A public-private partnership (P3) is formed when a public agency, such as a state department of transportation, enters into an agreement with a private-sector entity for the design, construction, finance or operations of a project. P3s allow for greater private-sector participation in the delivery, financing and long-term operations of public infrastructure projects. They can be powerful and effective tools in achieving public policy, cost and schedule objectives; relieving public agencies of the burden of financing a project; speeding up delivery; fostering efficient management; and increasing opportunities for innovation. If you or your organization is considering using a P3 to deliver your project, keep in mind these three factors to make the experience successful and beneficial for both the public and private sector:
Competition is a good thing
Robust competition with a level playing field for all proposers establishes an objective benchmark for measuring private-sector value. The optimal number of highly qualified bidders is typically three to four per procurement, with the hope that all submit a proposal, or that at least a minimum of two compliant bids are submitted. To further ensure that the procurement is bringing good value, the public sector should develop their own benchmark on the expected value of the procurement based primarily on recent comparable procurements in the market. The public sector entity should finalize its benchmark before receiving bids, then compare its measures to the bids to determine the best value proposal.
Due diligence pays off
Thorough analysis by the public sector of the anticipated project costs and revenues will help the public sector gain the private sector’s interest in pursuing the project. The required due diligence includes the status and timing of environmental approvals, robust utility identification, extensive soil condition data collection, and thorough hazardous materials investigations. The results of these efforts should be factored into the overall risk-adjusted project costs and calculated through a structured process whereby the public sector procurement team evaluates the risks, the likelihood of those risks occurring, and the effects on cost and schedule, if they occur.
Get it in writing
The procurement documents and the terms and conditions for the P3 agreements need to clearly and effectively protect the interests of the parties. The procurement documents should describe what the public sector wants and how the proposers will be fairly and objectively evaluated. As a project transitions to implementation following commercial close, the individuals that procured the project will likely change, and others could have different interpretations of certain provisions of the agreement. As P3 agreements typically extend across 40 or more years, the impact to the risk profile envisioned when the contract was executed could be substantial.
Though every project is different, the benefits of public-private partnerships are bountiful. Remember these three tips when procuring a P3 project, and take advantage of the benefits that P3s can provide when navigating the procurement process and during project implementation. P3s thrive on teamwork and collaboration, so keep the lines of communication open between the project sponsor, the project sponsor’s procurement team and the private sector.