Instructor
Patrick DeCorla-Souza
P3 Program Manager
Center for Innovative Finance Support
P3-VALUE 2.0 Webinars
- P3: Public Private Partnership
- P3-VALUE 2.0: Analytical tool to help practitioners understand processes used to quantitatively evaluate P3 options
This is the first of five webinars on P3-VALUE
- P3 Evaluation Overview (today)
- Value for Money Analysis
- Project Delivery Benefit-Cost Analysis
- Risk Valuation
- Financial Viability Assessment
Webinar Outline
Lesson 1 Types of Project Delivery Evaluation
Lesson 2 Timing of Project Delivery Evaluation
Lesson 3 Value for Money Analysis
Lesson 4 Project Delivery Benefit-Cost Analysis
Lesson 5 Risk Valuation
Lesson 6 Financial Viability Evaluation
Lesson 7 FHWA's P3 Toolkit
Recap Summary of Webinar
Webinar Objectives
After this webinar you should be able to:
- Describe various types of P3 evaluation
- Identify their key limitations
- Explain the types of tools available in FHWA's P3 Toolkit
Lesson 1: Types of Project Delivery Evaluation
Delivery Method Evaluation
![weigh scale](/ipd/images/p3/toolkit/p3value2_session1/p3value2_session1_clip_image016.png)
- Project Evaluation:
- Is the project worthwhile for society?
- Project Delivery Evaluation:
- Is the project financially viable under conventional or P3 delivery?
- Would P3 procurement add value relative to conventional procurement?
- Which P3 options would add most value?
Types of Project Delivery Evaluation
![Chart: Types of Project Delivery Evaluation](/ipd/images/p3/toolkit/p3value2_session1/eval_flow_sm.png)
View full-size flow chart
Financial vs. Economic Evaluation
- Financial Evaluation
- Considers financial elements only, i.e., "cash flows"
- Perspective is that of the procuring agency
- Economic Efficiency Evaluation
- Considers full range of costs and benefits to society
- Perspective is that of society as a whole
Financial Evaluation Questions
- Is the project affordable to the public agency?
- Will P3 procurement enhance the financial position of the public sponsor?
Economic Efficiency Questions
Does the project yield benefits to society that exceed the costs to society?
- What is the best project design alternative?
- When should a project be undertaken?
- Will P3 delivery increase net benefits to society compared with conventional procurement?
Test Your Knowledge
True or False
- Financial evaluation considers the full range of costs and benefits to society.
Questions?
Submit a question using the chat box
![computer icon](/ipd/images/p3/toolkit/p3value2_session1/p3value2_session1_clip_image027_0000.png)
Lesson 2: Timing of Project Delivery Evaluation
Timing of Project Delivery Evaluation
1. Planning |
- High level preliminary screening
|
2. Project Development |
- Quantitative and qualitative assessment
- Market sounding
|
3. Procurement |
- Revisit VfM analysis as cost estimates are refined and bids are received
|
Screening
- Project characteristics
- Legal framework
- Institutional capacity
- Market interest
FHWA's P3-SCREEN Screening Tool
May be used in conjunction with the development of an Initial Financial Plan for major projects
![Sample of screening tool screen](/ipd/images/p3/toolkit/p3value2_session1/screening_tool_sample.png)
Detailed Evaluation
- Technical Studies
- Traffic and revenue
- Cost estimates
- Risk assessment
- VfM and BCA
- Affordability
- Market outreach
- Market analysis
- Market outreach
P3-VALUE 2.0 Tool Structure
![Flow chart of P3-VALUE 2.0 Tool Structure](/ipd/images/p3/toolkit/p3value2_session1/cost_timing_sm.png)
View full size flow chart
Test Your Knowledge
True or False
- Value for Money analysis may only be conducted in a project's procurement phase.
Questions?
Submit a question using the chat box
![computer icon](/ipd/images/p3/toolkit/p3value2_session1/p3value2_session1_clip_image027_0000.png)
Lesson 3: Value for Money Analysis
Definitions
Value for Money (VfM) - The optimum combination of life cycle costs and quality of a good or service to meet the user's requirements
VfM Analysis - Quantitative analysis, expressed as dollar or % difference
Public Sector Comparator (or PSC) - Conventional procurement's baseline cost against which P3 option will be compared
P3 Shadow Bid (or P3) - Net cost of P3 option to Agency, including estimated payments to private partner as well as other costs incurred by public sponsor
Timing of VfM Analysis
![Flow chart showing timing of VfM Analysis](/ipd/images/p3/toolkit/p3value2_session1/timing_sm.png)
View full size timing flow chart
VfM: PSC vs. Availability Payment P3
![Conventional Delivery vs Availability payment p3](/ipd/images/p3/toolkit/p3value2_session1/delivery_sm.png)
View full size PSC vs Availability Payment chart
VfM Analysis Challenges
- Estimating cost differences between P3 and conventional delivery
- Identifying and pricing risk
- Sensitivity of results to discount rates
![illustration of the word Risk](/ipd/images/p3/toolkit/p3value2_session1/p3value2_session1_clip_image118.jpg)
VfM Analysis Limitations
- Non-financial costs and benefits?
- PSC possible in the same time frame as P3?
- Project scope changes proposed by a P3 bid?
Test Your Knowledge
True or False
- VfM analysis assumes that, under conventional project delivery, the project can be delivered and operated in the same time frame as the P3 option.
Questions?
Submit a question using the chat box
![computer icon](/ipd/images/p3/toolkit/p3value2_session1/p3value2_session1_clip_image027_0000.png)
Lesson 4: Project Delivery Benefit-Cost Analysis
Benefit-Cost Evaluation Process
![Steps in the process](/ipd/images/p3/toolkit/p3value2_session1/steps.png)
- Step 1: Project BCA
- Step 2: Impacts of Funding Constraints
- Step 3: Impacts of P3 Delivery
- Timing impacts
- Cost impacts
- Quality impacts
- Scope optimization
Project Delivery BCA Framework
![Chart: Project Delivery BCA Framework](/ipd/images/p3/toolkit/p3value2_session1/framework_sm.png)
View larger version of Framework chart
Step 1: Project Benefits/Costs
Delayed Conventional Delivery compared to No Build
![Step 1: Project Benefits & Costs chart](/ipd/images/p3/toolkit/p3value2_session1/step_1_sm.png)
View larger Project Benefits & Costs chart
Step 2: Impacts of Funding Constraints
Delayed Conventional Delivery (Delayed PSC) compared to Conventional Delivery (PSC)
![Step 2: Impacts of Funding Constraints](/ipd/images/p3/toolkit/p3value2_session1/step_2_sm.png)
View larger version of Impacts of Funding Constraints chart
Step 3: P3 Delivery Effects
Conventional Delivery (PSC) compared to P3
![Step 3: P3 Delivery Effects chart](/ipd/images/p3/toolkit/p3value2_session1/step_3_sm.png)
View larger version of P3 Delivery Effects
Project Delivery BCA Output
In P3-VALUE, all three options are compared to No Build
![BCA Output chart](/ipd/images/p3/toolkit/p3value2_session1/output_sm.png)
View larger version of the BCA Output chart
Perspective Considerations
Perspective |
Financial Analysis (VfM Analysis) |
Economic Analysis (PDBCA) |
Agency |
Costs to Agency's balance sheet |
Agency costs plus societal benefits |
State |
Costs to State |
State costs plus societal benefits |
National |
Societal costs |
Societal costs and benefits (true BCA) |
Test Your Knowledge
True or False
- Benefits from project acceleration should always be attributed to P3 delivery.
Questions?
Submit a question using the chat box
![computer icon](/ipd/images/p3/toolkit/p3value2_session1/p3value2_session1_clip_image027_0000.png)
Lesson 5: Risk Valuation
P3-VALUE 2.0 Risk Approach
- Costs: Costs are adjusted for risk and uncertainty
- Revenues:
- PSC: If tolled, toll revenues are adjusted for uncertainty based on P3 toll risk premium included in P3 financing
- P3: No uncertainty adjustment is made to toll revenues, but costs and revenues are discounted based on P3's weighted average cost of capital (WACC)
- Benefits: P50 (i.e., most likely) traffic forecasts are used without any uncertainty adjustment. A sensitivity factor is included to facilitate sensitivity testing.
![illustration of the word Risk](/ipd/images/p3/toolkit/p3value2_session1/p3value2_session1_clip_image118.jpg)
P3-VALUE 2.0 Risk Cost Categories
- Base Variability
Example: Uncertainty in volume of asphalt
- Pure Risks
Example: Accident at construction site, causing cost overrun and/or delays
- Lifecycle Performance Risks
Example: Conflicts between DB and O&M contractors, supervening events exceeding liability caps, inflation
Risk Adjustments in P3-VALUE 2.0
For VfM analysis, no lifecycle performance risk adjustments are made to P3 costs, since lifecycle performance risk is already included in the P3 financing premium
![Risk adjustments chart](/ipd/images/p3/toolkit/p3value2_session1/performance_risk_sm.png)
View larger version of the risk-adjustment chart
Test Your Knowledge
True or False
- For VfM analysis, an estimate for lifecycle performance risk should be included in the Conventional Delivery and Delayed Conventional Delivery cost estimates.
Questions?
Submit a question using the chat box
![computer icon](/ipd/images/p3/toolkit/p3value2_session1/p3value2_session1_clip_image027_0000.png)
Lesson 6: Financial Viability Assessment
Financial Calculations
Sources of Funds
- Equity & debt
- Subsidies
- Toll revenues
|
Uses of Funds
- Capital expenses
- Operating expenses
- Debt service
- Tax & dividends
|
![down arrow](/ipd/images/p3/toolkit/p3value2_session1/p3value2_session1_clip_image130.png) |
![down arrow](/ipd/images/p3/toolkit/p3value2_session1/p3value2_session1_clip_image130.png) |
P3-VALUE 2.0 Financial Model
|
![down arrow](/ipd/images/p3/toolkit/p3value2_session1/p3value2_session1_clip_image130.png) |
- Capacity of project revenues to repay debt
- Capacity to attract equity
- Required public subsidy payments
|
Key Metrics for Public Agency
Concession fee - for "revenue positive" projects
- Public subsidy - for "revenue negative" projects
- Toll rates
- Concession term
Key Metrics for Financiers
- Debt service coverage ratio (DSCR)
- Gearing or leverage (debt/equity ratio)
- Equity IRR = Equity Internal Rate of Return
- WACC = Weighted Average Cost of Capital
- Project IRR = Project Internal Rate of Return
![illustration of business people](/ipd/images/p3/toolkit/p3value2_session1/p3value2_session1_clip_image136.jpg)
Debt Service Coverage Ratio (DSCR)
- Debt service coverage ratio (DSCR) =
Cash Flow Available for Debt Service (CFADS)
Annual debt service
Higher minimum debt service coverage ratio requirement reduces debt capacity
Leverage of Gearing
- Leverage or Gearing (i.e., debt-to-equity ratio) =
Debt percentage
Equity percentage
Higher gearing can increase debt capacity (if minimum required DSCR can be met)
Test Your Knowledge
True or False
- A higher DSCR will allow a project to obtain a higher amount of debt.
Questions?
Submit a question using the chat box
![computer icon](/ipd/images/p3/toolkit/p3value2_session1/p3value2_session1_clip_image027_0000.png)
Lesson 7: FHWA's P3 Toolkit
FHWA P3 Toolkit
Fact Sheets |
Primers |
Guidebooks |
Analytical Tools |
- FHWA P3 Toolkit
- Risk Valuation & Allocation
- Value for Money Analysis
- Financial Structuring
- Analytical Studies
- Conducting Procurements
- Monitoring & Oversight
|
- Establishing a P3 Program
- Risk Assessment
- Value for Money Assessment
- Financial Structuring & Assessment
|
- Risk Assessment
- Value for Money Assessment
- Benefit-Cost Analysis for P3 Delivery
- P3 Project Financing
|
P3-SCREEN
- P3 viability evaluation prior to project development
P3-VALUE
- Risk Assessment
- Value for Money
- Benefit-Cost Analysis
- Financial Viability Assessment
|
Webinar recordings on P3 evaluation are also available on the web.
What is P3-VALUE 2.0?
- An analytical tool
- Educates users
- A component of FHWA's P3 Toolkit
FHWA's P3-VALUE 2.0
![Chart: P3-VALUE 2.0 flow chart](/ipd/images/p3/toolkit/p3value2_session1/toolkit_sm.png)
View larger version of P3-VALUE 2.0 tool chart
Training Modules
![Training modules listed](/ipd/images/p3/toolkit/p3value2_session1/training_modules_sm.png)
Training Navigator User Interface
![Training Navigator sample screen](/ipd/images/p3/toolkit/p3value2_session1/training_navigator_screen_sm.png)
View larger image of the user interface
Tool and References
Webinar Summary
Lesson 1 Types of Project Delivery Evaluation
Lesson 2 Timing of Project Delivery Evaluation
Lesson 3 Value for Money Analysis
Lesson 4 Project Delivery Benefit-Cost Analysis
Lesson 5 Risk Valuation
Lesson 6 Financial Viability Evaluation
Lesson 7 FHWA's P3 Toolkit
Upcoming P3-VALUE Training
- February 8 - Value for Money Analysis
- February 22 - Project Delivery Benefit Cost Analysis
- March 7 - Risk Valuation
- March 21 - Financial Viability Assessment
To register for the P3-VALUE webinars, please visit:
https://www.eventbrite.com/e/p3-value-webinar-series-registration-19955277773
Resources
FHWA's Center for Innovative Finance Support Website:
https://www.fhwa.dot.gov/ipd/
P3 Website:
https://www.fhwa.dot.gov/ipd/p3/
Contact Information
P3 Program Manager
Center for Innovative Finance Support
Federal Highway Administration
(202) 366-4076
Patrick.DeCorla-Souza@dot.gov
Questions?
Submit a question using the chat box