7 Keys to Public-Private Partnership Success

- A Public Agency Perspective -

Brad Rodgers
March 17, 2011

Advisors
www.morelandadvisors.com

7 Keys to PPP Success for a Public Agency

n every Public-Private Partnership (PPP or P3) there is delicate balance between protecting the publics interests while attracting private sector participation and competition. When they are executed correctly, PPPs can bring a wealth of talent, resources and creativity to public sector projects. However, when they are poorly executed they can fail to safeguard the publics interests and breed frustration and contempt across all stakeholders. Below are 7 strategies you can follow to help ensure that your next PPP project is a successful one.

1) UNDERSTAND WHAT PPPS CAN AND CANNOT DO:

Public-Private Partnerships are an alternative form of procurement available to public agencies that enables private sector participation while maintaining a predictable and repeatable procurement process. Currently, 28 states have enacted PPP legislation allowing both solicited and unsolicited proposals, and several additional states have PPP legislation planned. By expanding private sector participation in transactions that have traditionally been the exclusive domain of the public sector, a variety of skills, resources, risks and rewards can be shared amongst the two groups. This can result in a higher level of competition, creativity, innovation and nancial resources than would otherwise be available. However, public-private partnerships are not a miracle tool and the PPP procurement process may not be suited for some projects. The PPP process is complicated and can require signicant additional effort to be successful. Public sector partners should be very careful to fully understand the requirements the process will impose on them before attempting a PPP.

2) BUILD AN EARLY CONSENSUS AMONG STAKEHOLDERS:

By their very nature, PPPs involve a wide array of stakeholders and tend to be very political endeavors. As early as possible in the process it is critical to build both an internal and external consensus in favor of the project. In cases where the public agency is soliciting proposals, there is frequently already a unied internal desire to see the project through; however that is unlikely to be the case when an unsolicited proposal is received. The ability to quickly react to an unsolicited proposal, build an internal supportive coalition, and demonstrate unity to the market will dramatically enhance the number and quality of the additional responses received. In both cases, it is critical to gain the support necessary from external stakeholders - regional governmental and non-governmental bodies, constituents, affected citizens. The responsibility falls to the public sector to conduct the process in an open and transparent manner that includes community involvement. As soon as possible, the public agency should make the proposals available and conduct a detailed community awareness campaign to explain the project, the goals and the upcoming process. Again, if the public sector can work to reduce the real and perceived risk from stakeholder opposition, the quantity and quality of competitive proposals will increase.

3) PAIR THE RIGHT PROJECT WITH THE RIGHT DEAL STRUCTURE

Public-private partnerships can operate under a wide variety of transaction structures, but not every project type works with every deal structure. In situations where the public partner is actively soliciting proposals, it is important to analyze early in the process exactly what transaction structures are appropriate. These should be clearly outlined

7 Keys to PPP Success for a Public Agency

in the Request for Proposals. Set the expectations early in the process and identify which risks and benets are intended to be transferred to the private sector and which will be retained by the public sector. In other scenarios where the public partner receives an unsolicited proposal, the public agency should seriously consider whether the proposed transaction is suited to a PPP procurement. Not every proposal received should be accepted and sometimes the project just isnt a good t for a PPP. In the cases where the proposal is accepted, the public agency should be very explicit in setting transaction structure expectations in its request for competing proposals.

4) CLEARLY OUTLINE THE REQUIREMENTS, BUT INVITE CREATIVITY

The enabling public-private legislation provides the broad framework within which PPP deals must operate. Within these boundaries, however, there is intentionally the opportunity for a signicant amount of public and private sector innovation and creativity. Generally speaking, the most successful PPPs are ones where one or both partners bring new and innovative structures, concepts and perspectives to the project. One of the challenges is that this creativity can result in private sector proposals that are not easily comparable. In some cases, the received responses could fail to adequately address the project objectives, wasting valuable time and resources. Throughout the PPP process, the public sector partner should focus on a results oriented transaction structure, clearly articulating the project objectives that absolutely must be met. The details of how these needs are met are where the private sector can differentiate itself through its creativity and innovation. While it is frequently difcult for the Public sector to relinquish control over the how aspects of the project, this is an excellent opportunity for the private sector to add signicant value to the project. A project scope that is too narrowly dened can choke the creativity of the private sector, reducing the benets to the public partner and its constituents.

5) MAKE THE MARKET AWARE

Whether you are actively soliciting PPP proposals or are responding to an unsolicited proposal, generally more competition is better. The responsibility falls onto the public agency to make the broader market aware of the PPP opportunity, the project goals, requirements, and timeline. Simply listing the project on the States web-based procurement site will not garner the level of interest and competition that will truly benet the public sector and the project. The public partner needs to actively market the project to the PPP community and in doing so demonstrate to them this is an important and viable project they should invest in. Private sector PPP partners are typically inundated with potential projects and opportunities across a wide geographic region. It is all too easy for any single project to be overlooked or dismissed. The more you can do to grab their attention and demonstrate this is a worthwhile use of their resources, the more successful PPP process you will have. In some cases, it may make sense for the public partner to hold informational sessions and actively facilitate teaming opportunities amongst the private sector companies. In every case, the public sector should have an open door policy for questions, emails and meetings that invites the private sector to better understand the project and its objectives.

7 Keys to PPP Success for a Public Agency

6) CONDUCT A FAIR, OPEN AND CLEAR PROPOSAL REVIEW
One of the primary criticisms of the public-private partnership process is the misconception that PPPs are unfair competitions and predisposed to cronyism. A recent informal survey revealed that one of the primary reasons for private sector partners not submitting a proposal on a project was a belief that the public sector had already identied their preferred partner and the project was hardwired. It is the responsibility of the public sector partner to dispel this misconception of unfair competition and cronyism. It is critical for the Public sector to commit to, and conduct, a fully transparent PPP process with clearly articulated criteria for how each proposal will be reviewed. Engaging an independent third-party advisor to lead the review process also serves to alleviate many of the private sector concerns. Requests for Proposals should highlight the involvement of an independent reviewing party. Again, the idea is to create an environment where competition can and will ourish and private sector creativity will be rewarded. Addressing the private sector concerns regarding fairness up front and early in the procurement process will attract more bidders and potentially better proposals. That being said, condentiality is an important component of the PPP process. The public agency needs to grant the private sector the ability to retain portions of its submitted proposal as condential. This protection assures the private sector that the nancial details and innovative strategies they present cannot be cannibalized by competing rms otherwise creativity will be stied. The public sector partner needs to actively manage this balance between conducting a transparent PPP process and protecting the private sectors innovative ideas.

7) PROVIDE CLEAR, CONCISE YET DETAILED PROJECT DOCUMENTATION

Once a private sector partner has been selected, it is important to make sure roles, responsibilities, deal terms and expectations are clearly documented. These are complicated transactions and it is critical to ensure everyone understands what will be expected of them. This is not the time for either party to be operating under unconrmed assumptions. During the marketing phase of the PPP procurement, the Public sector should nalize the draft documentation for the project, including both an interim and comprehensive agreement. These draft documents should be provided to the selected bidders as they proceed into the second, detailed phase of the procurement. By providing the documents at this phase of the process, the bidding teams can incorporate the effects of any substantive clauses into their detailed proposals. Depending on the nal private sector team selected, there will certainly be necessary modications to these documents, but this should work towards eliminating surprises and delays later in the process.

7 ) ALWAYS BE AWARE AND RESPECTFUL OF THE TIME AND MONEY BIDDERS ARE INVESTING IN YOUR PROJECT
Executing a public-private partnership is certainly a signicant commitment for the public sector. Bidding on a PPP is also a signicant time and resource commitment on the part of the private sector. Public sector partners should be very cognizant of the time and money that the private sector is expending to put together a PPP proposal. These are companies that take a tremendous amount of pride in the quality of their work product and their PPP proposals are

7 Keys to PPP Success for a Public Agency

no exception. The cost to prepare these bids includes thousands of man hours and can run into the hundreds of thousands of dollars for larger projects. In recognition of this, the public sector partner should make every effort to structure the process such that it minimizes the high-risk costs that are incurred early in the PPP process. One way this can be done is by segmenting the review and approval process to quickly eliminate unqualied teams or undesirable transaction structures. The private sector will be more willing to spend increasing levels of capital for a project if they feel there is a higher probability of being selected as the winning bidder. In cases where the private sector needs to expend considerable out of pocket expenses, providing a stipend should be considered.

CONCLUSION
Much of the discussion surrounding public-private partnerships centers around the transfer of risks between the public and private sectors. By following these 7 Keys to PPP Success and administering a well run PPP procurement process, the public sector can effectively eliminate many of the up front risks that deter private sector participation and stie competition. With an increased level of private sector involvement and competition, the public agency is afforded a wider array of options to better serve to publics needs and protect their interests. Public-private partnerships may not be ideal for every project. However, when used appropriately, a PPP can be a tremendous way to utilize private sector skills, resources and creativity for the public good.

oreland Advisors is a full service consulting rm providing advice and guidance on infrastructure assets, including the application of Public-Private Partnerships, to both public agencies and private sector clients. The Company has extensive experience working on both sides of the PPP process and can help make them a successful, cost effective and maybe even enjoyable experience. To nd out more information please visit www.morelandadvisors.com or email Brad Rodgers at brad.rodgers@morelandadvisors.com.