Three factors for a successful P3 procurement

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.