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| 1. Report No. FHWA-HIN-17-004 |
2. Government Accession No. | 3. Recipient's Catalog No. | ||
| 4. Title and Subtitle
Use of Performance Requirements for Design and Construction in Public-Private Partnership Concessions |
5. Report Date December 2016 |
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| 6. Performing Organization Code | ||||
| 7. Author(s)
Suri Sadasivam, Jagannath Mallela, Alistair Sawers, Bryce Little, Susan Binder |
8. Performing Organization Report No. | |||
| 9. Performing Organization
Name And Address WSP | Parsons Brinckerhoff 1015 Half St SE Washington, DC 20590 Cambridge Systematics, Inc. 4800 Hampden Lane, Suite 800 Bethesda, MD 20814 |
10. Work Unit No. (TRAIS) | |||
| 11. Contract or Grant No.
DTFH61-13D-00014 |
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| 12. Sponsoring Agency Name
and Address Federal Highway Administration Office of Innovative Program Delivery 1200 New Jersey Avenue, SE Washington, DC 20590 |
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 P3s 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, maintenance, operation and renewal (if needed) of facilities for a specified concession period. P3s provide a plethora of opportunities to innovate and generate value through integrated delivery, effective transfer of construction and operations risks that the private sector can best manage and a whole life perspective in the initial construction investment. Public agencies can maximize the opportunities for innovation when they allow the private sector reasonable flexibility to create efficient solutions while at the same time managing the associated risks. The public agency can provide this flexibility to stimulate innovations by specifying outcomes that align with the objectives of the stakeholders rather than mandating means and methods in their request for bid proposals. This paper discusses how the agency can stimulate innovations to generate value with the use of performance requirements for design and construction of P3 projects. |
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| 17. Key Words Public-private partnerships, project delivery, service delivery, performance requirements, prescriptive requirements, design risks, construction risks, quality, Spearin doctrine, whole life costing, construction specifications, integrated delivery, alternative technical concepts |
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 78 |
22. Price N/A |
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| Form DOT F 1700.7 (8-72) Reproduction of completed page authorized | ||||
On July 17, 2014, the Build America Investment Initiative was implemented as a government-wide effort to increase infrastructure investment and economic growth. As part of that effort, the U.S. Department of Transportation (USDOT) established the Build America Transportation Investment Center (BATIC). The BATIC helped public and private project sponsors better understand and utilize public-private partnerships (P3s) and provided assistance to sponsors seeking to navigate the regulatory and credit processes and programs within the Department. In December 2015, the Fixing America's Surface Transportation Act (FAST Act) was enacted, which directed USDOT to establish a National Surface Transportation Infrastructure Finance Bureau, which was renamed the Build America Bureau (the Bureau).
Building upon the work of the BATIC, the 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 replaces the BATIC and is now 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 FAST Act to develop best practices and tools for P3s, the Bureau, jointly with FHWA, is publishing this report on U.S. highway P3 concessions.
Public-Private Partnership (P3) concessions involving equity financing provide an integrated service delivery approach where a public transportation agency enters into 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, operations, maintenance and renewal (if needed) of the facility, with or without the responsibility to provide financing, over a stipulated concession period (typically 75 years or less).
P3s provide a plethora of opportunities to innovate and generate value through integrated delivery, effective transfer of construction and operations risks that the private sector can best manage and a whole life perspective in the initial construction investment. Public agencies can maximize the opportunities for innovation when they allow the private sector reasonable flexibility to create efficient solutions while at the same time managing the associated risks. The public agency can provide this flexibility to stimulate innovations by specifying outcomes that align with the objectives of the stakeholders rather than mandating means and methods in their request for bid proposals. This discussion paper discusses how the agency can stimulate innovations to generate value with the use of performance requirements for design and construction of P3 projects. This discussion paper also presents examples on the legal interpretations of performance requirements.
As illustrated in the example below, performance requirements provide an alternative way to communicate technical requirements of a P3 project.
Example Comparison of Performance and Directive Requirements
| Directive/Prescriptive | Performance |
|---|---|
| Example 1: Bridge Project | |
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| Example 2: Interchange Project | |
Provide new four level fully directional interchange
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| Source: Adapted from Texas Department of Transportation | |
In contrast to the traditional approach which prescribes "means and methods," performance requirements place an emphasis on the measurable outcomes defined in the contractual requirements that align with user, operational, structural, functional, budgetary, and delivery objectives of the project, while leaving the details on how to achieve them to the private sector. Well-written performance requirements clearly lay out the project scope, constraints and agency expectations early in the procurement process. This creates a win-win situation for both public agencies and P3 proposers; the proposers have a higher degree of flexibility to devise a broad range of viable alternatives to meet those end goals and the agency avoids inadvertently owning risks or liability that originate from any prescriptive design requirements.
Performance requirements are developed in the project-scoping phase once the purpose and need of the project are established. Performance requirements and related criteria are derived based on the agency's expectations on how efficiently the facility should be delivered (i.e., project management objectives) and how well the facility should perform (i.e., product success objectives). For P3 projects in particular, the project scoping process should extend to include the post-construction operational performance of the roadway facility and the asset lifecycle needs. Performance requirements should be written such that they can be evaluated from risk allocation, whole life costing and enforcement perspectives.
Alternative technical concepts (ATC) can serve as an excellent tool in the procurement process, particularly when there are challenges in specifying performance requirements. The ATC process allows proposers to come up with alternative solutions equal to or better than the agency's technical and operational requirements or constraints. Through this process, the agency not only re-evaluates its mandatory requirements and constraints, but also establishes the opportunity to attract new ideas and maximize value at the proposer's risk.
Post-construction, the agency has the responsibility to review the monitoring and reporting of performance carried out by the private partner and enforce the agency's contractual remedies if performance does not meet the requirements. As observed in many P3 projects, a third-party certifier may be involved to provide an independent assessment of the facility's performance. When performance requirements are used, the agency will have to adopt an audit approach to oversight and avoid taking back any risks unintentionally through additional directives that would override contractually agreed requirements. For construction quality, there is a need for a common approach to measure quality characteristics and implement a quality acceptance plan that relates construction/ operational outcomes with proposed performance criteria. The agency and the P3 private partner should identify clearly in the P3 agreement, or in the quality management plan (QMP), the construction specifications, quality characteristics, acceptance criteria for contractor quality control (QC) and agency acceptance, sampling frequencies and testing protocols, and statistical criteria for verification.
Incorporating the use of performance requirements into P3 projects is not without implementation challenges. The agency will need to adopt organizational change management strategies including institutional capacity building to facilitate drafting effective performance requirements, promoting an audit-based performance-oriented approach among agency staff that is vastly different from the traditional prescriptive mindset, and engaging stakeholders for buy-in. Agencies may need to adopt deployment strategies such as seeking technical assistance, hiring of procurement experts and/or specialist advisors, and seeking input from "champion" agencies.
