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| 1. Report No. FHWA-HIN-007 | 2. Government Accession No. | 3. Recipient's Catalog No. | |
|---|---|---|---|
| 4. Title and Subtitle Early Involvement of Private Developers in the Consideration of Long-Term Public- Private Partnership Concession Options |
5. Report Date February 2017 |
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| 6. Performing Organization Code | |||
| 7. Author(s) Sharon Greene, Albert Amos, Amanda Vandegrift, Murat Omay, Thomas Frawley, Tamar Henkin | 8. Performing Organization Report No. | ||
| 9. Performing Organization
Name And Address Battelle Memorial Institute (Battelle) HDR 505 King Avenue 8404 Indian Hills Drive Columbus, OH 43201 Omaha, NE 68114 Thomas E Frawley Consulting (TEFC) High Street Consulting Group (HSCG) 551 Daventry Road 2306 Washington Avenue Berwyn, PA 19312 Chevy Chase, MD 20815 |
10. Work Unit No. (TRAIS) | ||
| 11. Contract or Grant No. DTFH61-13D-00014 |
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12. Sponsoring Agency Name and Address |
13. Type of Report and Period Covered | ||
| 14. Sponsoring Agency Code | |||
| 15. Supplementary Notes Contracting Officer's Technical Representative: Patrick DeCorla-Souza, FHWA Office of Innovative Program Delivery |
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| 16. Abstract This discussion paper was developed for transportation professionals who may be involved in a Public-Private Partnership (P3) concession project. P3 concessions are an integrated service delivery approach where a public transportation agency enters a contractual agreement with a private sector entity to deliver a service and/or facility for a specific period. Under the P3 approach, the private sector entity is singly responsible for the design, construction, finance, operations, and maintenance of facilities for a specified concession period. This document draws upon past and current experience to examine different mechanisms used by public agencies for involving private developers during the early stages of a project delivered through a P3. The document provides an overview of the experiences of state departments of transportation (DOTs), Metropolitan Planning Organizations (MPOs), local agencies, private developers, and financial institutions in soliciting potential innovations of private companies during project planning and procurement. The document also evaluates consultative mechanisms used during project procurement and after contract award, and considers introducing these types of activities earlier in the project development and programming process to encourage private sector input. The findings are used to identify approaches that have been effective in securing early input from the private sector to enhance opportunities for P3s. |
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| 17. Key Words Public-private partnerships, PPP, P3, DBFOM, DBOM, concession, project delivery, project planning |
18. Distribution Statement No restrictions |
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| 19. Security Classif. (of this report) Unclassified |
20. Security Classif. (of this page) Unclassified |
21. No. of Pages 69 |
22. Price N/A |
Form DOT F 1700.7 (8-72) Reproduction of completed page authorized
The Build America Bureau was established in July 2016 as USDOT's go-to organization to help project sponsors who are seeking to use Federal financing tools to develop, finance and deliver transportation infrastructure projects. The Bureau serves as the single point of contact to help navigate the often complex process of project development, identify and secure financing, and obtain technical assistance for project sponsors, including assistance in P3s. The Bureau is home to DOT's credit programs, including Transportation Infrastructure Finance and Innovation Act (TIFIA), the Railroad Rehabilitation and Improvement Financing (RRIF) and Private Activity Bonds (PAB). The Bureau also houses the newly-established FASTLANE grant program and offers technical expertise in areas such as P3s, transit oriented development and environmental review and permitting. The Bureau is also tasked with streamlining the credit and grant funding processes and providing enhanced technical assistance and encouraging innovative best practices in project planning, financing, P3s, project delivery, and monitoring.
Working through the Bureau, USDOT has made significant progress in its work to assist project sponsors in evaluating the feasibility of P3s, and helping simplify their implementation. In response to requirements under the Moving Ahead for Progress in the 21st Century Act (MAP-21) and the Fixing America's Surface Transportation Act (FAST Act) to develop best practices and tools for P3s, the Bureau, jointly with FHWA, is publishing this discussion paper on Early Involvement of Private Developers in the Consideration of Long-Term Public-Private Partnership Concession Options.
This discussion paper draws upon past and current experience to examine different mechanisms used by public agencies for involving private developers during the early stages of a project delivered through a public-private partnership (P3). The discussion paper is structured in accordance with the three major stages in the project planning and development process - planning, procurement, and post-procurement - during which private parties may participate in and/or comment on a given project to improve its financial and technical feasibility and achieve other public sector objectives, as shown in the figure below (Figure ES-1).
Figure ES-1. Private Sector Feedback and Involvement Mechanisms by Project Stage
Flow chart: Mechanisms Used During Project Planning » Mechanisms Used During Project Procurement » Mechanisms Used During Post-Procurement
Public Agency Objectives:
The study relied on a literature review, interviews with P3 practitioners, and a review by P3 experts at a roundtable which identified the consultative and feedback mechanisms used during planning, procurement and post- procurement; recommended introducing these types of activities earlier in the project development process to encourage private sector input; and identified approaches that have been effective in securing early input from the private sector to enhance opportunities for public-private partnerships.
There are a variety of ways in which the public sector can either solicit input or receive unsolicited input from the private sector during different stages of the project development process. Table ES-1 summarizes strategies for involving private sector entities while P3 projects are being initially identified and screened in the planning phase prior to procurement. The mechanisms may be used by public agencies to solicit and gain increased feedback from the private sector on potential P3 viability and project development strategies. Table ES-2 provides a summary of strategies for soliciting feedback from the private sector during the procurement of P3 projects. Table ES-3 provides a summary of possible approaches which, while implemented post-procurement, are intended to encourage developer participation early in the procurement process.
| Mechanism | Description | Examples |
|---|---|---|
| P3 Program Development and Project Screening | The planning branches of State, metropolitan, and/or local transportation agencies develop criteria for screening projects in their short range and/or long range plans for P3 potential. Additional technical, financial, and value for money analysis is conducted on the screened projects and information made available for public review including the private sector project development community. The resulting P3 pipeline of projects may be adopted and periodically updated by the agency's governing body. |
|
| Industry Forums | Pre-procurement meetings with developers, financiers, construction companies, and other interested parties to gauge private interest in candidate P3 projects and P3 procurement strategies and to identify ways to enhance project viability as a P3. |
|
| Market Sounding | Separate, one-on-one discussions are conducted with developers and advisors to assess financial feasibility, risk allocation, and other related topics. |
|
| Request for Information (RFI) | Interested parties formally respond to a list of questions on potential technical solutions, financial packages, and/or risk allocation. |
|
| Unsolicited Proposals | Private sector developers provide an initial project concept without a formal request for qualifications or proposals, or in response to an open solicitation without reference to a specific project or scope. |
|
| Pre-Development Agreements (PDA) and Master Development Agreements (MDA) | Private contractors or consortia compete for the right to develop a project in collaboration with the procuring agency and then have the right of first refusal to implement the project. |
|
| Progressive Design-Build Agreements | Through a qualification-based procurement, the Design-Build contractor is selected prior to preliminary design or a construction cost estimate. |
|
| Collaborative Risk Workshops | Private entities are invited to participate in pre-procurement risk workshops to be able to better assign risk to minimize overall cost. | N/A |
| Collaborative Evaluation of Project Alternatives | Very early in the project development process, while projects are not yet fully defined and environmental review is in progress, private entities are invited to participate in discussions regarding potential project alternatives. | N/A |
| 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. |
|
| Multi-Stage Procurements | Multiple and increasingly detailed requests for proposals are issued with proposal responses at each stage. Proposers are provided opportunities to comment on the project at each stage. |
|
| Multiple P3 Delivery Procurements | Proposers are requested to provide separate bids for the same project using distinct delivery mechanisms. |
|
| Alternative Technical Concepts (ATC) | Proposers can suggest innovative design or technologies beyond what is required in the procurement documents. |
|
| 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. |
|
| Mechanism | Description | Examples |
|---|---|---|
| Early Lender Engagement | Lenders are engaged early in the procurement process to build in opportunities for refinancing and/or refunding of developer and/or public equity in the post-procurement phase. |
|
| Competitive Stipends to Unsuccessful Proposers | The private sector is made aware early in the project development process of competitive stipends to be awarded post-procurement as an incentive to motivate private sector interest and to confirm public sector commitment. |
|
Public agencies are incorporating a variety of mechanisms to enhance opportunities for early involvement of the private sector in the project development process. While these mechanisms are fostering development of better projects through increased information sharing, greater technical and financial innovation, and improved risk management, it is unclear if these mechanisms have expanded private investment in P3s. The lack of clarity may be partly due to the extent to which different mechanisms have been tested. The frequency with which these mechanisms have been used varies widely, with some practices - such as industry forums - being employed almost universally, while other practices, such as use of Pre-Development Agreements (PDAs), having only a limited track record in the United States.
Table ES-4 summarizes the potential effects of the different mechanisms examined in this study. Broader adoption of some of these mechanisms would be of value to public agencies. The majority of the mechanisms have the potential to foster positive effects by adding value, reducing schedule and cost, and managing risk. Such effects are denoted in the table in blue and through the use of plus (+) signs. With some mechanisms, there is potential that the benefits of early private sector involvement could be countered by negative impacts such as reduced competition. Such effects are denoted in the table in red and through the use of minus (-) signs. The relative magnitude of these potential effects is indicated by the intensity of the blue and red shading in individual cells.
As indicated in Table ES-4, one of the key tradeoffs that public agencies may encounter in employing early involvement mechanisms with P3 projects is the potential for reduced competition. The increased information sharing between private and public sectors associated with early involvement mechanisms may reduce competition, particularly when the procurement process "locks in" a private entity at an early stage. This may diminish the creative tension that results from competition. Conversely, early "lock-in" may result in positive synergies by reducing the private sector's perception of risk, which could encourage its willingness to invest.
Early involvement requires an additional investment of time and resources early in the project development process, but it has the potential to produce a better defined and more financially feasible project. This dynamic may also produce efficiencies later in the process, expediting project implementation.
| Involvement Mechanisms | Add Value & Foster Innovation | Maintain or Reduce Cost & Schedule | Maintain or Increase Competition | Reduce Public Sector Risk | Reduce Private Sector Risk |
|---|---|---|---|---|---|
| Planning to Procurement | |||||
| Program Development and Project Screening | High (+) | Medium (+) | Low/No | Low/No | Low/No |
| Industry Forums | Medium (+) | Low/No | Low/No | Low/No | Low/No |
| Market Sounding | High (+) | Low (+) | Low/No | Low/No | Low/No |
| RFIs | High (+) | Medium (+) | Low/No | Low/No | Medium (+) |
| Unsolicited Proposals | Medium (+) | Medium (+) | High (-) | Low (-) | Low (+) |
| PDAs/MDAs | Medium (+) | Medium (+) | High (-) | Medium (-) | Medium (+) |
| Risk Workshops | Medium (+) | Low (+) | Medium (+) | Medium (+) | Medium (+) |
| Collaborative Evaluation of Alternatives | Medium (+) | Low (+) | Low (-) | Medium (+) | Medium (+) |
| Progressive Design-Build | Medium (+) | Medium (+) | Medium (-) | Medium (+) | Low (-) |
| Procurement | |||||
| Industry Meetings | Medium (+) | Low/No | Low/No | Low/No | Low/No |
| Multi-Stage Procurement | High (+) | High (-) | Medium (+) | Medium (-) | High (-) |
| Multiple P3 Delivery Procurements | Medium (+) | High (-) | Medium (+) | High (-) | High (-) |
| ATCs | High (+) | High (+) | Medium (+) | Medium (+) | Medium (+) |
| Interweaving | Medium (+) | Medium (+) | Medium (-) | Medium (+) | Medium (+) |
| Sole Source Procurements | Low/No | High (+) | High (-) | High (-) | Medium (+) |
| Post-Procurement | |||||
| Lender Engagement | Medium (+) | Low/No | Low/No | Low/No | Low/No |
| Competitive Stipends | Medium (+) | Low/No | Medium (+) | Medium (+) | Medium (+) |
| Legend | Positive | Negative |
|---|---|---|
| High | High (+) | High (-) |
| Medium | Medium (+) | Medium (-) |
| Low | Low/No | Low (-) |
There are a number of barriers to early private sector involvement in P3s. Political, legal, and regulatory procedures, put in place to protect the public interest, can complicate early involvement. The private sector may be reluctant to engage early in the absence of a well-defined and publicly supported project. Given the resource commitment, the private sector must determine if:
Responsive proposals require significant financial and human resources over multiple years. Although early private sector involvement can enhance a project's financial viability through reduced costs and/or increased revenues, it also entails higher development costs, opportunity costs, and risks for both the private and the public sectors.
Based on the findings reported in this Discussion Paper, public project sponsors considering early involvement of the private sector in the development of P3 projects may consider the following successful practices:
