P3 Services Brochure

A Tool for Cities + StatesPublic-Private Partnerships:

Americas Public-Private Partnerships

Front cover from left to right:

Port of Miami TunnelMiami, Florida, U.S.A.

Cedar Creek Wind FarmWeld County, Colorado, U.S.A.

Long Beach CourthouseLong Beach, California, U.S.A.

Public-Private PartnershiPs

Introduction & OverviewBudgets are tighter while infrastructure needs are greater than ever.

While public sector budgets are more constrained than ever, the nation’s infrastructure — from roads and rail, to schools and courthouses — is in dire need of billions of dollars in improvements.

Many public entities are considering public-private partnerships (P3), an innovative project delivery method pioneered outside the U.S. and proven within, to address pressing infrastructure needs with constrained budgets.

Required for wastewater and drinking water investments over the next 20 years, and more than $1 trillion in operations and maintenance spending is required.Source: Water Infrastructure Network analysis

$940bn

$1tn

Required for education facilities by 2014.Source: American Council of Education

$160bn

Needed just to bring our nation’s crumbling transportation infrastructure to adequate conditionSource: American Society of Civil Engineers

$2.2tn

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Public-Private PartnershiPs4


What is a P3?Public-Private Partnership/PPP/P3In a Public Private Partnership, the public and private sector share the risks and rewards of services traditionally delivered by the public sector, enabling them to complete projects faster, within budget and at enhanced Value for Money to the public.

The private sector accepts a lump-sum, fixed-price construction contract. The private sector is responsible to ensure that the project is delivered on time, with no payments being received until substantial completion is reached and all parties are satisfied that the facility is fit for its purpose. Through the transfer of risk over the life cycle of the project, the private sector will bear the burden of these risks and provide savings and budget certainty to the public.

In a P3 structure, the private sector retains risks for 35 years or more and is incentivized to employ value engineering innovations and produce maximum efficiencies in the delivery of infrastructure over the long term. In this type of procurement, the private sector also puts equity at risk from the project’s inception through completion, thus motivating greater accountability and performance.

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The BenefitsWhy Choose a P3?

Budget certainty The public sector has certainty that a project will not exceed a set price.

On-time deliveryThe private sector bears the burden of cost overruns, including those caused by delays.

Increased accountability and performanceAll details concerning risk allocation must be specified in a contract beforehand.

Increased innovation and efficiencyCompetitive bidding drives quality up and cost down through all phases of the project life cycle. Additional financing to accelerate deliveryCombining private equity capital, bank debt and/or bonds reduces the hurdle of up-front costs.

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The U.K. Private Finance Initiative has delivered 700 new infrastructure projects, totaling over $30 billion.

France has delivered a $58-billion high-speed train through a P3.

In just three years, British Columbia, Canada, has utilized P3s to procure $8 billion in projects.

As of April 2011, 31 states and Puerto Rico have enacted legislation for transportation projects

Virginia alone has delivered more than $9 billion in transportation projects since its P3 law was passed in 1995.

From 1997 to 2003, the city of Buffalo partnered with American Water and saved $12 million over six years, with a 26 percent increase in productivity and a 450 percent improvement in water quality.

Veolia Water and Sioux City Iowa partnership saved Iowa a total of more than $10 million since 1995.

In April 2002, the City of Indianapolis selected Veolia Water to manage its waterworks system, which resulted in 150 new jobs in the area and generated more than $40 million in annual revenue.

The city of Sandy Springs entered into a partnership in 2005 with CH2MHILL for the operations of their city, saving them $20 million per year.

700 strong

$58 billion

3 years

31 states

$9 billion

450%

$10 million

150 jobs

$20 million

P3 is Proven

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When to Use a P3

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The P3 approach works when ...

A project is critically needed or part of capital plan.

A project has a financing shortfall.

Accelerated delivery, reduced costs and increased performance are desired.

The project is complex and entails high risk.

P3 legislation is enabled.

There is a dedicated revenue stream to finance the project over the long-term (although the project does not necessarily have to be revenue-generating).

The environmental permitting has begun or is finished.

There is political support from the top.

Critical need

Funding shortfall

High expectations

Complexity

Legality

Revenue stream

Environmental approval

Leadership support


Public Sector Risks/Costs Time Savings

Trad

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(DB

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Des

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Bui

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Des

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Des

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Risks retained by public sectorSeparate procurements (lots)Separate phasesInput-based contractsPayment by percent completedPublic financing

Risks transferred/mitigatedEconomies of scale

Bundling of design, build, O&MOutput-based contracts

Payment upon deliveryPrivate financing

LOW

HIGH

TRADITIONAL mODEL

Delivery models

P3 mODEL

The design-build (DB) procurement mechanism is the first step of a public-private partnership. As depicted in the diagram below, as the procurement process transfers greater risk (typically retained by the public sector) to the private sector, more long-term efficiencies, innovation and performance are realized.

Essential to the decision-making process is the fact that an appropriate process is developed by the procuring agency, based on an understanding of the P3 process and that a sufficiently robust assessment of alternative models is completed. Of critical importance is that the selected approach can reveal to key stakeholders (i.e., taxpayers) demonstrable Value for Money.

Project Delivery and Policy Considerations

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Assessing Value for Money

Where is value for money generated?

Drivers of Savings

– Optimal allocation of risks

– Design and construction efficiencies

– Focus on whole life-cycle costs

– Integrated planning and design

– Private sector management and control

Ancillary Costs

Retained Risks

Financing Costs

Base Costs

} Value for Money

Ancillary Costs

Retained Risks

Financing Costs

Base Costs

Public SectorComparator

(Design-Bid-Build)

Private Sector Bid

Value for money is a method for analyzing the comparative total estimated life cycle costs of traditional versus alternative procurement.

The estimated life cycle cost for traditional procurement becomes a “public sector comparator” against which to measure the total life cycle cost of any alternative P3 opportunity.1 Life cycle costs may include property acquisition, design, construction, maintenance and operations, financing, ancillary costs, as well as any risks retained by the public sector for the useful life of the asset. If the estimated costs of the alternative procurement are less than the estimated costs of the traditional public sector procurement, then there is positive Value for Money, and the P3 opportunity warrants further examination. A series of value for money assessments should be completed throughout a project’s life cycle with increasing detail to inform the ongoing public sector, decision-making process.

1 “Assessing Value for Money: A Guide to Infrastructure Ontario’s Methodology,” Infrastructure Ontario, 2007.

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Debunking Common P3 Myths

Competition forces the private sector to deliver projects as cheaply as possible. Growing evidence demonstrates the total cost of P3s are often less than the total cost of traditional projects that are on time and on budget. Private partners assume the risk of cost overruns during the construction and operating phases — not the taxpayer. The private sector is better equipped to leverage third party development and revenue opportunities to reduce net costs to the public sector. A value for money analysis helps ensure the public sector chooses the best value option.

P3s lower costs and ensure Value for Money through efficient risk allocation. Private sector efficiency can generate economies that outweigh the higher costs of borrowing.

Revenue sharing between the public and private sector partners based on gross revenue or maximum return to shareholders is commonly built into P3 agreements. The P3 agreement often sets out agreement on sharing in any future refinancing gains realized by the private sector party.

The public partner has more control over quality of services, and the private partner takes significantly more risk. The private partner gets paid for the delivery of services, and there are financial “penalties” if services don’t meet specified performance standards. The public partner can enforce provisions of the contract dealing with quality control through its contractual role as a project monitor. The public sector retains a regulatory role.

The public partner retains ownership and control of the public assets. Services can be provided by public sector employees, existing service contractors, or through a performance-based contract with the P3 consortium — or a mixture of all three methods. The public sector defines project requirements, and the private sector gets paid only for services that meet those standards and suffers deductions if not met.

myth:Higher cost of capital

myth:Value for money

myth:Windfall profits to the private sector

myth:Quality of service will decline under a P3 approach

myth:P3 = Privatization

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Different forms of P3 structures are available to the public sector depending on the profile and characteristics of the project. Some of the models include the following:

P3 Models

1. Revenue/demand basedThe private sector controls and collects project revenues, which serve as the only source of compensation to the private sector.

BenefitsThe developer takes risk related to usage, demand and collection of revenue; establishes direct link between usage and compensation.

2. Availability payment basedThe government/agency provides a predetermined schedule of payments (i.e., quarterly or annually) to repay debt and provide a return on equity. The private sector is compensated only to the extent that performance standards are met and that the asset is available for use as per the concession agreement.

BenefitsAvailability payment is fixed subject to indexation; deductions to payments for unavailability or poor performance; private sector requires lower return due to guaranteed payment stream (subject to deductions); creates budget certainty for public sector; encourages developer to keep asset available and to perform to standards.

3. Shadow fee/fareThis hybrid model allows the public sector to set rates and revenue policy, and still expose the private sector to demand risk for the project. The private sector is paid a fixed fee per user of the facility, thus accepting demand (but not revenue collection) risk.

BenefitsDeveloper takes risk related to usage; revenue payments are usually capped.

4. mixed schemesThis model is predicated on direct revenues from users with additional revenue from the public sector. A typical solution would be public transport projects or buildings that have a revenue-generating component (such as a stadium or dormitory).

BenefitsFixed operating subsidy, availability payment, shadow toll.

Public-Private PartnershiPs 13

Water Treatment Plant and Public Works Facility AECOM provided design, construction and operation services for a reverse osmosis water treatment plant and a 30,000 square-foot public works building for the city of Beverly Hills, California, U.S.A. In 2003, AECOM was awarded the $17 million, 20-year concession because of our cost-effective solution and our flexible project financing terms using internally generated financing. The new water treatment facility augments current potable water supplies for the Beverly Hills area. The project is designed to blend with the environment and also be a centerpiece for visitors learning about water resources. With a subsidy from the Metropolitan Water District, the cost of the purchase equaled the current rates of water purchases from the district.

WaterProjects

Project AlphaDalriada Water Limited, a consortium consisting of AECOM, Kelda Water Services and Farrans, was responsible for implementing the first ever water P3 offered by the Water Service of Northern Ireland. Under the 25-year contract, which commenced in 2007, the consortium designed, built, financed and is operating the four water treatment facilities, which will bring the region into compliance with stringent European Union water standards. AECOM improved facilities to provide 50 percent of Northern Ireland’s clean water supply for 800,000 people for this $250 million project. The solution was benchmarked by the client against the traditional delivery approach as being 25 percent below the capital expenditure benchmark and 15 percent below the operational expenditure benchmark.

P3 Case Studies


Peterborough Energy Park Located behind Peterborough Power Station in the U.K., this cutting-edge energy park transforms waste into energy or reusable materials (glass, metals, acids, aggregates), leaving nothing in landfills, and generates enough electricity to power 60,000 homes a year. The energy park includes a research and development center and two three-story main buildings, each accommodating a waste-receiving hall, combustion chamber and plasma treatment chamber. The 25-acre energy park complies with strict Environment Agency guidelines, which means sound, smell and emissions are negligible, and there are no adverse effects on the surrounding environment and wildlife. AECOM provided project management, cost management, engineering services cost management, grid connection advice, tax and enhanced capital allowances, planning, legal support and funding/investment introductions.

NASA Ames Research Center (NARC)Through an agreement with the Western Area Power Administration (WAPA), NARC in Silicon Valley, California, U.S.A., receives electricity at a very low cost — typically less than $0.06/kWh. While this power agreement has significantly reduced NARC’s utility costs, it has also created a challenging environment for NARC to develop financially viable energy projects that are necessary for NARC to meet federally mandated energy efficiency goals. To help NARC with this dilemma, AECOM partnered with Pacific Gas & Electric (PG&E) through its Utility Energy Services Contract (UESC) and is in the process of finalizing an energy efficiency and renewable energy masterplan. When complete, the plan will enable NARC to immediately begin implementing a design-build UESC project that will result in annual energy savings of 8,856,795 kWh, 707 kW (peak demand) and 766,056 therms, which will provide an 11 percent reduction in overall energy intensity (British Thermal Units per square foot per year). The project will also result in annual water savings of 2,500 kgal, for a 15 percent reduction in annual water consumption.

EnergyProjects


Long Beach CourthouseThe Long Beach Courthouse in California, the first social infrastructure P3 in the U.S., will be delivered through an availability structure whereby the city provides a fixed periodic payment to the private consortium for a 35-year period. The project replaces the city’s current outdated courthouse with a new building that will house 31 courtrooms with all supporting program elements. The private consortium, which includes AECOM as the prime designer, will provide 100 percent of the financing for the project, as well as responsibility for its design, construction, operations and maintenance over a 35-year period.

Belmarsh West PrisonThis project includes the design, construction, management and financing of two new custodial facilities situated adjacent to the existing HMP Belmarsh at Thamesmead in London. AECOM was the technical advisor on both projects. Our role included technical advice on the design, construction, operation and facilities management, as well as full review of commercial aspects, including capital costs, facilities management costs and life-cycle maintenance. The project is projected to be completed in 2012 and has a construction cost of $243 million.

SocialInfrastructureProjects

AECOM is designing the first social infrastructure P3 project in the United States, the Long Beach Courthouse.


Port of miami TunnelThis U.S. project entailed a 35-year P3 contract between the Florida Department of Transportation (FDOT) and the Miami Access Tunnel consortium to design, build, finance, maintain and operate three miles of tunnel and upgrade a linked causeway and feeder roads. FDOT agreed to share the project’s significant geotechnical risk with the private consortium, providing $160 million to cover technical challenges after the private consortium put forward the first $10 million. The preliminary cost estimate prepared by the state’s technical advisor was nearly $1.2 billion. The winning consortium prevailed with a bid of $657 million. The expected annual availability payment was $69 million; the winning private bid was a $31 million annual availability payment. This project included the use of innovative financing mechanisms, such as federal TIFIA funding. AECOM is currently engaged in the design of the intelligent transportation systems and tunnel control systems on behalf of the design-build joint venture led by Bouygues.

TransportationProjects

AECOM has been involved in at least 90 percent of the United States P3 transportation projects.


North Tarrant Expressway In 2009, the state of Texas solicited bids to enter into a concession to build, operate and maintain up to 36 miles of high-occupancy toll (HOT) lanes in Forth Worth, Texas, U.S.A. with a private entity. Cintra Concesiones de Infraestructuras de Transporte, S.A., Meridiam Infrastructure and the Dallas Police and Fire Pension System formed a consortium to bid for the project and retained AECOM to complete the due diligence study in preparation of their proposal to the state. The project marked the first time that a U.S. pension fund participated as an equity partner in a toll road concession agreement. The $2-billion agreement is financed with $573 million in public funds, $427 million in private equity, $400 million in unwrapped private activity bonds and a $650-million TIFIA loan from the U.S. Department of Transportation, which is specifically designed to encourage private sector involvement in U.S. infrastructure development. Long-term operations and maintenance expenses, estimated at approximately $450 million, will be the responsibility of the private consortium over the life of the agreement, ending in 2061.

A30 motorway in montreal The A30 P3 project in Montreal, Canada, which reached financial close in 2008, consists of design, construction, financing, operation and maintenance of approximately 42 kilometers of highway, including the construction of a new toll bridge across the St. Lawrence Seaway, in addition to the operation and maintenance of 32 kilometers of existing highway. Using traditional procurement methods, the initial Canadian estimate was $2.4 billion. Through a P3, however, the project will be delivered for $1.7 billion. The private consortium has committed to deliver the project two years earlier than would occur with conventional delivery methods. AECOM serves in a design role to Arup for the Dragados-led construction team.


Long Beach CourthouseLong Beach, California, U.S.A.


About AECOm

AECOM is a global provider of professional technical and management support services to a broad range of markets, including transportation, facilities, environmental, energy, water and government. With approximately 45,000 employees around the world, AECOM is a leader in all of the key markets that it serves. AECOM provides a blend of global reach, local knowledge, innovation and technical excellence in delivering solutions that create, enhance and sustain the world’s built, natural and social environments. A Fortune 500 company, AECOM serves clients in approximately 125 countries and has annual revenue in excess of $7.0 billion.

More information on AECOM and its services can be found at www.aecom.com

For more information about AECOM’s P3services, visit aecom.com/p3.

Contact:

Samara A. BarendVice President, North America Strategic Development Director for Public-Private Partnerships

605 3rd AvenueNew York, NY [email protected]

P3 Services Brochure

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