Part 1. Starting the Procurement through Development and Issuance of Request for Qualifications
Part 2. Developing the RFP
Part 3. RFP Issuance through Selection
Part 4. Selection to Commercial and Financial Close
Questions and Answers - 20 minutes.
Presenters
Part 1. Starting the Procurement - Issuance of Request for Qualifications
Goals and Activities through RFQ Issuance
Goal: Structure a procurement process
Conduct Procurement Strategy Workshop
Develop evaluation structure and procedures
Develop procedures to ensure full, fair and open procurement
Develop Organizational Conflict of Interest policies
Develop policies to ensure full, fair and open procurement that minimizes conflicts of interest
Goal: Determine Request for Qualifications Terms and Basis for Shortlisting
Determine RFQ terms and basis for shortlisting
Develop and issue RFQ
Evaluate and shortlist bidders based on SOQs submitted
Starting the Procurement
Establishing procurement strategy
Developing evaluation criteria and submittal requirements
Ensuring full, fair and open competition
Organizational conflict of interest
Developing evaluation structure and procedures
Developing Request for Qualifications (RFQ)
1-A. Establishing Procurement Strategy
Procurement strategy workshop
Alternative selection approaches
Evaluation criteria and submittal requirements
Other issues
Procurement Strategy Workshop
Initial workshop focusing on project goals and how to meet them through different alternatives. To include:
Overall procurement strategy
Discussion on selection methodology, evaluation criteria
Agency decision-makers and those with knowledge about the project
Confidential nature sensitive procurement information
Recommendations from workshop should be reviewed by executive steering committee
Alternative Selection Approaches
Best Value Approach: Most transportation P3 projects in the United States and Canada
Low Bid Approach: Some agencies have elected to award P3 contracts to the lowest bidder (or highest bidder, for revenue positive projects) providing a technically acceptable proposal.
Best Value Selection Approach
How to evaluate cost relative to technical criteria and to determine the relative importance of the technical evaluation factors and subfactors?
Formula Approach
Pre-set formula combining price and technical scores
Tradeoff approach
Decision as to which proposal represents best overall value to agency based on assessment regarding value provided by different proposals
Selection official reviews evaluator ratings and prices and exercises judgment to determine whether added value justifies higher price
Best Value Selection: Approaches to Evaluation
Minimum Level to "Pass"
Adjectival Ratings
Price Evaluation + Technical Rating "Tradeoff"
Formulaic Approach
Based solely on aspects of the proposal that exceed the minimum
Adjectives: "Unacceptable" "Marginal" "Acceptable" "Highly Acceptable"/ Color ratings
Inform tradeoff decisions as to which proposal represents the best overall value to agency
Formula: Predetermined weight to price + Technical Score
Mitigates tendency to rate all proposals within a narrow band of passing marks which could result in less than "best value."
Substantive narrative explanations for the adjective ratings needed.
Can be used with tradeoff or formulaic approach.
Price evaluated against technical value specific to technical improvements proposed. E.g. MD Purple Line
Mathematically derived but scoring is still subjective.
Impossible to predict what will be included in proposals, so formula may not always result in the best selection decision.
Low Bid Approach
P3s in Alberta
Highway P3s in British Columbia
Award P3 contracts to the lowest bidder (or highest bidder, for revenue positive projects)
Long-term nature of contract requires agency to base selection on net present value (NPV) of payments
Advantage
Structure of P3 and a pass/fail technical evaluation sufficiently assure project quality
Disadvantage
Places additional emphasis on the RFQ process
Problematic if only a small number of proposers respond to the RFQ
1-B. Developing Evaluation Criteria and Submittal Requirements
Evaluation Criteria
P3 evaluation criteria and relative weightings should be determined at agency's executive level
Consistent with the agency's goals
Indicate how criteria are tied to the agency's goals and objectives in procurement document
Pass/fail criteria should incorporate standards used to determine contractor responsibility for other procurements and project- specific requirements
Submittal Requirements
Developed by procurement team to match evaluation criteria and contractual requirements
Evaluation Criteria and Submittal Requirements: Examples
Texas, North Tarrant Express
Maryland, Purple Line
Texas, North Tarrant Express
Proposal security
Information demonstrating proposer's financial capability to complete, operate, and maintain the project over the long term
Commitments from sureties that will issue payment and performance bonds covering design and construction of the project.
Requirement that proposals not exceed the available public fund amount
Affordability (or Upset) limits
Requirement that the maximum price (or portion thereof) provided in the financial proposal not exceed a specified limit.
Requires proposers to focus on ways to match the agency's cash flow
Financial proposals exceeding the stated parameters may be rejected
Affordability (or Upset) limits: Examples
Texas, North Tarrant Express
Texas, I-635
Florida
TxDOT aimed to get as much project as possible for the specified maximum public funds amount.
RFP specified a maximum amount of public funds ($600 M), a specified mandatory scope and up to nine optional improvements
RFP specified an affordability limit of $700 M for the public funding component
Proposers had the option of submitting a proposal that exceeded the available public funds amount
Many FDOT RFPs for P3 projects include upset limits
Options
Procurement asks for separate pricing for a "base" project and elements that the sponsoring agency has the option to include in the scope, the sponsoring agency must consider how to factor the options into the selection process.
Option pricing is given less weight than the base project pricing.
If agency fails to consider option pricing, a cost analysis must be performed to justify the price.
Required pricing for a number of potential options for "ultimate scope" improvements; proposer was unable to accommodate within its price for base scope.
Successful proposer included some of the options within its base scope, leaving three options for different capacity improvements to be included in the as-awarded contract.
Included priced options for rolling stock, a storm sewer project, a grade separation project, and a bridge project
The option pricing received 2 points out of the 60 points allocated to the financial proposal.
The concession agreement specified a five-year deadline for exercising the rolling stock option.
1-C. Ensuring Full, Fair and Open Competition
Ensuring Full, Fair and Open Competition
Steps that sponsoring agencies should consider to ensure that the P3 competition meets requirements for full, fair, and open competition for federally funded projects, as well as to comply with similar State law requirements.
Preserving Competitive Interest
Ensuring Fairness and Transparency
Public Access to Information or Open Records
FTA Best Practices Procurement Manual (BPPM)
Primary purpose: obtain the best quality and service for the least cost.
Secondary purpose: guard against favoritism and profiteering at public's expense, provide equal opportunities for all qualified offerors to participate in public business opportunities.
Recipients of Federal assistance must use third party procurement procedures that provide full and open competition.
Lack of advance planning is not an acceptable justification for use of noncompetitive procurement procedures.
Recipients must constantly seek to permit and encourage meaningful interest and offers from all qualified entities and limit or rule out offerors only for business reasons that generally include cost, quality, and delivery.
Preserving Competitive Interest
In most cases, the number of firms potentially interested in proposing for a P3 contract is significantly less than the number of firms likely to respond to a DBB procurement or even a DB procurement...
High level of complexity and long-term nature of P3 projects.
Transfer of risk to the private sector.
Requirements for equity investment and borrowing.
Limitations on bonding capacity.
Level of investment required to propose.
..However the market is maturing.
Limiting Competition
Shortlist no more than four firms
FHWA's Design-Build Rule:
Maximum of 5 shortlisted teams.
"Open" competition does not require the agency to allow all qualified firms to compete.
Ensure only most highly qualified teams participate in the procurement
Keep in mind that one or more of the firms might decide to drop out of the competition
Maintaining Confidentiality
Commitment to confidentiality included in both RFQ and the RFP
Non-disclosure is critical for ATCs and AFCs
Information leakage prevention measures
Under some circumstances, the agency may be compelled to disclose information relating to ATCs.
One-on One Meetings
Enhances competition
Allows proposers to better understand agency's goals and project needs
Improves quality of the proposals
Levels playing field for new firms
Enables agency to improve quality of RFP documents based on comments from proposers
Stipends to Unsuccessful Proposers
Recognizes effort since P3 proposals
Require significant resources for a cost and date certain proposal with committed financing
In exchange agency receives the right to use technical concepts and other intellectual property
Amount depends upon size and complexity of project
Cover part costs of unsuccessful proposal
Typically 0.15 - 0.48 percent of contract cost
May be higher for lower priced projects due to fixed costs of proposing
Ensuring Fairness and Transparency
Agencies should provide information about the project and selection methodology for proposers to:
Better understand agency requirements
Provide their best offers in response to the RFP
However, too much information about factors and subfactor weightings may lead proposers to:
Focus on the criteria that have a significant effect on scoring
Ignore lower weighted criteria
FHWA's Design-Build Rule Sec. 636.209 requires that solicitation include:
☐ Requirements of technical proposal
☐ Requirements of price proposal
☐ All factors that will affect contract award
☐ Significant subfactors that will affect contract award
☐ Relative importance of factors and subfactors
Public Access to Information and Open Records
Agency may choose to disclose RFP and RFQ documents to public
Information provided by private proposer is confidential until after award
TxDOT and VDOT websites include copies of procurement packages as well as the signed contracts
Prior to Issuance of RFP
After RFP Issuance →
Agencies typically limit distribution of the industry review documents to the shortlisted proposers only
Agencies may post the procurement package
1-D. Organizational Conflicts of Interest
Organizational Conflicts of Interest
FTA and FHWA requirements include taking appropriate steps to avoid OCI (including perceived OCI)
State OCI requirements may also apply.
OCI policy
improves confidence of the proposers that the procurement will be fair
promotes public confidence in the integrity of government procurements.
Organizational Conflicts of Interest
Policy Decisions
Extent to which existing agency consultants may be allowed to participate on proposer teams
FHWA's Design-Build Rule
Prohibits firms who assist in preparation of an RFP document from participating on proposer teams unless
The role of the consultant or sub-consultant was limited to provision of preliminary design, reports, or similar "low-level'" RFP documents; Not assistance in development of instructions to offerors or evaluation criteria, or
Where all documents and reports delivered to the agency by the consultant or sub-consultant are made available to all offerors
Special requirements apply to consultants working on NEPA documents
Ensure decisions made under NEPA are not influenced by a consultant's interest in future work
If NEPA Completed Prior to Issuance of RFP
If NEPA not Completed Prior to Issuance of RFP
Contracting agency may allow a consultant or subconsultant who prepared the NEPA document to submit a proposal in response to the RFP.
Contracting agency may allow only if the contracting agency releases such subconsultant from further responsibilities towards preparation of the NEPA document
Organizational Conflicts of Interest
Issues Relating to Proposer's Organization
Proposers must be aware of the potential consequences of failing to identify organizational conflicts
Individual team members in proposer's organization should identify
prior assignments relating to the project and business
personal relationships with individuals who are part of the sponsoring agency's team for the project
Organizational Conflicts of Interest
Issues Relating to Agency Team Members
Agency team member
Married or otherwise related to an individual employed by one of the proposer team members
Formerly employed by a proposer team member whose retirement plan owns stock in the company
Married to a consultant who works for one of the proposer team members
Timely, proper disclosure
Agency will have the ability to remove the member from the solicitation process
1-E. Developing Evaluation Structure and Procedures
Developing Evaluation Structure and Procedures
Evaluation Teams
Selection Committee and Selection Official
Evaluation Manuals
Training
Communications with Proposers
Document Control
Evaluation Teams
Perform pass/fail and qualitative evaluations of SOQ/proposals for :
Compliance with administrative requirements.
Technical elements.
Financial elements.
Subject to oversight by leadership
All individuals involved in the evaluations are required to sign confidentiality commitments
Subcommittees may include specialized consultants ("advisors")
Selection Committee
Receives reports and detailed evaluation information from the evaluation subcommittee chairs
Decides whether to accept the ratings recommended by each subcommittee
May include one or more of the subcommittee chairs
Includes members with knowledge of both technical and financial aspects of project development and operations
Almost always exclusively staffed by public agency employees
Evaluation Manuals
Best to develop before issuance of RFP (or RFQ)
Should include
explanation of evaluation process
list of evaluators
protocol for communications among evaluation team members
other pertinent information about the procurement
checklists of submittal requirements and evaluation forms
Training
Conducted before the start of evaluation
Overview of the procurement
Identify purpose of the evaluation process
Walk through the evaluation manual
Discuss process to be followed in rating submittals
Emphasize importance of maintaining confidentiality
Ensures everyone associated with the evaluation understands rules of the game
Even if individual has been part of a similar procurement, training should be encouraged.
1-F Developing Request for Qualifications
Developing Request for Qualifications
Key considerations
Communicating requirements to proposers
Rules of the game (teaming/ contract)
Obtain necessary approvals to issue RFQ
RFQ Development: Key Considerations
Quality
Rely on P3 structure, contract terms and conditions for incentives to provide a high-quality project
Cost and Accelerated Delivery
Best value selection allows agency to consider cost, schedule and quality in proposer selection.
Track Record
Firms with relevant P3 experience may not have much local experience
Include evaluation criteria encouraging teaming with local firms, as appropriate
SOQ Technical and Financial Criteria
Criteria Category
Evaluation Parameters
Technical Criteria
Organizational Capacity
Project team organization.
Key team members and their qualifications.
Key subcontractors and their qualifications.
Staff/resource capacity and availability.
Specialized capabilities (design/ construction/ operations/ maintenance) relevant to the project.
Quality assurance organization and approach.
Approach and understanding of project.
Understanding of local context.
Past Technical Performance
Experience with P3 projects.
Experience with similar type of projects.
Specialized expertise in risk mitigation and management on other P3 projects of projects of comparable complexity.
Quality performance.
Safety record.
Experience working with the procuring agency and/or local subcontractors.
References
Project- specific
Technical approach.
Understanding of project and local context.
Criteria Category
Evaluation Parameters
Financial Criteria
Financial Capacity
Financial capacity of the proposers (ability to raise equity).
Bonding record or proof of bonding capability.
Legal and financial disclosures.
Past Financial Performance
Past performance on awarded contracts completion, liquidated damages, quality, claims, fines, schedule).
History of performance (unsubstantiated claims, fines, suits, quality, accuracy, schedule).
Project- specific
Financial approach.
RFQ - Rules of the Game
Teaming
Different teams may include same or related firms
Merger may require team to re-form or withdraw
If affiliates are sufficiently separate, agency may allow both teams to proceed
Limited subcontractors/expertise and exclusivity
Rules of Contact
RFQ should identify the agency's point of contact
prohibit contact with the agency or stakeholders
Test Your Knowledge
Check the statement that is incorrect:
The Procurement Strategy Workshop should:
☐ Focus on the goals and objectives of the project and aim to develop a procurement strategy for the project
☐ Include industry participants who are likely to propose on the project
☐ Include discussion about selection methodology and evaluation criteria
☐ Require all attendees to sign confidentiality agreements
Test Your Knowledge (Answers)
Check the statement that is incorrect:
The Procurement Strategy Workshop should:
☐ Focus on the goals and objectives of the project and aim to develop a procurement strategy for the project
☑ Include industry participants who are likely to propose on the project
☐ Include discussion about selection methodology and evaluation criteria
☐ Require all attendees to sign confidentiality agreements
Test Your Knowledge
What strategies can the agency adopt to preserve competitive interest:
☐ Limiting competition by shortlisting no more than 4-5 firms
☐ Holding one-on-one meetings with proposers
☐ Offering stipends to unsuccessful proposers
☐ Stating commitment to confidentiality in both the RFP and RFQ
Test Your Knowledge (Answers)
What strategies can the agency adopt to preserve competitive interest:
☑ Limiting competition by shortlisting no more than 4-5 firms
☑ Holding one-on-one meetings with proposers
☑ Offering stipends to unsuccessful proposers
☑ Stating commitment to confidentiality in both the RFP and RFQ
Questions?
BREAK
Part 2. Developing the RFP
Goals and Activities for Final RFP Development
Goal: Develop draft RFP
Develop draft RFP procurement terms
Develop draft RFP contract terms
Goal: Develop final RFP
Industry review process
Develop final RFP procurement terms
Develop final RFP contract terms
Continued project due diligence
Developing RFP
Establish procurement schedule and submittal requirements
Develop draft RFP contract terms and commercial terms
Industry review process and developing final RFP
2-A. Establish procurement schedule and submittal requirement
RFP Schedule Drivers
Key Schedule Drivers (Procurement Phase)
Potential for Schedule Risk
Approval of elected officials
High
Federal agency approvals
Medium
Federal funding/ financing (e.g. TIFIA) application (if relevant)
High
Interactive one-on-one sessions with shortlisted proposers and ATC and AFC meetings.
Medium
Negotiations on final P3 agreement.
Medium-High
Commercial close
Medium
Financial close
Medium-High
RFP Development Key Considerations
RFP development is significantly more complex than RFQ development
Submittal requirements
Cost and pricing data
DBE/SBE requirement
Technical/ financial and administrative proposals
Financial model
Evaluation and selection process
Pre-award process
Flexibility for innovation
Special purpose entity - changes in teams and key staff
Proposal security
Bid validity period
Soliciting teams for multiple project delivery structures
2-B. Developing Draft RFP Contract terms and Commercial terms
Agency Decisions: Commercial Terms
Scope and term of the concession
Payments by the public agency
Requirements relating to financial close
Financing issues
Requirements for design, construction, equipment supply, 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 at handback
Labor-related requirements
DBE and subcontracting requirements
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 future revenues will not be adversely impacted by future projects
Relief events and remedies
Agency Decisions: Risk Allocation
Hold a risk workshop early in the procurement process
E.g. high cost of delays in project completion due to Concessionaire's finance-related obligations
Risk splitting between parties
Bands for allocation of risk
Agency staff/ advisors must be familiar with legal issues affecting risk allocation
Determine Precedent Documents
Precedent may be
Comparable projects undertaken by another agency in the same State
Project from another State
A recently negotiated and executed P3 contract
Factors
Similarities between the proposed risk allocation and business terms of the proposed P3 and the risk allocation and terms of the precedent documents
Level of effort required to modify the precedent documents
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.
Strategic Highway Research Program (SHRP2) S2 R07. S. Scott, L. Konrath, and T. Ferragut, Framework for Performance Specifications: Guide for Specification Writers
Developing Draft RFP Reference Documents
As a matter of information only and not suitable for inclusion in the contract documents
Reference documents serve to:
present potentially useful information to proposers
avoid claims that information available to the sponsoring agency was withheld from the proposers
Historical data versus current investigation
2-C. Industry Review Process and Final RFP
Industry Review Process and Final RFP
Issue draft RFP
Industry Feedback
Final RFP
Ensure robust approach to risk allocation and technical requirements and high-quality competition
Disadvantages:
RFP may be modified based on requests from proposers that are ultimately unsuccessful
May become less important as market matures
Test Your Knowledge
Which of the following may be considered a precedent?
☐ Comparable projects undertaken by another agency in the same State
☐ Project from another State
☐ A recently negotiated and executed P3 contract
☐ Any of the above
Test Your Knowledge (Answers)
Which of the following may be considered a precedent?
☐ Comparable projects undertaken by another agency in the same State
☐ Project from another State
☐ A recently negotiated and executed P3 contract
☑ Any of the above
Part 3. RFP Issuance through Selection Overview
Goals and Activities through Selection Process
Goal: Revise RFP as Needed
Conduct meetings with proposers
Reconsider prior decisions as appropriate
Issue addenda
Goal: Evaluate Alternative Technical Concepts (ATC) and Alternative Financial Concepts (AFC)
Assess ATCs and AFCs
Consider impact of proposed ATCs on the NEPA process
Goal: Evaluate Proposals
Evaluate proposals based on pre-determined evaluation process and guidelines
Select preferred proposal
Award (with or without negotiations)
Goal: Proposal Revisions, if applicable
Conduct competitive negotiations
Receive and evaluate revised proposals (BAFOs)
RFP Issuance through Selection
Continuing dialogue with proposers
ATC and AFC
Evaluation of proposals
Proposal revisions
3-A. Continuing Dialogue with Proposers
Continuing Dialogue with Proposers
Confidential Meetings with Proposers
Subject of meetings can range from:
Input related to draft documents
Discussion of technical / commercial terms
ATCs and AFCs
Project presentations
Confidentiality and fairness
Discussions are not binding
Need to assess specific laws applicable to the agency
Continuing Dialogue with Proposers
QA Process
Non-confidential and providing both the questions and responses to all proposers
RFP may allow confidential questions if certain criteria are met but agency may determine that all proposers need to see the response
Allows agency to:
refine and clarify the RFP and ensure a robust and competitive procurement
identify and resolve any ambiguities in the P3 agreement documents
identify issues that are important to multiple proposers and that may be critical for project feasibility and to maintain competition
Continuing Dialogue with Proposers
Q&A Process - Successful Practices
Proposers
Agency
Provide detail / raise questions they do not have time to discuss in one-on-one meetings
Set Q&A rules in the ITP (format, timeline, number, categorization)
Provide input from their lenders, sureties, insurers identifying potentially problematic requirements, especially if post- selection negotiations are limited
Combine each proposer's questions and agency responses into a single matrix that is issued to all proposers;
Clean up the Q&A prior to the proposal due date, and issue a final consolidated set of Q&As
Continuing Dialogue with Proposers
Reconsider Prior Decisions
Agencies may reevaluate positions taken and prior decisions as a result of proposer input and other factors
Once the need to change published documents is identified, an addendum will be prepared and issued
Continuing Dialogue with Proposers
Reconsider Prior Decisions - Example
Texas, North Tarrant Express
TxDOT changed the following from as-issued RFP:
Duration between commercial and financial close based on proposer input about achieving financial close on a TIFIA loan and PAB.
Scope to match public funding limitation of $600m (smaller base scope)
3-B. Alternative Technical Concepts (ATCs) and Alternative Financial Concepts (AFCs)
Alternative Technical Concepts (ATC) Process
FHWA defines ATC as:
"a request by a proposer to modify a contract requirement, specifically for that proposer's use in gaining competitive benefit during the bidding or proposal process...
[and] must provide a solution that is equal to or better than the owner's base design requirements in the invitation for bid (IFB for DBB) or request for proposal (RFP for DB) document"
Alternative Technical Concepts (ATC) Process - Justification
Encouraging Innovation
Particularly relevant if design is advanced or standard specifications may limit innovation
Relationship between ATC and NEPA and Potential Impact
If ATC Is accepted before issuance of Draft NEPA document
Minimal Impact. Notice of Intent may need to be issued if no longer accurate/ complete
If ATC Is accepted after Draft EIS & before Final EIS
Moderate Impact. Supplemental Draft EIS may be required if ATC results in a new alternative/ impact
If ATC Is accepted after Final EIS/ ROD
Impact must be assessed. Examine Final EIS to determine if the changes from ATC result in significant environmental impacts
Strategies to Avoid/ Minimize NEPA Impact of ATC
Prepare EIS to cover a broader scope
Anticipate effects of possible ATCs and account for them in the EIS
If supplemental EIS is required, only activities directly affected by supplement should be suspended
Relatively few ATCs have broad project impacts
Alternative Financial Concepts (AFCs)
Allow private sector proposers to submit for pre- approval, on a confidential basis, financial concepts that deviate from the RFP requirements
Encourage financial innovation and creativity
RFP should identify AFC requirements
3-C. Evaluation of Proposals
Proposal Evaluation - Typical Stages
Compliance team "Pass/Fail" review (Legal and administrative compliance) →
Technical/ Financial Committee Review (May occur concurrently with compliance review to save time) →
Written questions/oral interviews (Careful of the dividing line between clarification and revisions) →
Request Proposal revisions if needed →
Competitive negotiations with both technical and financial proposals →
Proposer Selection
Proposer Selection and Results of Evaluation
Selection committee's final decision is presented to administrative leadership for final approval
Agency's executive director (or equivalent function) may act as the selection official
Several ways to proceed
Award with or without negotiation
Discussions and requests for revised proposals from multiple proposers
Termination of procurement
Proposer may be deemed to have violated its obligation to negotiate in good faith in case of
Failure to participate in reasonably scheduled negotiation meetings with the agency
Insistence upon terms or conditions inconsistent with the RFP
In absence of satisfactory agreement with best value proposer
Require select proposer to adhere to RFP requirement
Reject all proposals
Issuing RFP revisions to the proposers
Proceeding to the next most highly ranked proposal
3-D. Proposal Revisions
Proposal Revisions
Competitive negotiations
Establish competitive range
Discussions
RFP Revisions/ Best and Final Offers
Part 4. Selection to Commercial and Financial Close
Goals and Activities for Commercial and Financial Close
Goal: Commercial and Financial Close
Finalize the P3 agreement with selected proposer
Fulfill requirements of award and contract execution
Commercial close
Financial close
Selection to Commercial and Financial Close
P3 agreement negotiation
Award, contract execution, and contract start-up
Financial close
4-A. P3 Agreement Negotiation
Negotiation Advantages
Key Advantage: Engage in negotiations following selection of a proposer and prior to award
Enables agency to obtain modifications in key areas
Competitive leverage to ask selected firm to incorporate ATCs of unsuccessful proposers
Agency will advise the selected proposer of the proposed ATC
Parties will negotiate any resulting change in price
Alternatively may be implemented by post-award Change Order
Competitive leverage for other deal terms
NTE required independent engineer agreement to be finalized before commercial close.
Negotiation Activities
Identify and incorporate proposal commitments
Incorporate design and other concepts (e.g. ATC)
Make adjustments in favor of the agency for any errors or gaps in the base case financial model
Adjust pricing due to intervening causes
Other matters at agency's election
4-B. Award, Contract Execution and Contract Start Up
Typical Requirements for Award and Contract Execution
Delivery of the project agreement by the proposer
Delivery of performance security
Any parent guarantees
Evidence of insurance
Evidence of authorization, legal opinions, ancillary documents
For revenue-positive projects, an upfront payment
If financial close after commercial close: schedule and financial close security
Other Issues Affecting Commercial Close
Additional approvals or reviews may be required from either State or Federal agencies
NTE and LBJ Express projects, State law required:
Submittal of the P3 agreements to the State attorney general for a determination of "legal sufficiency."
Submittal to the State's legislative budget board and the State auditor
Publication of certain concessionaire financial information
Agencies should review applicable State and local laws to determine the requirements that may apply with respect to P3 agreements
Contract Start-up
Activities related to financial close
Other activities
Agreement may provide a limited NTP with early work at concessionaire's risk or agency cost
Submission of deliverables by concessionaire, e.g., detailed project schedule and updates to proposal or final key subcontracts, if not submitted previously
Agency should train team for administration of P3 agreement
4-C. Financial Close
Financial Close
Typical Requirements
Satisfaction of all of conditions to commercial close, including execution of the P3 agreement.
Executed initial funding and initial security documents.
Executed lenders' direct agreement
Legal opinions if not provided at commercial close.
An update of audit and opinion obtained from independent model auditor regarding suitability of base case financial model that incorporates any agreed- upon proposed amendments
Financial Close
Review of Loan Documents
Primary concern: ensuring funds, debt are used for authorized purposes and agency's interests are protected
A P3 agreement may include provisions that:
Restrict lenders from obtaining security interest in the agency's interest in the project, ROW or agency's rights
Require debt instruments to claim principal and interest owed against concessionaire only and not against the State
Acknowledge that lenders have no right to seek damages from the agency
Financial Close
Legal Opinions
All parties to contracts will need to provide legal opinions:
Due authorization
Execution, delivery, enforceability
Confirmation that all required approvals have been obtained from third parties
Disclosure of litigation or other contracts relevant to the transaction
Legal opinions are not normally required for public agency construction contracts, so agency procurement personnel may not be familiar with the underlying issues associated with opinions
Financial Close
Potential Issues
Financial close often happens months after commercial close in the U.S.
In Canada it happens within a day
P3 agreement or Instructions to Proposers (ITP) will identify excusable circumstances for failure to reach financial close by date specified:
Failure to obtain timely NEPA approval
Agency's failure to deliver legal opinion in favor of lenders
PABs or TIFIA delays for specific reasons
Temporary restraining order from court
Financial Close
TIFIA, PABs, Other Lender Requirements
TIFIA closing may occur simultaneously with rest of the project financing, or may occur separately.
U.S. DOT enters an agreement with the borrower, which could be the P3 project sponsor or the P3 project's private sector partner
PAB closing involves the issuance of the bonds by authorized public entity and transfer of proceeds of the bond issuance to the private sector partner
Private partner repays the issuer with revenues
Agency and lender enter into a "Direct Agreement" describing each party's rights and remedies and process in case of concessionaire default
Test Your Knowledge
What are the typical requirements of financial close?
☐ Satisfaction of all of conditions to commercial close, including execution of the P3 agreement.
☐ Executed initial funding and initial security documents.
☐ Executed lenders' direct agreement
☐ Legal opinions if not provided at commercial close.
☐ An update of audit and opinion obtained from independent model auditor
☐ All of the above
Test Your Knowledge (Answers)
What are the typical requirements of financial close?
☐ Satisfaction of all of conditions to commercial close, including execution of the P3 agreement.
☐ Executed initial funding and initial security documents.
☐ Executed lenders' direct agreement
☐ Legal opinions if not provided at commercial close.
☐ An update of audit and opinion obtained from independent model auditor
☑ All of the above
Q&A Panel
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
Model Contracts
Successful P3 Practices
P3 Procurement
P3-SCREEN
P3 viability evaluation prior to project development