Chapter 3 explores strategies for soliciting feedback from the private sector during the procurement of P3 projects. Table 3-1 provides a summary of these different strategies.
| Mechanism | Description | Examples |
|---|---|---|
| Industry Meetings | Meetings are held with the private sector prior to advertisement to gauge interest in the procurement and obtain feedback on the draft procurement documents. |
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| Multi-Stage Procurements | Multiple and increasingly detailed procurements are issued with proposal responses at each stage. Proposers are provided opportunities to comment on the project at each stage. |
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| Multiple P3 Delivery Procurements | Proposers are requested to provide separate bids for the same project using distinct delivery mechanisms. |
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| Alternative Technical Concepts (ATC) | Proposers can suggest innovative design or technologies beyond what is required in the procurement documents. |
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| Interweaving | A procurement that takes place in advance of the planning concept decision which allows bidders to "interweave" the project alignment into their proposal. |
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| "Sole Source" Bids | Direct negotiations occur with a single proposer as a result of an unsolicited proposal or a solicitation with one proposal. |
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Industry meetings entail bilateral discussions with each of the proposer consortia at the commencement of and during the project procurement. These meetings are designed to assist the procuring agency in assessing private sector interest in the procurement and to obtain feedback regarding the Instructions to Proposers (ITP), technical requirements, and the draft contract. Procurement agencies must discuss the project terms in an equal manner with all proposers. As a result, these meetings tend to be relatively scripted and are typically confidential. Discussions can cover multiple topics in a single meeting or can be specialized to focus on specific technical, financial, or legal issues. On some projects, the procuring agency (e.g., Infrastructure Ontario) has issued white papers on different technical issues in advance of the meetings.
Advantages. Industry meetings can provide a general sense of investor interest, project bankability, and possible deal-breakers. They can also generate positive or negative feedback on the proposed commercial terms and risk allocation contained in the draft contract. Industry meetings can be conducted jointly with key stakeholders, local government agencies, federal and state agencies that may be an indirect party to the transaction (e.g., turnpike authorities or transit agencies), and third parties (e.g., utilities) from which approvals are needed to develop the project. For the private sector, industry meetings can provide insight regarding project costs, schedule, environmental and stakeholder issues, and risks that can be priced in their bids.
Disadvantages. One concern related to industry meetings is finding the right balance with respect to the number and timing of the meetings. Private developer entities have identified the following issues:
Project sponsors must avoid providing an inconsistent amount of information to proposers to avoid providing any proposers a competitive advantage from the discussions. 5 Project sponsors also should be careful that the industry meetings do not devolve into de-facto negotiations prior to contract award and selection. Proposer suggested changes to procurement documents may give one or more bidders a competitive advantage.
Applications. Industry meetings have often been successful in obtaining relevant feedback from the private sector throughout the procurement process, particularly during the early stages. The success in obtaining relevant feedback from the private sector depends on the structure and timing of these meetings. In addition, these meetings are most effective when the public sector sponsor participates directly, avoiding an over-reliance on outside advisors.
This approach involves the project sponsor issuing multiple and increasingly detailed procurement announcements requiring progressively more detailed responses from the private sector. These include request for expressions of interest (RFI), request for qualifications (RFQ), request for proposals (RFP), and request for best and final offers (BAFO). Under this approach, the private sector has multiple opportunities to provide feedback on the project and on the procurement process with each submittal. Some European Union countries use Competitive Dialogue, a variation of this process, to provide structured dialogue between the public and private sectors throughout the procurement process. 6
Advantages. The following advantages are associated with this approach:
Disadvantages. Multi-stage procurements can extend the procurement schedule, depending on the number of stages involved, the complexity of the procurement documents and subsequent submissions, the number of proposers at each stage, and the length of the review period. Additionally, multi-stage procurements increase project procurement costs for public agencies and private entities, as each stage requires additional staff time and the contracting of technical, financial, and legal advisors.
Applications. Multi-stage procurements are normally used in the development of transportation projects delivered through a P3, especially on large projects with high levels of technical complexity and complicated risk allocations.
Under this approach, the public procuring agency requests proposers to provide separate proposals using multiple delivery mechanisms under a single procurement. An example is the procurement of the Grand Parkway project 7 in the Houston metropolitan area, where the proposers were required to submit and price both Design-Build and DBFOM proposals.
Advantages. The advantage of multiple delivery mechanism procurement is that it allows the project sponsor to ascertain the cost of developing a project using alternative delivery mechanisms under a single procurement. Additionally, this procurement strategy allows the public agency to obtain feedback on costs and risks in relation to the different delivery mechanisms under consideration.
Disadvantages. This approach requires the project sponsor to develop distinct procurement documents and frameworks for evaluating competing proposals, potentially necessitating the engagement of increased staff support. Multiple delivery mechanism procurements can potentially be longer than one of the constituent procurement methods would have required individually, due to the significant increase in level of effort. Consequently, multiple delivery mechanism procurements increase procurement process time and costs for the project sponsor. Similarly, the private sector has found this approach to be very challenging as a result of the following:
Both public and private sector entities have reported finding multiple delivery-mechanism procurements to be more expensive, create unnecessary redundancies, and generate additional complexities during the procurement process.
Applications. The additional expenses, complexities, transaction costs and redundancies associated with this approach may discourage its future application.
The term Alternative Technical Concepts (ATC) refers to a process in which the private sector proposers provide recommendations as part of their bids to lower costs, improve quality, and/or enhance the financial and operational performance of the project. ATCs can entail changes in project design, schedule, operations and maintenance activities, risk mitigation strategies, the introduction of new technologies and equipment, or the use of the latest management techniques. ATCs must typically be approved by the project sponsor prior to the proposer incorporating the ATC into its proposal submission for the proposal to be deemed responsive.
Advantages. The potential advantages of ATCs are improved technical design, reduced capital costs, accelerated schedule, the introduction of new technologies or management techniques, the deferment or reduction of rehabilitation costs during the O&M period, and the reduction of risks.
Disadvantages. For the procuring agency, the disadvantage of ATCs is that the agency needs to develop specific guidelines for accepting and reviewing ATCs. This can lengthen the procurement schedule and increase procurement costs as technical experts may be needed to review the ATCs. Another disadvantage is that it may be difficult to compare different ATCs submitted by various bidders. For the private sector, there is a risk that the ATC will not be accepted, resulting in the lost investment of limited staff and financial resources, schedule slippage, and other opportunity costs. Another disadvantage from the private sector perspective is that an ATC may result in a change in the project definition sufficient to require environmental reevaluation thereby risking schedule delay that could outweigh the benefits of the ATC. Pursuing an ATC earlier relative to the NEPA process may help to mitigate this challenge. However, almost all agencies that allow ATCs provide a stipend or payment to the unsuccessful proposers so that part of their cost is reimbursed. In exchange for this payment, the project sponsor retains ownership of all ATCs and can pass them on to the successful proposer.
Applications. ATCs have been used to introduce changes in design, equipment, or technologies employed. In practice, there are limits to the number and types of ATCs to allow for a reasonable comparison among proposals, limit the cost to prepare and submit the proposals, and optimize the time spent evaluating the proposals by the project sponsor.
Similar to ATCs and progressive design-build agreements, interweaving involves a competitive process to assist the public procuring agency in developing and refining project design. In contrast to ATCs interweaving entails a separate procurement prior to the selection of the final alignment to allow bidders the opportunity to incorporate or "interweave" the project alignment design into their formal proposals. This mechanism is intended to encourage greater coordination and information sharing between the public agency and the private sector in the determination of the project definition and alignment.
Advantages. In the Netherlands, this approach was found to streamline planning and procurement, potentially reducing the project development schedule and costs for both parties.
Disadvantages. The primary disadvantage of this approach is that it can get ahead of and potentially bias the NEPA review process. Interweaving may reduce competition with respect to project design, construction, and financing. Additionally, depending on timing interweaving can create the appearance of limiting stakeholder and public input in project design and the selection of the alignment.
Applications. This approach has been used in the Netherlands and was found to be relatively effective in the integration of transportation infrastructure with economic development in rural areas. There are no known examples of interweaving in the United States.
Sole source procurements involve a project sponsor negotiating with a single private party in the absence of a competitive procurement process or in a competitive process that has resulted in only a single responsive bidder.
Advantages. This approach provides incentives for both parties to share information regarding project alignment, financial and technical feasibility, and risks in order to complete the procurement process and begin construction. This approach tends to be less prescriptive, offers greater flexibility in the exchange of information, and encourages innovation.
Disadvantages. The public agency must have legal authority to negotiate the price of a public works project with one firm. The absence of competition precludes the public agency's ability to accurately "market price" the sole source tender or obtain the best value. As a result, the proposed project design and/or financing packages may not be in the public interest. This concern can be partially mitigated through competitive processes among participating team members in a consortium. For instance, the lead entity may solicit design-build partners on a competitive basis, helping to secure a price advantage for the project sponsor.
Application. Sole source procurement may be the intentional result of other early involvement mechanisms, such as progressive design build, master development agreements, unsolicited proposals or interweaving, or the unintentional result of a competitive procurement that has only produced one responsive proposal.
5 Representatives from the procuring agency's legal office and its legal advisors are typically present to ensure that parallel information is provided to all proposers.
6 European PPP Expertise Centre (EPEC), Procurement of PPP and the Use of Competitive Dialogue in Europe, 2009.
7 The procurement covered Segments F-1, F-2 and G. Ultimately the project is being developed through a design-build agreement.
