Introduction to Public Private Partnerships · • P3s cost more because public sector can borrow money . more cheaply. Fact • Financing costs only one component of overall costs

Draft

Introduction to Public Private Partnerships

Introduction to Introduction to Public Private Partnerships Public Private Partnerships

Kelowna, BC – December 3, 2003

OverviewOverviewOverview

BC’s P3 Initiative

Potential Benefits

P3 Experience

Myths & Facts

P3s in BC … Status Report

BC’s P3 Initiative

Potential Benefits

P3 Experience

Myths & Facts

P3s in BC … Status Report

The ChallengeThe ChallengeThe Challenge

Investment in new infrastructure has not kept up with economic growth

Significant deferred maintenance deficits have been accumulated

BC’s population is growing and aging

Ministry Service Plans specify $7 billion capital expenditures over three years

Most dramatic needs are in health, education and transportation

Investment in new infrastructure has not kept up with economic growth

Significant deferred maintenance deficits have been accumulated

BC’s population is growing and aging

Ministry Service Plans specify $7 billion capital expenditures over three years

Most dramatic needs are in health, education and transportation

Benefits of BC’s P3 InitiativeBenefits of BC’s P3 InitiativeBenefits of BC’s P3 Initiative

More capital projects, sooner and on-budget

New investment and economic growth in BC

Better capital asset management and procurement• Meet customer needs at minimum life cycle cost

• Optimal risk transfer

Promote and lever Best Practices

More capital projects, sooner and on-budget

New investment and economic growth in BC

Better capital asset management and procurement• Meet customer needs at minimum life cycle cost

• Optimal risk transfer

Promote and lever Best Practices

What is a P3?What is a P3?What is a P3?

Long term contract between government and a private partner to deliver goods or services

• Delivers value for money

• Engages in a competitive process to achieve the best project for the best cost

• Transfers appropriate risks

• Establishes performance standards and payment mechanisms

• Maintains government involvement to oversee public interest

Long term contract between government and a private partner to deliver goods or services

• Delivers value for money

• Engages in a competitive process to achieve the best project for the best cost

• Transfers appropriate risks

• Establishes performance standards and payment mechanisms

• Maintains government involvement to oversee public interest

Risk TransferRisk TransferRisk Transfer

Typical Allocation in a P3

DesignConstruction CostsIndustrial Relations

Maintenance Permitting

Commissioning

EnvironmentalDemand Growth

Energy CostsSchedule

Legislative ChangeFirst Nations

Land AcquisitionForce MajeureSite Geotech

Private SectorShared or Deal Specific

Public Sector

Traditional ApproachTraditional ApproachTraditional Approach

Example of a Hospital ProjectExample of a Hospital Project

Private Sector Public Sector

Own Land

Own Building

Finance Project

ProgramPlan

Design Build MaintainFacilities Management

Operations

Clinical & SupportServices Operations

Manage Project

P3 Hospital Project ModelP3 Hospital Project ModelP3 Hospital Project Model

Private SectorPublic Sector

Own Land

Own Building

Finance Project

ProgramPlan

Design Build MaintainFacilities Management

Operations

Clinical & SupportServices Operations

Manage Project

Advantages of P3sAdvantages of P3sAdvantages of P3s

1. Value for Money

2. Improved project delivery

3. Better project discipline

4. Faster procurement

5. Performance standards

1. Value for Money

2. Improved project delivery

3. Better project discipline

4. Faster procurement

5. Performance standards

1. Value for Money1. Value for Money1. Value for Money

P3P3 Government Government delivery

vs. deliveryvs. Risks RetainedRisks Retained++

LifeLife--cycle cost cycle cost reduction

i.e. design, cost, i.e. design, cost, schedulereduction schedule

Multiple Criteria Analysis =Multiple Criteria Analysis =

Financial Analysis + Qualitative FactorsFinancial Analysis + Qualitative Factors

2. Improved Project Delivery2. Improved Project Delivery2. Improved Project Delivery

• UK ExperienceReports from UK National Audit Office, HM Treasury and Arthur Anderson indicate improved project delivery

22-24% projects late / over budget (due to

scope changes)

17% Average savings

75% Satisfaction (operational performance

as expected or better)

70% projects late

73% over budget

After P3 model:Before P3 model:

3. Better Project Discipline3. Better Project Discipline3. Better Project Discipline

Reduced scope creepReduced scope creep

TraditionalTraditional P3P3•• Preliminary DesignPreliminary Design

•• Project ApprovalProject Approval

•• DesignDesign

•• Build

•• Performance StandardsPerformance Standards

•• Business CaseBusiness Case

•• Contract AwardContract Award

•• Design/BuildBuild Design/Build

International study, 258 transportation projects showed actual costs are on average 28% higher than estimated costs

(Underestimating Costs in Public Works Projects, APA Journal, Summer 2002)

International study, 258 transportation projects showed actual costs are on average 28% higher than estimated costs

(Underestimating Costs in Public Works Projects, APA Journal, Summer 2002)

4. Faster Procurement4. Faster Procurement4. Faster Procurement

Traditional Model

Scope Definition Business Plan Design (90%) Construction

New P3 Procurement Model

Scope Definition REOI RFP Design (80%) and Construct

Business PlanPerformance

StandardsREOI Document

Draft RFP

5. Performance Standards5. Performance Standards5. Performance Standards

Government sets standards

Outcome-based, not prescriptiveSatisfaction measures

Private sector incented to performPerformance payments

Penalties

Government sets standards

Outcome-based, not prescriptiveSatisfaction measures

Private sector incented to performPerformance payments

Penalties

P3s in CanadaP3s in CanadaP3s in Canada

•Completed• Confederation Bridge• Highway 407, Ontario• Fredericton New Brunswick Highway• Highway 104, Nova Scotia• Nav Canada / Airport Authorities

•P3 Procurement Underway• William Osler Health Centre• Royal Ontario Hospital • Calgary Law Courts

•Completed• Confederation Bridge• Highway 407, Ontario• Fredericton New Brunswick Highway• Highway 104, Nova Scotia• Nav Canada / Airport Authorities

•P3 Procurement Underway• William Osler Health Centre• Royal Ontario Hospital • Calgary Law Courts

P3s in BCP3s in BCP3s in BC

Sports complexes in Chilliwack, Kelowna and Victoria

Water treatment plants – Port Hardy, Sooke, Lytton

BC Hydro IPPs

Terasen (BC Gas) projects

200th St. overpass on Highway #1

Columbia Power

YVR

Long-term care facilities

Sports complexes in Chilliwack, Kelowna and Victoria

Water treatment plants – Port Hardy, Sooke, Lytton

BC Hydro IPPs

Terasen (BC Gas) projects

200th St. overpass on Highway #1

Columbia Power

YVR

Long-term care facilities

Myth• P3s cost more because public sector can borrow money

more cheaply

Fact• Financing costs only one component of overall costs

• Total cost over lifecycle is better indicator of cost to taxpayers than borrowing costs

• Risks need to be added to public sector borrowing for adequate comparison

Myth• P3s cost more because public sector can borrow money

more cheaply

Fact• Financing costs only one component of overall costs

• Total cost over lifecycle is better indicator of cost to taxpayers than borrowing costs

• Risks need to be added to public sector borrowing for adequate comparison

Myth• If the private sector makes a profit, the deal can’t be good

for taxpayers

Fact• In conventional procurement, private sector also makes a

profit

• Competition leads to lower costs and returns

• Lifecycle approach leads to better planning

Myth• If the private sector makes a profit, the deal can’t be good

for taxpayers

Fact• In conventional procurement, private sector also makes a

profit

• Competition leads to lower costs and returns

• Lifecycle approach leads to better planning

Myth• If a private partner goes bankrupt, taxpayers are on the hook

Fact• Government can step in to take over, at no cost to taxpayers

• Private sector takes risk and loses capital, not taxpayers

Myth• If a private partner goes bankrupt, taxpayers are on the hook

Fact• Government can step in to take over, at no cost to taxpayers

• Private sector takes risk and loses capital, not taxpayers

Partnerships BCPartnerships BCPartnerships BC

Serves public interest by delivering value for money

Implements and advises on public private partnerships

Works with Government as the client

Centre of expertise on P3 procurement

Serves public interest by delivering value for money

Implements and advises on public private partnerships

Works with Government as the client

Centre of expertise on P3 procurement

Abbotsford Hospital and Cancer CentreAbbotsford Hospital and Cancer CentreAbbotsford Hospital and Cancer Centre

RFP was issued in September 2003

Expected financial close 2004

Expected project completion 2007

Academic Ambulatory Care CentreAcademic Ambulatory Care CentreAcademic Ambulatory Care Centre

RFP closed November 2003



RAV Rapid TransitRAV Rapid TransitRAV Rapid Transit

RFP closes January 2004



Fraser Gateway CorridorFraser Gateway CorridorFraser Gateway Corridor

RFQ issued October 2003



Sierra-Yoyo-Desan (SYD) RoadSierraSierra--YoyoYoyo--Desan (SYD) RoadDesan (SYD) Road

RFP closed November 2003



Okanagan Lake BridgeOkanagan Lake BridgeOkanagan Lake Bridge

REOI issued 2003



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Introduction to Public Private Partnerships · • P3s cost more because public sector can borrow money . more cheaply. Fact • Financing costs only one component of overall costs