already comply with applicable law-although a compliance check would still be required due to differences in the laws applicable to different agencies within the same State, and statutory changes and new case law will need to be addressed. The documents will also need to be revised to incorporate any requirements that are specific to the agency as well as differences in project scope, risk allocation, and business terms.

In other cases, the best precedent may be from another State. In that situation, a higher level of effort is required to conform the document, as it will need to be modified to ensure compliance with applicable State and local law as well as to incorporate any requirements that are specific to the agency and to address differences in the project scope, risk allocation, and business terms.

In still other cases the agency might decide to start with its own precedent (for example a design-build contract form) and add terms and conditions addressing the addition of financing, operations, and maintenance to the scope and modifying the risk allocation as appropriate. This approach can be very time-consuming and costly to both the agency and proposers due to the significant differences between P3 projects and other delivery methods.

One of the benefits of using a recently negotiated and executed P3 contract as precedent is that it allows the agency to focus on terms and conditions that are specific to its proposed project. With an increasing number of U.S. P3 projects that have reached financial close, it is possible to determine certain terms and conditions that represent standard concepts and, due to their use in multiple transactions, are known to be acceptable to P3 investors and lenders across a wide range of project types. Adoption of these standard concepts helps to reduce the cost to both the public and private sectors in drafting, reviewing, and negotiating the documents. It also enables the parties to focus their energy on aspects of the contract that are cost drivers or that present significant policy considerations for the agency.

On the other hand, both the agency and the private sector need to recognize that legal requirements and policies applicable to the agency and its projects may be incompatible with the standard concepts in the precedent documents, and that the agency and its counsel may have a strong preference for certain terms and conditions used in its other contracts. If the form of contract will be drafted based on documents developed by another agency, the drafters should conduct a review of the agency's standard terms and conditions for projects involving the same scope as the P3 (that is, design, construction, financing, operations and maintenance). These forms should be analyzed not only to identify standard contract provisions that should be carried over to the P3 agreement, but also to ascertain the agency's standard approach to risk allocation and consider what changes should be made. This review will also facilitate the process of determining applicable legal requirements that must be included in the contract through searches for statutory references and provisions dealing with legal concepts such as indemnities.

If the agency is planning to use P3s for multiple projects, it should consider developing programmatic documents setting forth the standard terms and conditions for future contracts. This approach, however, requires a significant level of effort, and it would be difficult for an agency to make the programmatic decisions necessary to develop standard terms unless it has a history of prior projects to draw upon.

5.2.4. Developing Project Performance Requirements

One of the key advantages of a P3 procurement structure is that it enables the agency to focus on desired performance outcomes of a facility to maximize public benefit while letting the private entity determine the most efficient means to achieve those outcomes. Contractually, this is made possible through performance requirements. Performance requirements detail the expectations for facility performance and define what is needed to accomplish the objectives of the project. By establishing requirements based on the performance of the facility or the project, the agency transfers risks to the concessionaire while providing measurable metrics to gauge performance. When developing performance metrics, the agency should determine whether the requirements can be clearly defined in the project agreement and whether and to what extent such requirements can be reasonably measured and enforced during the contract term. Sometimes a desired outcome or performance might make sense from a public policy perspective, but in practice may be cost prohibitive or simply not practical for the agency to measure and enforce.

Agencies that are new to the P3 procurement model but have procured projects using the design-build delivery approach may be able to use that expertise to develop performance requirements for the development phase of a P3 project. However, most P3 procurements require performance requirements for operations and maintenance as well. It is critical that agencies start the process of developing performance requirements early in the procurement process to allow sufficient time to analyze and finalize performance requirements for all project elements.

According to FHWA and the Build America Bureau, the process of developing performance requirements includes:

  • Identifying stakeholder expectation, which could be in the form of an operational goal; for example: reducing life-cycle cost, improving mobility, or increasing ridership.
  • Defining the essential function required to achieve that goal.
  • Developing performance requirements to meet the essential function.
  • Developing performance criteria or measures or metrics to evaluate performance.

Figure 4 provides an example of the steps needed to determine performance criteria that would dictate design decisions.

Illustration shows example of identifying performance requirements / criteria for reduce cost.
FHWA and Build America Bureau, "Webinar on Use of Performance Requirements in Design and Construction for Public-Private Partnerships." (see: https://www.fhwa.dot.gov/ipd/pdfs/p3/toolkit/performance_requirements_webinar_020917.pdf)
Figure 4. Example of Identifying Performance Requirements / Criteria for "Reduce Cost"

Text description of Figure 4


Figure 4. Example of Identifying Performance Requirements / Criteria for "Reduce Cost"

This diagram shows where ask "what is needed" meets ask "how to achieve". On the left, the first step of the process is user requirement, which in this example, the process starts with reduce whole life cost.

Next in the process is Essential Function, which in this example is functionally and structurally adequate pavement.

The third step is the Performance Requirements, which in this example splits into adequate pavement structure and smooth and safe riding surface.

The fourth step is Performance Criteria. From Adequate Pavement Structure in step 3, step 4 in this example includes fatigue cracking less than 10 percent and total rutting less than 0.5 inches. From Smooth and Safe Riding Surface in step 3, step 4 in this example includes IRI less than 120 inches / mile, and HMA rutting less than 0.25 inches.

The last step is Design Decisions. In all examples, this ends in Pavement Thickness, HMA Compaction, HMA Composition, Quality of HMA Mix, Asphalt Binder--Grade Base Thickness, Quality of Base, Materials, Subgrade Strength, and Workmanship.

Inexperienced P3 owners may be inclined to focus their procurements on performance criteria for the design and construction of the facility as opposed to criteria for how the facility will be operated and maintained. It is advisable to have a multidisciplinary team create performance requirements for the facility. Unlike method specification, a performance requirement promotes contractor innovation while focusing the agency resources on monitoring the performance outcomes in accordance with the pre-determined performance criteria. This approach, combined with financial penalties for failure to meet the performance targets, transfers performance risk to the private sector, giving the concessionaire "skin in the game" with respect to construction or operational performance outcomes. Furthermore, because the agency only specifies outcomes not methods, the private entity has flexibility to select materials and techniques that provide the most efficient solution to meeting the performance criteria. The agency should, however, recognize that this approach necessitates a high level of responsibility for the agency to identify all parameters critical for performance and to establish thresholds for both construction and operation performance requirements in the RFP documents.

For further information on performance requirements refer to the Strategic Highway Research Program (SHRP2) S2 R07. 115

5.2.5. Addressing Safety Considerations

Safety considerations may be a key aspect of the P3 project considering the risks involved. The RFP should ask for the proposer's approach to safety of all employees and the public as part of their preliminary Project Management Plan. For facilities involving complex structures, such as tunnels, a fire safety plan and strategy may be required as part of the concept design. The proposers should also provide a comprehensive description of safety measures they will take during construction and operation of the facility including life safety response issues as part of their preliminary Operations and Maintenance Plans.

Safety should also form a part of the performance requirements. The agency should be entitled to issue compliance orders for safety concerns or risks involving the project that the concessionaire may be asked to respond to for additional compensation during facility operation. In case of an emergency situation, the requirement of consultation with the concessionaire may be waived.

Presidio Parkway, California

Presidio Parkway is an availability payment project, a 1.6 mile six-lane segment on Route 101, from the Golden Gate Bridge Toll Plaza to Broderick Street. It includes two tunnels, one viaduct, and the demolition of previous structures, all of which are risky endeavors for both construction workers and for drivers and passengers on the completed facility, who could be subject to wild fires or dangers resulting from seismic activity in the earthquake-prone region. For the RFP, Caltrans and the San Francisco County Transportation Authority (SFCTA) requested the teams to present:

  • "A description of the proposer's approach to safety, for both employees of the developer and the public as part of their preliminary project management plan. The proposer was also requested to provide a fire and safety strategy as part of their concept design for the tunnel systems plans, as well as a strategy for a fire suppression system.
  • A description of the approach to safety during construction and O&M after construction, including life safety response issues as part of their preliminary operations and maintenance plan."

The Technical Requirements section of the Comprehensive Agreement included the following salient safety requirements of the Developer:

  • Project Management Plan should include:
    • Hazardous waste operations, safety, and health plan section, prepared by a certified industrial hygienist licensed by the American Board of Industrial Hygiene.
    • Health and safety plan (HASP) including training for Caltrans staff who visit the project.
  • The project is located within a military base with unexploded ordnance, a risk to consider during the project construction, as such ordnance had been found near the project site. Training on the topic is mandatory, work should continue in areas considered safe by the Presidio Trust, the current owner of the military base site.
  • The developer shall develop detailed Traffic Control Plans for public safety.
  • The project is a "Recovery Route" in a seismic-prone area. The agreement describes two types of seismic events: 1) functionality evaluation earthquake (FEE), a seismic event that has a 50% probability of exceedance in 75 years; and 2) safety evaluation earthquake (SEE), a seismic event that has a 7.5 percent probability of exceedance in 75 years. The project needs to fulfill performance parameters depending on the type of seismic event. For FEE, two performance parameters exist: i) serviceable performance, with full traffic access after a maximum of 72 hours; and ii) repairable performance, with limited immediate access for emergency vehicles and full traffic access after 7 days. For the SEE, the performance parameter is: iii) no collapse performance, and 3 days after the seismic event, structure stability for public safety.
  • The tunnel fire and life safety systems requirements are not limited to fire detection equipment but include communication (two-way radio, CCTV), traffic control signals, emergency ventilation, the drainage system, and tunnel emergency exits.
5.2.6. Addressing Disadvantaged Business Enterprise/Small Business Enterprise Requirements

As discussed in section 5.1.4, federally funded P3 projects are subject to U.S. DOT requirements (49 CFR Part 26) relating to DBE. State goals are not allowed on federally assisted contracts. 49 CFR Section 26.53(e) describes how DBE goals are typically established for P3 procurements, stating:

In a "design-build" or "turnkey" contracting situation, in which the recipient lets a master contract to a contractor, who in turn lets subsequent subcontracts for the work of the project, a recipient may establish a goal for the project. The master contractor then establishes contract goals, as appropriate, for the subcontracts it lets. Recipients must maintain oversight of the master contractor's activities to ensure that they are conducted consistent with the requirements of the DOT DBE regulations. 116

Consistent with this rule, availability payment P3 projects in the United States, such as the Purple Line and I 4 Ultimate projects, imposed DBE requirements on the concessionaire for the design and construction phase. The Presidio Parkway and I-595 projects also included DBE requirements for the operation and maintenance phase.

For the Transform 66 Outside the Beltway project, the P3 agreement included DBE and small, women-owned and minority business enterprise (SWaM) goals for the design-build period, requiring an updated DBE/SWaM plan to be provided annually. Despite its name, the SWaM program is a race-neutral small business program. 117 The agreement requires reports and documentation to be provided periodically to enable VDOT to verify compliance, and includes various remedies for non-compliance. The agreement identifies an annual and long-term SWaM goal for the operations and maintenance period. The contract includes a requirement, similar to that in the Purple Line agreement, requiring the concessionaire to provide an improvement plan if it fails to meet the DBE goals for two consecutive quarters.

It should be noted that 49 CFR Section 26.39, which became effective in 2012, requires an SBE element to be included in each agency's DBE program. Section 26.39(b)(2) states that the DBE program may require bidders on multi-year design-build contracts or other large contracts to specify elements of the contract or specific subcontracts that are of a size that small businesses, including DBEs, can reasonably perform.

5.3. Developing the Draft Request for Proposal - Reference Documents

The RFP also includes reference documents, which are provided to proposers for information only. Reference documents serve to present potentially useful information to proposers and also serve to avoid claims that information available to the agency was withheld from the proposers. Proposers typically argue that they should have the right to rely on reference documents, and agencies generally resist such arguments, since reference documents are typically out-of-date or otherwise not suitable for use as contract documents. The Agency may wish to consider use of a disclaimer that the reference documents are provided for information only. It can be helpful to get feedback from interested firms prior to advertising the RFQ (as part of the informal market sounding process or as part of a more formal RFI process) with regard to reference documents or data that will be particularly useful or necessary for proposers to begin to evaluate project risks. Often the proposers will choose their own level of reliance on the data provided. In some cases, they may choose to bear the risk of relying on it completely, but in most cases they will decide either to validate the data by collecting their own on a sample size or to update the data by performing their own study in totality. This decision typically depends on a few factors, including the specific project characteristics, the time available or access provided by the public agency to collect the data, the age of the data, and the cost to collect or verify the data versus the amount of risk the proposer is comfortable taking if relying solely on the data provided.

A decision to include historical data in the reference documents in lieu of conducting current investigations and providing reliable data to the proposers may save the agency money up front, but can result in increased proposal prices due to the addition of contingency to cover perceived risk.

For a discussion regarding various issues relating to reference documents, see the 2015 NCHRP legal digest entitled "Liability of Design-Builders for Design, Construction, and Acquisition Claims." 118

5.4. Industry Review with Shortlisted Proposers; Developing the Final Request for Proposal

For most of the large transportation/transit P3 projects, agencies issued a draft RFP to shortlisted proposers for industry feedback prior to issuing the final RFP.

The industry review process affords agencies an opportunity to ensure that the RFP documents reflect an approach to risk allocation and technical requirements that will attract robust, high quality competition. Potential disadvantages of industry review include the possibility that the RFP documents will be modified based on multiple proposers' needs, some of whom may not submit proposals, or that it could unbalance the competition by favoring one firm's favored approach or product over another's, or that the RFP documents will be modified based on proposer comments without knowing the relative importance of the modifications to the requesting proposers. Hence, the agency may make concessions that are not necessary.

Industry review has proved to be a highly useful tool, particularly for first-time or early P3 procurements, where an established process or form of documents have not yet been developed and where industry feedback is vital to determining the marketability of the proposed approach.

The industry review process involves significant cost both to the agency and the shortlisted firms, as it typically entails multiple rounds of one-on-one meetings as well as written questions that the agency considers in finalizing the RFP package. Nevertheless, both sides believe the process is worth the investment. One of the most important benefits of this process is that it affords proposers an opportunity to better understand and ask questions regarding legal requirements and policies and practices relevant to the procurement and the project agreement that might be unique or that may differ from those encountered in other jurisdictions. Investors and their lenders will need to determine that these requirements are acceptable to obtain management approval of the equity investment and project financing. For the I-4 Ultimate project, the industry review process occurred over a four-month period and included multiple one-on-one meetings to discuss draft documents delivered to the proposers and potential ATCs and AFCs. For the Purple Line, the process included three industry review packages and a series of one-on-one meetings over a 6-month period, with numerous written questions submitted.

The first industry review draft likely will not represent a complete set of documents. In some cases, the contract terms may be provided in the form of a term sheet. Although proposers might prefer to see a complete set of detailed documents, use of a term sheet allows the agency to focus on major issues and cost drivers, allowing the detailed documents to be drafted based on decisions made by the agency after receipt of initial input from the proposers.

Due to the number of written questions that are typically submitted during the industry review process, as well as the fact that the RFP has not yet been issued in final form, agencies often elect to respond in writing only to selected questions (or not to provide any written responses); proposers determine if their other questions were addressed by tracking changes made to the RFP itself in future updates to the document. That means questions that the agency received during the industry review period may be asked again after the RFP is issued, if the proposers believe a particular issue was not addressed satisfactorily.

It is possible that the industry review process may become less important as agencies develop standard forms and determine that the benefits of the process no longer outweigh the costs. While industry review was used on earlier Canadian P3 projects, over time mature P3 jurisdictions in Canada have developed standardized procurement processes and no longer conduct industry reviews. This is, arguably, due in large part to the flexibility shown by agencies in incorporating industry feedback and lessons learned from past projects into the RFP process and documents, effectively rendering the industry review step unnecessary and allowing the procurement timeline to be shortened. It is also possible that U.S. agencies will continue to use the process even though they have developed standardized forms, recognizing the benefits that are gained by obtaining industry input into project-specific aspects of the RFP.

Agencies that have not previously engaged in confidential meetings with proposers sometimes question whether the process raises legal concerns. These agencies should consult with agency counsel for consistency with State and local procurement procedures. Confidential meetings should be analyzed with reference to the laws applicable to the specific agency, but the fact that the process is in common use for P3 and DB procurements may be relevant. The rules applicable to Federal agencies may also be of interest to agency counsel tasked with determining whether such meetings are permissible, or may be adopted as a best practice. Federal agencies procuring contracts under the Federal Acquisition Regulation (FAR) routinely hold one-on-one meetings with proposers during the pre-proposal period. FAR § 15.201(a) specifically encourages agencies to engage in such meetings to exchange information with potential offerors with the stated goal of improving the understanding of all participants regarding both the agency's requirements and industry capabilities. According to FAR § 15.201(b), this process allows potential offerors to judge whether or how they can better satisfy the agency's requirements and enhances the agency's ability to obtain quality supplies and services at reasonable prices. It also increases efficiency in proposal preparation, proposal evaluation, negotiation, and contract award. FAR §15.201(c) notes that "[a]n early exchange of information among industry and the program manager, contracting officer, and other participants in the acquisition process can identify and resolve concerns regarding the acquisition strategy, including proposed contract type, terms and conditions, and acquisition planning schedules; the feasibility of the requirements, including performance requirements, statements of work, and data requirements; the suitability of the proposal instructions and evaluation criteria, including the approach for assessing past performance information; the availability of reference documents; and any other industry concerns or questions."

5.5. Continued Project Activities

During the period prior to issuance of the RFP, the agency should continue various project activities that benefit the project while preserving the proposers' flexibility to develop innovative project solutions.

5.5.1. Project Definition, Risk Mitigation, and Other Activities

Section 3.4 discusses activities the agency should undertake during the project planning period to complete environmental reviews and other approvals for the project, and to reduce or mitigate project risks. Those activities should continue during the pre-procurement period and may include:

  • Refining the project scope.
  • Refining projections (traffic, revenue, ridership).
  • Continuing the process to complete environmental reviews and other approvals.
  • Continuing site investigations.
  • Final survey and mapping
  • Final hydrology
  • Hazardous materials assessment
  • Continuing to negotiate third party agreements.
  • Refining right-of-way strategy.

The topics of discussion at one-on-one meetings with proposers during this period should include providing information about the agency's progress in these activities and asking proposers to identify additional activities that would be desirable, such as an additional boring program, covering areas of special concern to the proposers. Due to funding limitations, the agency likely will not be able to undertake all desired activities, but some of the actions requested by the proposers may be a worthwhile investment. One consideration is whether it would be more time and cost efficient for the agency to perform the work than it would be to have three or four proposers perform the work and build the cost of that labor into their proposals. Another consideration is whether, by providing the requested information, the contingency included in a proposer's price is likely to be reduced. Early agency action and investment is often the best way to address potential increased costs associated with conditions that would otherwise be unknown, unforeseen, or poorly defined.

5.5.2. Federal Participation

Section 3.4.8 discusses activities the agency should undertake during the project planning period to ensure that the project remains eligible for Federal funding, loans, and credit assistance. Those activities should continue during the procurement period and include:

  • Continuing discussions with the Build America Bureau and funding agencies, including advancing the draft TIFIA/RRIF loan and intercreditor agreement terms.
  • Ensuring that the project meets Federal requirements.
  • Continuing to assess the possibility of seeking Federal approvals allowing implementation of innovative approaches.
  • Reviewing any changes in applicable law, regulations, and guidance.
  • Conducting a compliance review to ensure that all applicable Federal requirements are addressed in the ITP and contract documents.
5.5.3. Private Activity Bonds

In addition to seeking a provisional PABs allocation through the Build America Bureau, the agency should take appropriate steps to identify a conduit issuer prior to issuance of the RFP and to negotiate a memorandum of understanding with the issuer that will form the basis for the eventual arrangements between the selected concessionaire and the issuer. For the Purple Line project, the Instructions to Proposers included the following information relating to PABs:

"The Owner has received a provisional $1.3 billion U.S. DOT PABs allocation for the Project. The Owner expects the allocation to remain available throughout the solicitation process and until Financial Close. The use of PABs, if available, in a Proposer's plan of finance is optional and entirely the decision of the Proposer.
If the Initial Project Debt includes PABs, then the Maryland Economic Development Corporation will serve as the issuer of the PABs. Further, the Owner has entered into a Memorandum of Understanding with MEDCO regarding the issuance of the PABs. Proposers shall be solely responsible for obtaining ratings, bond counsel opinions, credit enhancement (as applicable) and an underwriting commitment or placement of the PABs, as well as satisfying any conditions placed on the use of the allocation by U.S. DOT or complying with any other requirements of State and Federal tax Laws.
The foregoing approach has been developed by the Owner as an accommodation to the Proposers and in order to attempt to facilitate the use of PABs by Proposers. The Owner makes no representation as to, nor guarantees the amount, if any, of PABs that can or will be issued for the Project or the use of proceeds to finance the Project as a matter of federal tax Law. Proposers should seek the advice of their own tax consultants. Should a Proposer elect to include PABs in its Financial Proposal, it does so at its own risk and cost, and the Owner shall have no liability with respect thereto." 119

Footnotes

102 Race-conscious Federal programs such as the DBE program must meet a standard of "strict scrutiny" to pass constitutional muster. Strict scrutiny means that the DBE statute and regulations serve a "compelling governmental interest" (i.e., curing the effects of past or present discrimination in the surface transportation construction market) and are "narrowly tailored" to further this compelling governmental interest. [ Return to note 102. ]

103 49 CFR § 26.45. [ Return to note 103. ]

104 49 CFR § 26.51. [ Return to note 104. ]

105 See 49 CFR §26.45(e)(3). [ Return to note 105. ]

106 49 CFR §26.53. [ Return to note 106. ]

107 Available at: https://www.fhwa.dot.gov/civilrights/documents/DBEandACM_Handbook_20180820.pdf. [ Return to note 107. ]

108 See 23 U.S.C. §304. [ Return to note 108. ]

109 Federal Highway Administration, Financial Structuring and Assessment for Public-Private Partnerships: A Primer, "Chapter 6. Financial Modeling," pp. 23-25. Available at: https://www.fhwa.dot.gov/ipd/p3/toolkit/publications/primers/financial_structuring_and_assessment/ch_6.aspx. [ Return to note 109. ]

110 FDOT's I-4 Ultimate RFP required proposal security through financial close. Commercial and financial close occurred on the same day. [ Return to note 110. ]

111 "TxDOT drops P3 concession on Grand Parkway TX99 for design-build," TOLLROADSnews, Feb. 14, 2012. Available at: https://abcr.org.br/noticias/tollroadsnews-txdot-drops-p3-concession-on-grand-parkway-tx99-for-design-build. [ Return to note 111. ]

112 Federal Highway Administration, Model Public Private Partnership Core Toll Concessions Contract Guide. Available at: https://www.fhwa.dot.gov/ipd/pdfs/p3/model_p3_core_toll_concessions.pdf. [ Return to note 112. ]

113 https://www.transit.dot.gov/funding/funding-finance-resources/private-sector-participation/private-sector-participation-2. [ Return to note 113. ]

114 R. Stewart, G. Brink, M. Watson, A. Hiller, and M. Brink, NCHRP Report 850: Applying Risk Analysis, Value Engineering, and Other Innovative Solutions for Project Delivery (Washington, DC: Transportation Research Board of the National Academies, 2017). Also see K. Molenaar, S. Anderson, and C. Schexnayder, NCHRP Report 658, Guidebook on Risk Analysis Tools and Management Practices to Control Transportation Project Costs (Washington, DC: Transportation Research Board of the National Academies, 2010). [ Return to note 114. ]

115 S. Scott, L. Konrath, and T. Ferragut, Framework for Performance Specifications: Guide for Specification Writers, S2-R07-RR-3 (Transportation Research Board of the National Academies, Second Strategic Highway Research Program: Washington, DC, 2014). Available at: http://www.trb.org/Publications/Blurbs/169109.aspx. [ Return to note 115. ]

116 For best practices in goal setting, see FHWA Handbook: The Disadvantaged Business Enterprise Program: Administration and Oversight on Projects with Alternative Contracting and Procurement Methods." Available at: https://www.fhwa.dot.gov/civilrights/documents/DBEandACM_Handbook_20180820.pdf. [ Return to note 116. ]

117 The Department does not recommend including small business goals with DBE goals in the same contract as it may dilute the effect of the DBE program. [ Return to note 117. ]

118 M. Loulakis et al., NCHRP Legal Research Digest 68: Liability of Design-Builders for Design, Construction, and Acquisition Claims (Washington, DC: Transportation Research Board of the National Academies, 2015), p. 13. Available at: http://www.trb.org/Main/Blurbs/173607.aspx. [ Return to note 118. ]

119 Instructions to Proposers for the Purple Line issued by the Maryland Department of Transportation and Maryland Transit Administration on July 28, 2014, as amended through Addendum 5, §1.9.3. Capitalized terms used in this quote have the meanings set forth in the Instructions to Proposers. [ Return to note 119. ]

 

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