In many parts of the world, public private partnerships (P3’s) are fast becoming the preferred way for building and delivering major infrastructure projects. P3 has been a process for project delivery in the United Kingdom under the guidance of Partnerships UK (PUK) for more than a decade: more than 900 P3 projects worth over UK£70 billion have been procured in that time. Closer to home, Partnerships British Columbia (PBC) has been responsible for managing over 20 P3 projects. More are on the way and PBC is assisting other provinces with managing this process.
The P3 concept has been widely endorsed and employed in Ontario and, more recently, in Saskatchewan and Alberta. In the United States, considerable interest has been shown in P3 projects for rebuilding that country’s infrastructure, with some states having already enacted legislation endorsing the P3 structure as an acceptable way of spending the public purse.
What is it about P3’s that makes them so attractive? The answer is multifold and includes not only a track record of successfully concluded projects with demonstrated financial advantages over the standard “design-bid-build” (DBB) format but also the effectiveness and fairness of the P3 procurement process itself.
At the root of the P3 model is the principle that, in awarding public sector projects, the taxpayer’s best interests are realized when the award is made on the combined basis of the lowest cost proposal bringing the “best value” to the public sector sponsor. The lowest price does not necessarily govern, as happened historically with public construction projects following the DBB model. Now, close attention is paid to the “real value” the public receives from the projects being designed and built. And the process of assessing “best value” brings to light the real advantages of the P3 process.
In estimating “best value” in the P3 format, a project’s sponsors consider several factors, including:
- the experience and skill of the designers, builders and facility managers involved on the project
- the functionality, efficiency and serviceability of each proponent’s proposed design
- the degree of risk available for transfer from the public sector to the private sector
- the advantages of proposed debt and equity financing solutions.
Uniquely, an evaluation gauges the certainty of the project achieving a 25-30 year lifespan free of any untoward increase in facilities management and maintenance costs, a feature which goes largely unnoticed in the DBB process. In short, assessing “best value” enables the public sector to define, with a considerable degree of accuracy, the total cost of the project for its entire life cycle and to transfer to the private sector the risk associated with successfully achieving that life cycle.
The next question is: how are these significant benefits achieved in the P3 procurement process? Recognize first that the process is radically different from that used in the standard DBB format. Before any proposals are invited for the design and construction of a P3 project, construction teams or “proponents” qualified to undertake the project are identified. This is done by issuing a Request for Qualifications (RFQ) inviting the industry to respond to a detailed RFQ that sets out a team’s background in design, construction, maintenance and financing of similar projects.
The proponents are provided with a description of the public sector’s “needs” for the project and various other details that enable them to determine whether they have the requisite skill and experience to respond. A team of qualified evaluators then subjects the responses received to a detailed evaluation. All these procedures take place under the watchful eye of a “fairness monitor” or “independent observer” to ensure that the process is fair, robust and transparent.
In the standard DBB process, by comparison, there is usually no such evaluation made before the submission of formal bids or tenders; nor is there an opportunity to test the suitability of any particular bidder or proponent before the formal bidding process.
Once the project’s sponsor and the evaluation team have identified a short list of qualified P3 teams or proponents, each is invited to submit a comprehensive proposal for the design, construction, management and financing of the project. The Request for Proposals (RFP) issued at this stage of the process provides a very detailed description, including a copy of the final project agreement being proposed by the public sector sponsor, of what each proponent should take into account in making its submission and the basis upon which each proposal will be evaluated.
The proponents are free to make suggested changes to the project agreement and to be as innovative as they wish in their proposed design, financing, construction and management of the project. When the sponsor receives the proposals, they are again put through a detailed evaluation process that includes presentations by each proponent, collaborative meetings and comprehensive analyses conducted by committees comprised of expertise in each of the four aspects of the proposals. As before, the entire process is under the watchful eye of an independent fairness monitor.
The degree of evaluation undertaken in the procurement process for P3s, at both the RFQ and RFP stages, is missing from the standard DBB methodology. The advantage to the P3 evaluation process is that it is more likely to ensure that any given project will meet the public sector’s long-term needs. It will also more probably establish an amicable and successful working relationship between the public sector agency and the winning “design-build-finance-maintain” team than other project delivery methods. In short, there is a much greater likelihood that the taxpayer will get “best value” for each tax dollar. The experience of PUK in the United Kingdom, PBC in Canada and British Columbia, Infrastructure Ontario, and similar organizations in the United States is proving this to be the case.
The presence of an independent fairness monitor throughout the P3 procurement process is an important feature of this form of procurement. It is much less likely that an unsuccessful proponent would challenge the award of the project to the proponent bringing the “best value” to the project. To demonstrate the usefulness of a fairness monitor, one need only look at the rows of legal cases involving tendering disputes along the walls of law libraries. None involved the concept of fairness monitoring. Had they done so, many, if not all, of those library shelves would be empty.
Public private partnerships and the accompanying use of fairness monitoring represent a paradigm shift in the allocation and management of the public purse. Although, as with all advances in the manner in which we do things, the process has its doubters, the record to date gives every indication that these concepts have much to offer the public sector (and perhaps the private sector) in delivering on-schedule, on-budget, economically successful, construction projects.