• A Public-Private Partnership model should be used if both qualitative and quantitative specifications throughout the term of the project, from the Design & Construction through the Operations & Maintenance phases, ensure value for money when compared to traditional methods.  

• The private sector ensures Value for Money (VfM) over the concession term for the taxpayer. As the O&M service provider has the longest and most unpredictable risk at stake, the O&M firm requires that the consortium teams take a Whole Life Perspective on design and construction issues for the project. Ultimately, these decisions translate into known, quantifiable delivery results, in which the O&M provider takes on the financial risk of delivery services over the project term. Without this type of risk transfer, the public sector will likely obtain an asset without key performance engines to drive operational results and ultimately be saddled with the cost of operations. Design-Build projects can have loose terms and conditions, sometimes allowing bidders to deliver questionable quality standards, resulting in increasing maintenance costs, shorter life span, and higher energy results. All these risks are left with the public sector to operate. 

Conversely, output specifications under the DBFM model are very qualitative, from the design and construction phase to the operating requirements of the facility. Any penalty regimes for non-performance can be deducted from the monthly service payment and may escalate in value should corrections not be completed in a timely manner. A performance issue can force termination of the O&M service provider but not remove the service obligation to the project company, which would then be required to hire a replacement firm. This type of financially-oriented penalty reinforces awareness that quality standards must be achieved, and should problems occur, leverage can be applied to guarantee corrective action. This is far more impactful than the public sector’s leverage in other contractual models. 

Furthermore, governments continuously balance budgets to address the most important priority at any given time, putting regular funding of the required lifecycle at risk. Budget freezes, or worse, budget cuts, require public sector facilities managers to decrease maintenance schedules and defer long-term refreshment projects. These lifecycle items sometimes require temporary fixes or band-aid solutions to keep them operational and often operate at higher energy consumption levels. Buildings are rendered inefficient when funding is choked, which quickly creates deferred maintenance issues, increasing the likelihood of system failure and – over the long run – cost more money to implement. The DBFM model provides a more manageable, sustainable guaranteed result which financially should be in the best interest of government and the taxpayer. 

The P3 approach provides a holistic approach to project development. This whole of life approach allows the project team to consider life cycle maintenance early on in the design phase, creating synergies and allowing for the opportunity for cost savings over the project term. 

The O&M service provider plays a pivotal role in the design process, providing input to maximize efficiency and performance of the asset. Whole of life costs throughout the concession period play an integral part of P3 projects. A fully integrated design approach connects the future use of the asset with the team guaranteeing its performance through the project agreement. This exposure to the details of the project allows the O&M service provider to be more effective when forecasting not only future energy consumption, but the overall cost of O&M and rehabilitation throughout the concession period. In a competitive bid, the O&M provider is incentivized to incorporate innovative technology or design to drive down the cost of service. 

• • • • • • Many P3s have an O&M period of 25 to 50 years, the goal of handback provisions is to ensure that the public owner receives the project back in good working order and that the major elements (e.g., pavement, structures, drainage, signs, etc.) do not require capital investment in the short term. The handback provisions and prescribed performance requirements guide the developer in programming major maintenance throughout the term to meet the above-mentioned goal. Handback provisions generally require assets to meet performance requirements and residual life minimums at expiry. For example, a new concrete girder bridge with a design life of 75 years would typically have a residual life of 25 years (50-year term) and require a prescribed minimum NBIS score.  
            • Handback Period: The public owner should set a period of 60 to 18 months from the expiry date. During this time, the developer will coordinate with the owner to develop and execute the Handback Work Plan. The length of this period should be determined in consideration of both the complexity and characteristics of the project to ensure the means for proper oversight. 
            • Handback Work Plan: The Developer’s written plan outlining the approach, schedule, and methodology should be updated annually. 
            • Residual Life Table: The technical provisions should include a comprehensive table that dictates the public owner’s minimum residual life requirements of each asset at expiry. This table may also include the minimum design life. 
            • Independence: The developer should be required to use an independent firm with expertise and experience to determine the residual life of elements and support the handback process. 
            • Handback Account/Reserve: The developer should be required to establish and fund a Handback Account as a form of security for the public owner. Some agreements include provisions for a letter of credit in lieu of an account. The amount is the estimated cost of the necessary major maintenance to improve, repair, renew, or replace each element listed in the residual life table. 
            • Handback Condition Report: An annual report should be drafted by the developer during the handback period and should typically include the calculations of residual life for each element, an overview of renewal/major maintenance work required, and an estimate of the handback amount to fund the handback account. 
            • Residual Life Inspections/Testing: Specific handback inspections and testing of elements based on the standards at the time of the inspections occur throughout the handback process. 
            • Residual Life Methodology: The developer and its independent firm should be required to develop methodologies for calculating residual life based on standards at the time or prescribed methodologies set by the owner in the contract. For example, pavement residual life would be calculated based on structural capacity and traffic volumes. 
            • Handback Warranty: In recent procurements, some owners have included required warranties on handback work

Risk management

Determine anticipated risk management by identifying project key risks and considering their:

• Consequence
• Severity
• Probability
• Impact
• Strategy to mitigate. Desired risk transfer.

The value of a P3 is that the public agency and private partner are able to work together to address the appropriate transfer of risk to the party best suited to mitigate it. This is essentially the basis of the Value for Money (VfM) proposition; that having a private counterpart assume a project risk has an actual tangible value.

Preliminary Capex or Life-cycle cost estimate.

GREEN INFRASTRUCTURE PROGRAMS REPORT

LIFE-CYCLE COST MODELLING PROCESS

Life-Cycle Costing Analysis: Mandatory for all Infrastructure Projects
Girish M Ramachandran on LinkedIn
Publish date May 12, 2017

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In order to maintain satisfied stakeholders, there are key areas that you need to address: engagement, management and how to address concerns.

An organized and systematic approach will be beneficial to ensure that you have appropriately identified your stakeholders and created a plan to manage communications and expectations, resolve challenges and meet your project goals.

Conduct a project assessment to identify P3 delivery method options:

• Identify repayment mechanism. Can the project generate enough revenue to be a viable P3?
• Perform value for money study to determine if a P3 structure can provide additional value to the project.
• Identify risks and appropriate mitigations during construction and O&M.
• Select appropriate structure based on value for money, funding, and risks (DBB, CM/GC, DB, DBF, DBFM, DBFOM).

Identify the agency project manager & team that will manage and carry through the P3 process. It is not unusual that the project manager & some team members may be external.

Team membership to be considered:

• • P3 champion
  • Management team/board
  • Independent peer review
  • Project manager
  • Procurement advisor with expertise in making P3s effective, developing solicitations and solving client issues. This can be internal or external.