Public-Private Partnerships for Highway Infrastructure...

PublicPublic--Private Partnerships for Private Partnerships for Highway Infrastructure Scan TripHighway Infrastructure Scan Trip

June 2008June 2008

International Technology Scanning ProgramInternational Technology Scanning ProgramSponsors: FHWA, AASHTO, NCHRPSponsors: FHWA, AASHTO, NCHRP

8/7/2008 2PPP Scan Trip

OutlineOutline

Scan Trip OverviewScan Trip OverviewHost Nation PPP Host Nation PPP Program CharacteristicsProgram CharacteristicsPrincipal FindingsPrincipal FindingsCase ExampleCase ExampleKey RecommendationsKey Recommendations


Scanning Program Scanning Program

Connects US highway & Connects US highway & transportation officials with transportation officials with counterparts worldwide by:counterparts worldwide by:

Sending teams to visit host Sending teams to visit host nationsnationsCollecting information about Collecting information about international international technologies/policies/practicestechnologies/policies/practicesDisseminating lessons learnedDisseminating lessons learnedRecommending actions that Recommending actions that will have impactswill have impacts

Scan Trip OverviewScan Trip Overview


PPPPPP’’s for Highway Infrastructures for Highway Infrastructure

US Highway Agencies Are Struggling to Fulfill:US Highway Agencies Are Struggling to Fulfill:Expansion, Expansion, Modernization, &Modernization, &Restoration RequirementsRestoration Requirements

PPPPPP’’s Could Potentially Be Part of the Solutions Could Potentially Be Part of the SolutionBUT Contemporary Familiarity with PPPBUT Contemporary Familiarity with PPP’’s for s for Highway Infrastructure in US Is LimitedHighway Infrastructure in US Is LimitedInternational PPP Experience Is More MatureInternational PPP Experience Is More Mature



PPP Scan TripPPP Scan Trip

Purpose:Purpose:Examine host nation programs, Examine host nation programs, policies, practicespolicies, practicesDocument lessons learnedDocument lessons learnedRecommend implementation Recommend implementation actionsactions

Major Issues of InterestMajor Issues of InterestEnvironment for PPPEnvironment for PPP’’ssProcurement & ContractingProcurement & ContractingO&M and CloseoutO&M and CloseoutProgram PerformanceProgram Performance



PPP Scan TeamPPP Scan Team

Bob Pieplow, Jeff Seiders, Roger Driskell,Bob Pieplow, Jeff Seiders, Roger Driskell,Steve Gaj, Mike Garvin, Jan Brown,Steve Gaj, Mike Garvin, Jan Brown,

Art Smith, Dusty Holcombe, Mike SaundersArt Smith, Dusty Holcombe, Mike SaundersRepresenting FHWA, Representing FHWA, CalTransCalTrans, IDOT, NCPPP, , IDOT, NCPPP, TxDOTTxDOT, VDOT, Virginia Tech , VDOT, Virginia Tech



Host NationsHost Nations

Portugal Spain United Kingdom Australia



ItineraryItinerary

Lisbon, Lisbon, PortugalPortugal

Madrid, Madrid, SpainSpain

1

2London, London, EnglandEngland

3

Sydney, Sydney, AustraliaAustralia

Melbourne, Melbourne, AustraliaAustralia

Brisbane, Brisbane, AustraliaAustralia

4

5

6



PPP Scan Implementation StrategyPPP Scan Implementation Strategy

Team member presentationsTeam member presentationsMultiple audiencesMultiple audiences

Summary reportSummary reportSubmission in AugustSubmission in August

Final reportFinal reportPublication Winter 2008Publication Winter 2008--0909

Scan technology Scan technology implementation plan (STIP)implementation plan (STIP)



Host Nation PPP ProgramsHost Nation PPP Programs

SimilaritiesSimilaritiesNetwork demands exceed conventional resourcesNetwork demands exceed conventional resourcesRole in national/regional highway networkRole in national/regional highway networkInstitutional learningInstitutional learning

Significant DifferencesSignificant DifferencesFunding mechanismsFunding mechanismsProcurement processesProcurement processesRisk allocation & managementRisk allocation & management

PPP Program CharacteristicsPPP Program Characteristics


Differences Differences –– Funding MechanismsFunding Mechanisms

PortugalPortugalReal tolls orReal tolls orReal tolls + shadow tollsReal tolls + shadow tolls

SpainSpainPrimarily shadow tollsPrimarily shadow tolls

United KingdomUnited KingdomDirect payment Direct payment mechanismsmechanisms

AustraliaAustraliaReal tollsReal tolls



Differences Differences –– Procurement ProcessesProcurement Processes

PortugalPortugalEvaluate bids and shortEvaluate bids and short--list 2 bidderslist 2 biddersNegotiate & select preferred bidderNegotiate & select preferred bidder

SpainSpain““Open competition modelOpen competition model””Receive binding bids & select winnerReceive binding bids & select winner

United KingdomUnited KingdomMultiMulti--stage competitive processstage competitive processNegotiate & select preferred bidder Negotiate & select preferred bidder from shortfrom short--listlist

AustraliaAustraliaMultiMulti--stage competitive processstage competitive processNegotiate & select preferred bidder Negotiate & select preferred bidder from shortfrom short--listlist


Advertising (JOUE)AdvertisingAdvertising (JOUE)(JOUE)

Bids PresentationBids PresentationBids Presentation

2 bids short listed2 bids short listed2 bids short listed

Contract AwardContract AwardContract Award

Financial ClosingFinancial ClosingFinancial Closing

00

Bids preparation 4 months

44

Evaluation 3 months

77

Negotiation 2 months

99

Requirements and contract

terms1 month

1010

Two steps tendering processPortuguese ProcessPortuguese Process


Differences Differences –– Risk Allocation & Risk Allocation & ManagementManagement

PortugalPortugalConsider restructuring agreement when Consider restructuring agreement when actual conditions differ from expected actual conditions differ from expected (market risks particularly)(market risks particularly)

SpainSpainReRe--balancebalance contract if expected contract if expected ““economiceconomic--financial equilibriumfinancial equilibrium”” is not is not maintainedmaintainedSustained, material effect necessarySustained, material effect necessary

United KingdomUnited KingdomRobust, auditable allocation of riskRobust, auditable allocation of riskLimited regime to accommodate Limited regime to accommodate uncertainties & changesuncertainties & changes

AustraliaAustraliaPrivate investors bear downPrivate investors bear down--side side market risksmarket risksLimited regime to accommodate Limited regime to accommodate uncertainties & changesuncertainties & changes



General FindingsGeneral Findings

PPPPPP’’s Small BUT Critical Percentage of National Roadway s Small BUT Critical Percentage of National Roadway NetworksNetworks

UK: 3% of all roadways but UK: 3% of all roadways but 33% of all traffic33% of all traffic and 62% of freightand 62% of freightSignificant Institutional Learning Has OccurredSignificant Institutional Learning Has Occurred

Opportunity for U.S.Opportunity for U.S. as a as a ““latelate--movermover””Highway PPP Arrangements Are NOT Primarily Financial Highway PPP Arrangements Are NOT Primarily Financial TransactionsTransactions

Rather, Rather, selected project delivery strategyselected project delivery strategy based upon based upon VfMVfMHighway PPP Arrangements Do NOT Highway PPP Arrangements Do NOT ““AutomaticallyAutomatically””Require User FeesRequire User Fees

Various schemesVarious schemes utilizedutilizedMaximum Contract Period Observed Was 45Maximum Contract Period Observed Was 45--YearsYears

Most ranged from Most ranged from 3030--40 years40 years

Principal FindingsPrincipal Findings


SpainSpain’’s Motorway Concessionss Motorway Concessions


General FindingsGeneral Findings

PPPPPP’’s Appear to Allow the Delivery of Projects Sooners Appear to Allow the Delivery of Projects SoonerAll public agencies made similar claims All public agencies made similar claims compared to conventional routecompared to conventional route

Change in Public Sector Mindset & Skills for PPP Change in Public Sector Mindset & Skills for PPP Programs NecessaryPrograms Necessary

UK Highways Agency: UK Highways Agency: network operatornetwork operator not network providernot network providerInnovation in PPP Arrangements Is EvidentInnovation in PPP Arrangements Is Evident

Private innovation stimulated by competition for a Private innovation stimulated by competition for a commercial enterprisecommercial enterprisePPP Contracts Must Balance Technical, Commercial, & PPP Contracts Must Balance Technical, Commercial, & Legal ConditionsLegal Conditions

Commercial & Legal Team Commercial & Legal Team ““road testroad test”” developed technical provisionsdeveloped technical provisionsEmphasis Upon Partnership (i.e. Emphasis Upon Partnership (i.e. ppPppP))

Both sectors recognizing Both sectors recognizing strength of longstrength of long--term relationshipterm relationship is criticalis critical



EastLinkEastLink in Victoria, Australiain Victoria, Australia


Project Lifecycle FindingsProject Lifecycle Findings

FrontFront--end or Preliminary Planning Crucialend or Preliminary Planning CrucialMust understand Must understand business casebusiness case and drivers of and drivers of lifecycle valuelifecycle value

PPP Projects Typically Large and ComplexPPP Projects Typically Large and ComplexScale offsets Scale offsets transaction coststransaction costs and complexity compels and complexity compels novel solutionsnovel solutions

Identify and Convey Outputs Desired without Comprising Identify and Convey Outputs Desired without Comprising Technical StandardsTechnical Standards

Outputs are what Outputs are what projectproject’’s customerss customers focus uponfocus uponRisk Analysis and Allocation ParamountRisk Analysis and Allocation Paramount

Optimal risk allocationOptimal risk allocation instead of instead of maximum risk transfermaximum risk transferGovernment Commitment to Close ProcurementsGovernment Commitment to Close Procurements

Reliability of process promotes Reliability of process promotes market development and stabilitymarket development and stability



Preliminary Economic Analysis in SpainPreliminary Economic Analysis in Spain

1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 9,00

5.000

10.000

15.000

20.000

25.000

30.000

Scenario: IRR 7%, Average Toll 0,06€/Km, 10% equitiy, Interest rate 7%

Cost per Km (M€/Km)

VPD

35 year term

50 year term

75 year term

ECONOMIC VIABILITY AREA

NON ECONOMIC VIABILITY AREA

Madrid-Navalcarnero

Madrid-Ocaña

Madrid-Arganda

Madrid-Guadalajara

New radial highway

Estepona-Guadiaro

Alicante-Cartagena

Intercities motorway

Ávila-N VI

Santiago-Alto deSto. Domingo

León-AstorgaSegovia-San Rafael

Highway for regional developement

M-50 ring

M-50 ring

M-50 ring

Public fund

Public fund


Project Lifecycle FindingsProject Lifecycle Findings

Multiple Claims that PPP Projects Provide Greater Design Multiple Claims that PPP Projects Provide Greater Design & Construction Price and Time Certainty& Construction Price and Time Certainty

Several Several public and thirdpublic and third--party studiesparty studies suggested such advantagessuggested such advantagesIndependent Verifier Utilized in Design & ConstructionIndependent Verifier Utilized in Design & Construction

Administers and reviewsAdministers and reviews project on behalf of governmentproject on behalf of governmentKey Performance Indicators (Key Performance Indicators (KPIKPI’’ss) Define and Measure ) Define and Measure Outputs DesiredOutputs Desired

Monetary rewards or debitsMonetary rewards or debits for good or poor performancefor good or poor performanceEffective Contract Management Vital in PPP ProjectsEffective Contract Management Vital in PPP Projects

Perhaps what Perhaps what differentiates success from failuredifferentiates success from failure in each contractin each contractHandbackHandback Provisions Necessitate Good Asset Provisions Necessitate Good Asset Management PracticesManagement Practices

Typically provisions specify Typically provisions specify residual service liferesidual service life requirements; aspect that requirements; aspect that is is untesteduntested



UK Contract ManagementUK Contract Management

Deficiency ReportingDeficiency ReportingLevel 1: CommentsLevel 1: CommentsLevel 2: NonLevel 2: Non--conformance Reportconformance ReportLevel 3: Remedial NoticeLevel 3: Remedial NoticeLevel 4: Penalty Point NoticeLevel 4: Penalty Point NoticeLevel 5: Warning Notice Level 5: Warning Notice

Increased monitoringIncreased monitoringStepStep--in rightsin rights


EastLinkEastLinkVictoria, AustraliaVictoria, Australia

39 km of freeway standard 39 km of freeway standard roadroadTwin 3Twin 3--lane 1.6km tunnelslane 1.6km tunnels17 interchanges17 interchanges88 bridges88 bridgesTwo toll free bypass roadsTwo toll free bypass roads40km of shared use path40km of shared use path$AU2.5bn construction cost $AU2.5bn construction cost ($2.4Bn)($2.4Bn)

Case ExampleCase Example


CityLinkCityLink Lessons in Lessons in EastLinkEastLinkVictoria, AustraliaVictoria, Australia

Toll escalation CPI annually Toll escalation CPI annually not quarterlynot quarterlyKPI’s – long term performanceOperator involvement in the design processRoad & transport policies unencumberedIntroduction of proof engineer & construction verifierEmphasis upon urban design



EastLinkEastLink ConcessionConcessionVictoria, AustraliaVictoria, Australia

Concession Deed Executed Oct Concession Deed Executed Oct ‘‘04043939--Year Concession PeriodYear Concession PeriodContract Completion Date Nov Contract Completion Date Nov ‘‘0808No Restrictions on Road Network ChangesNo Restrictions on Road Network ChangesExtensive KPI Regime to Ensure ServiceExtensive KPI Regime to Ensure ServiceState Shares Refinancing GainsState Shares Refinancing GainsState Shares on Super ProfitsState Shares on Super Profits



EastLinkEastLink Project PartiesProject PartiesVictoria, AustraliaVictoria, Australia


Victorian Government

SEITA

ConnectEast

Thiess John Holland

Designers Tolling system supplierSub-contractors

Independent ReviewerDebt providers

Transfield ServicesOperations & Maintenance


EastLinkEastLink KPIKPI’’ssVictoria, AustraliaVictoria, Australia

Customer ServiceCustomer ServiceRoad MaintenanceRoad MaintenanceLandscape & Landscape & EnvironmentEnvironmentTolling AccuracyTolling Accuracy


PenaltyPenalty –– Up to $17 Million AnnuallyUp to $17 Million Annually

CollectionsCollections –– Allocated to CustomersAllocated to Customers


EastLinkEastLink OutcomesOutcomesVictoria, AustraliaVictoria, Australia

Largest urban road project & PPP to dateDelivered 5 months ahead of scheduleGovernment and private sector teamwork No claims or significant issues for the stateHigh quality urban design



RecommendationsRecommendations

WhatWhat’’s the End Game?s the End Game?Overarching outcome desired would be the prolific Overarching outcome desired would be the prolific use of a project development process by state and use of a project development process by state and local highway agencies that local highway agencies that selects an effective selects an effective project delivery systemproject delivery system –– where an effective system where an effective system is defined as one that provides the most is defined as one that provides the most advantageous benefits to society and meets the advantageous benefits to society and meets the objectives of government. objectives of government. AndAnd PPP arrangements PPP arrangements should be available as project delivery options.should be available as project delivery options.

Key RecommendationsKey Recommendations


Recommendation CategoriesRecommendation Categories

Education: ShortEducation: Short--Term (within 1 year)Term (within 1 year)Research: MediumResearch: Medium--Term (between 2Term (between 2--3 years)3 years)Transfer: LongTransfer: Long--Term (beyond 3 years)Term (beyond 3 years)



EducationEducation

Convene executive workshops at Convene executive workshops at regional sitesregional sitesCreate set of Create set of ““state of practicestate of practice””publicationspublicationsUpdate FHWA webUpdate FHWA web--site with new site with new materialmaterialDevelop guidebooks describing Develop guidebooks describing attributes of PPP program and attributes of PPP program and projectsprojectsEncourage AASHTO to establish Encourage AASHTO to establish group focused on PPPgroup focused on PPP’’ssEngage industry organizations to Engage industry organizations to develop medium and longdevelop medium and long--term term educational strategieseducational strategies

S tate Conces s ionairePlanningDesignE nvironmentalL and acquisitionsConstructionOperation and maintenanceR evenue (T raffic)L atent defectsL egislationF orce majeure

R es pons ibilityR isks

* *** **



ResearchResearch

Develop inDevelop in--depth case studies of depth case studies of representative projects (past & present)representative projects (past & present)Examine strengths & weaknesses of open Examine strengths & weaknesses of open competitive procurement process and competitive procurement process and negotiated competitive procurement processnegotiated competitive procurement processExamine & identify knowledge, skills, & Examine & identify knowledge, skills, & abilities needed for PPP:abilities needed for PPP:

Program ManagersProgram ManagersProcurement OfficersProcurement OfficersContract ManagersContract ManagersFinancial & Legal SpecialistsFinancial & Legal Specialists

Investigate the determinants of concession Investigate the determinants of concession length both domestically and abroadlength both domestically and abroadEvaluate methodologies for establishing & Evaluate methodologies for establishing & managing toll structuresmanaging toll structuresInvestigate & identify appropriate metrics Investigate & identify appropriate metrics for assessing benefits/costs of PPP for assessing benefits/costs of PPP programs and projectsprograms and projects



TransferTransfer

Develop & publish principles Develop & publish principles and guideline documentsand guideline documents

Establishing a PPP programEstablishing a PPP programIdentifying and evaluating Identifying and evaluating candidate PPP projectscandidate PPP projectsProcuring PPP projectsProcuring PPP projectsCreating PPP contractsCreating PPP contractsManaging PPP contractsManaging PPP contractsMeasuring PPP program and Measuring PPP program and project performanceproject performance

Establish national working Establish national working groups to identify best groups to identify best practices practices


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