public-private partnerships for highway infrastructure...
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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
8/7/2008 3PPP Scan Trip
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
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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
Scan Trip OverviewScan Trip Overview
8/7/2008 5PPP Scan Trip
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
Scan Trip OverviewScan Trip Overview
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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
Scan Trip OverviewScan Trip Overview
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Host NationsHost Nations
Portugal Spain United Kingdom Australia
Scan Trip OverviewScan Trip Overview
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ItineraryItinerary
Lisbon, Lisbon, PortugalPortugal
Madrid, Madrid, SpainSpain
1
2London, London, EnglandEngland
3
Sydney, Sydney, AustraliaAustralia
Melbourne, Melbourne, AustraliaAustralia
Brisbane, Brisbane, AustraliaAustralia
4
5
6
Scan Trip OverviewScan Trip Overview
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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)
Scan Trip OverviewScan Trip Overview
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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
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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
PPP Program CharacteristicsPPP Program Characteristics
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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
PPP Program CharacteristicsPPP Program Characteristics
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
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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
PPP Program CharacteristicsPPP Program Characteristics
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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
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SpainSpain’’s Motorway Concessionss Motorway Concessions
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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
Principal FindingsPrincipal Findings
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EastLinkEastLink in Victoria, Australiain Victoria, Australia
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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
Principal FindingsPrincipal Findings
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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
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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
Principal FindingsPrincipal Findings
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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
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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
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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
Case ExampleCase Example
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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
Case ExampleCase Example
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EastLinkEastLink Project PartiesProject PartiesVictoria, AustraliaVictoria, Australia
Case ExampleCase Example
Victorian Government
SEITA
ConnectEast
Thiess John Holland
Designers Tolling system supplierSub-contractors
Independent ReviewerDebt providers
Transfield ServicesOperations & Maintenance
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EastLinkEastLink KPIKPI’’ssVictoria, AustraliaVictoria, Australia
Customer ServiceCustomer ServiceRoad MaintenanceRoad MaintenanceLandscape & Landscape & EnvironmentEnvironmentTolling AccuracyTolling Accuracy
Case ExampleCase Example
PenaltyPenalty –– Up to $17 Million AnnuallyUp to $17 Million Annually
CollectionsCollections –– Allocated to CustomersAllocated to Customers
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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
Case ExampleCase Example
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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
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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)
Key RecommendationsKey Recommendations
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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
* *** **
Key RecommendationsKey Recommendations
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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
Key RecommendationsKey Recommendations
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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
Key RecommendationsKey Recommendations