In early December 2017, the Miami-Dade Board of County Commissioners passed an ordinance outlining the county’s procurement process for public- private partnerships (P3s). The ordinance follows many of the recommendations from a county task force comprised of contractors, labor unions, asset operators and consultants to develop guidelines for P3 projects.
As Miami-Dade recently codified its P3 procurement guidelines, other local governments, including the city and county of Denver, have been moving to establish similar offices dedicated to P3s. These actions seek to ensure that private partners have a clear understanding of the risks associated with the P3 procurement process and that public interests are protected.
Following are four key issues for P3 offices that show up consistently in the procurement process.
Requirements for a Value for Money Analysis
Having pre-determined analytical processes can add significant levels of certainty to project procurement. This typically takes the form of a value for money analysis that assesses whether the public sector would see increased value by delivering the proposed project through a P3 rather than through traditional procurement.
When projects are accompanied by these reports, the public sector and taxpayers get a better understanding of why the delivery method was chosen, which can provide political cover. However, these analyses are somewhat more of a work of art rather than science, and the conclusions can be called into question by those who are opposed to the project for political reasons.
For example, the value for money that was determined by KPMG’s analysis of the Indianapolis Courthouse was challenged by the city council and the project was subsequently cancelled.
The Shortlisting Process
The number of teams that get shortlisted for a P3 project can affect the quality of bidding teams. If a public agency shortlists too many teams, the probability that a given team will be awarded the project may be too low for the teams to continue to participate in the procurement process.
In Aon’s annual survey on procurement risk, multiple respondents indicated that large shortlists increase the cost of procurement and can discourage them from pursuing future projects. However, if too few teams are shortlisted, the public may grow concerned about cronyism and the potential that the project may not actually be procured at the greatest value.
Approval by Elected Officials
Elected officials are important to the success or failure of public infrastructure projects. Elected officials acting as political champions can provide vital support that drives a project, particularly a P3, to a successful financial close.
Determining the correct level of input from elected officials is a decision that rests within each jurisdiction, as their job is to ensure that the interests of their constituents have a voice. However, giving elected officials significant say in project processes has the potential to add political risk to the procurement method and has the potential to impede efficient project delivery.
Stipends for Unsuccessful Proposers
Providing stipends for unsuccessful bidders reduces the risk that bidders take on when they pursue projects. In its Successful Practices for P3s report, the U.S. Department of Transportation recommends that public agencies provide a stipend to teams that submit compliant bids because they:
- foster competition;
- demonstrate a public agency’s commitment to the project;
- defray a portion of the bidding cost;
- ensure that bidders submit compliant bids; and
- can be used to compensate all bidders in the event of cancellation or suspension of the procurement.
Currently, there are a limited number of dedicated P3 offices in the United States, with the majority of them housed in departments of transportation and a relative few that are dedicated to infrastructure as a whole asset class. Among the few existing offices are the Colorado High-Performance Transportation Enterprise, the District of Columbia Office of Public-Private Partnerships, the Pennsylvania DOT’s Public-Private Partnership Office and the Virginia Office of Public-Private Partnerships.
These offices’ procurement rules outline key provisions that can significantly affect the risks of pursuing a P3 project.
While each entity and each project poses its own unique risks related to the pursuit and political consequences, for the most part, these entities are at the forefront of the U.S. P3 industry.
These four aspects of the procurement process are only a sample of key concerns that bidders and governments should be aware of and address to instill confidence in a P3 procurement.
