2 2 Case Studies of PSC VfM NW

transcript

8/2/2019 2 2 Case Studies of PSC VfM NW

http://slidepdf.com/reader/full/2-2-case-studies-of-psc-vfm-nw 1/46

VfM, PSC & PPP Risk Analysis, May 10-21, 2010 1

#2.2 – Case Studies of PSC & VfM Analysis

byNed White

Institute for Public-Private Partnerships

May 11, 2010

Session Overview: 1. Constructing the PSC Model

2. The Risk-Adjusted PSC Model

3. The PPP Reference Model4. The “Value for Money” Test

5. Background on Case Study:

Partnerships Victoria, Australia &Berwick Hospital PPP

I. Constructing the PSC Model

1. Provide a Technical Definition of the ProjectDefine project in terms of outputsWhat maintenance levels are required?

2. Calculate the Project’s Direct CostsCosts must be based on the most recent, similar public sector project’s

costsCapital Costs

Maintenance Costs

Operating Costs

Other Costs (Affirmative Action, Empowerment, etc.)3. Calculate Indirect Costs (Pub. Institution’s O-head)

Management time, personnel costs, accounting & billing, legal, rent,communications & other indirect costs

I. Constructing the PSC Model 4. Calculate any Revenues

Users pay for all or part of the serviceUnitary fees from public sector

Public sector’s assets are used to generate revenue

Other sources of revenue

5. Explain all assumptions used in construction of themodelInflation (use nominal values for easy comparisons)

Discount Rate (Same as Risk-Adjusted Cost of Cap. For Govt. orTreasury Bond Yield)

Depreciation (PSC uses “cash flow”, exclude non-cash deprec.)Treatment of Assets

Available Budgets & Expenditure Plans

6. Construct the PSC Model and describe its results

PSC present projects as discounted cash flows

PSC Presentation as a Discounted Cash Flow

Net Present Value “NPV”

InitialInvestment (Negative)

Positive

Cash Flows

InitialInvestment

Sum of Cash

Discounted

1 5 10

Year 0 1 2 3 4 5 6 7 8 9 10

Initial

Investment -100

Revenues 52 55 58 61 64 67 70 73 76 79

Operating

Costs -40 -41 -42 -43 -44 -45 -46 -47 -48 -49

Operating Cash

Flow 12 14 16 18 20 22 24 26 28 30Total Cash

Flows -100 12 14 16 18 20 22 24 26 28 30

Total Cash Flows:

10 Year Infrastructure Project with a 1 Year Construction

Period-120

0 1 2 3 4 5 6 7 8 9 10

C a s h

F l o w $

http://slidepdf.com/reader/full/2-2-case-studies-of-psc-vfm-nw 7/46VfM, PSC & PPP Risk Analysis, May 10-21, 2010 7

Year 0 1 2 3 4 5 6 7 8 9 10

Flows -100 12 14 16 18 20 22 24 26 28 30

Discount

Sum of

Discounted

Cash Flows(Net Present

Value)

0.0% $110.00

1.0% $96.38

2.0% $84.02

3.0% $72.80

4.0% $62.59

5.0% $53.306.0% $44.84

7.0% $37.12

8.0% $30.07

9.0% $23.63

10.0% $17.74

11.0% $12.36

12.0% $7.42

13.0% $2.90

14.0% ($1.25)

15.0% ($5.06)

16.0% ($8.55)

17.0% ($11.76)

18.0% ($14.72)

19.0% ($17.43)

20.0% ($19.93)

IRR 13.69%

Net Present Value at Varying Discount Rates

($40.00)

($20.00)

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Discount Rates

(NOTE: NPV = 0 when Discount Rate = 13.69%)

N e t P r e s e n t V a l u

Sum ofDiscountedCash Flows(Net

PresentValue)

II. The Risk-Adjusted PSC Model: 1. Identify the risks

Best done by holding workshops of Govt. contracting agency, PFI

transaction adivsor & PFI Central UnitUse existing risk identification matrixes

Include all risks, even if they are not quantifiable

Include risks associated objectives like affirmative action,empowerment, etc.

2. Identify the impacts of each riskEffect (increase in costs, reduced revenues, delays, etc.)

Timing (whether earlier or later in project’s life)

Severity of the consequence (break it down to sub-risks)

3. Estimate the likelihood of each risk occurringAssumptions about risks should be reasonable & fully documented

Subjective estimations of probability

Statistical risk measures (Monte Carlo simulations & multiple,

simultaneous risks)

4. Estimate the cost of each riskRisks should be “costed” as separte cash-flow items to allow better

understanding of the costs of each risk, and how to allocate &mitigate them

Multiply each risk cost by its risk probability

Assess timing of each risk

Cost the sub-risk for each period of the project’s term

Use nominal cash flow for each risk to show its present value5. Identify strategies for mitigating risks

Change the circumstances in which the risk can occur

Provide insurance against the risk

Identify the costs of mitigating each risk

6. Allocate risksFor a RA-PSC model, all risks will be kept by public sector

For PPP Reference model allocate risks to party best able tomanage & control each risk

Value for Money: Retain risks when they increase VFM

II. The Risk-Adjusted PSC Model:

7. Construct the risk matrixCan use existing risk matrices as guidelines

Should include all risks identified at Step #1, even risksretained by public sector

8. Construct the Risk-Adjusted PSC Model:Risk-Adjusted PSC = Base PSC + Risk

9. Preliminary analysis to test affordability

Make sure that the project is still affordable based on the PSC.If not, it may need to be restructured or de-scoped

II. The Risk-Adjusted PSC Model:

III. The PPP Reference Model

A hypothetical private party bid to deliver the

same specified outputsIs there a realistic opportunity for “Value forMoney” benefits from PFI? (ie. A whole-life, risk-adjusted PFI price < whole-life risk-adjusted PSC

price)1. Confirm the type of PFI/PPP Contract

Performance of a state institutional function (DBOT)

Commercial use of state assets (concessions)

2. Describe PFI project structure & sources offunding

Private debt, private equity, public supports

Returns to sources of funding & ratios

3. Develop core components of payment mechanism

The proposed amount of the unitary paymentsWhether splitting of payments (fixed + variable)

Minimum performance standards & KPIs

Incentives & penalities for good performance in payment structure

4. Set and cost affirmative action & empowerment targetsProvide “Affirmative Action/Empowerment Scorecard” for project

Estimate costs of each affirmative action/empowerment target

5. Calculate & consolidate all costs

Identify opportunities for private sector to provide efficiencies: Innovative designs

Innovative construction

Operational efficiencies

• Estimate the private sector’s cost of capital (higher)

6. Construct the PPP reference model & explain allassumptions

Just like the PSC model, PPP Reference Model is a discountedcash flow model

PPP reference model should rely on the same assumptions as PSC

on inflation, discount rates, taxes, VAT, depreciation, residualvalue, etc.

Provide narrative explanation of the model’s design, construction,and key indicators/results

The private sector will “price” the risks allocated to it through its

bid prices.Risks that are still retained by the public sector (because thepublic sector can manage them better than the private sector can,hence increasing VFM) must still be added to the costs of the PPPReference Model.

IV. The Value for Money Test Value for Money (Comparing the PPP ReferenceModel Price with the Risk-Adjusted PSC Price) isonly possible if all key assumptions andrequirements of both models are identical

“Initial VFM Indicators” are required prior totendering:Indicates if there is any basis for going through with anopen tender, or not

Provides a benchmark against which to compare privatebids (what if bids are all above the PPP ReferenceLevel?)

PSC Model Illustration

Construction & Operation of a newUrban Bus & Taxi Terminal & ShoppingCenter

Project Term of 15 years

Construction period of 2 years

Private Contractor will design, finance,construct & maintain the Terminal,

while City’s Transit Department willoperate the Bus Terminal portion of theproject

1. Identify Costs & Revenues Amount Description

Direct Capital Costs

Land Acquisition & Development 5,000,000 The market price for the land

Design & Construction Contract Price 50,000,000 Based on recent bid for a similar construction project

Payment to Consultants 7,000,000 Legal advisors, engineers, planners, etc.Plant & Equipment 10,000,000 Current market price for bus station equipment

Capital upgrade (Year 7) 15,000,000

Capital Expenditure over project cycle 10,000,000 3-year capital expenditure cycles (Yrs. 5, 8, & 11)

Direct Maintenance Costs

Maintenance & Repairs on buildings, plant &

equipment 4,000,000

Direct Operating Costs

Personnel (Wages, salaries, benefits) 2,000,000Running Costs (water, electricity, telephones) 2,000,000

Management 1,000,000

Indirect Costs

Project management overheads 1,000,000

Cost of managing the project during the construction

project

Operating overheads 200,000 Portion of Department's Costs attributable to new terminal

Administrative overheads 500,000 Cost of ongoing facilities and project managementThird Party Revenue

Revenue expected 7,500,000 From parking fees & retail shops (net of costs)

Assumptions Amount Description

Budget 20,000,000 Budget available to the Department

Inflation 6.0% Assumed to increase at 6%/yr. On all costs

Discount rate 10.0% Assumed rate

2. Identify Timing of Costs:

Base PSC: Cash Flow Timing Profile

0 1 2 3 4 5 6 7 8 9 10 11

Direct Costs

Capital Costs

Land Costs 100%

Design & Construction Contract Price 35% 65%

Payments to Consultants 45% 55%

Plant & Equipment 25% 75%

Capital Ugrade 100%

Life-Cycle Capital Expenditure 33% 33% 33%

Maintenance Costs 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Operating Costs

Wages & Salaries 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Running Costs 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%Management Costs 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Indirect Costs

Construction overhead costs 100% 100%Operating overhead costs 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Administrative overhead costs 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Third-Party Revenue 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

3. Base Case PSC Cash Flow Timing Base PSC: Cash Flow Timing Profile

0 1 2 3 4 5 6 7 8 9 10 11

Direct Costs

Capital Costs

Land Costs 5,000,000

Design & Construction Contract Price 17,500,000 34,450,000

Payments to Consultants 3,150,000 4,081,000

Plant & Equipment 2,500,000 7,950,000

Capital Ugrade 20,073,384

Life-Cycle Capital Expenditure 4,416,144 5,259,699 6,264,385

Maintenance Costs 4,494,400 4,764,064 5,049,908 5,352,902 5,674,076 6,014,521 6,375,392 6,757,916 7,163,391 7,593,194

Operating Costs

Wages & Salaries 2,247,200 2,382,032 2,524,954 2,676,451 2,837,038 3,007,261 3,187,696 3,378,958 3,581, 695 3,796, 597

Running Cos ts 2,247,200 2,382,032 2,524,954 2,676,451 2,837,038 3,007,261 3,187,696 3,378,958 3,581, 695 3,796, 597

Management Costs 1,123,600 1,191,016 1,262,477 1,338,226 1,418,519 1,503,630 1,593,848 1,689,479 1,790,848 1,898,299

Indirect CostsConstruction overhead costs 1,000,000 1,060,000

Operating overhead costs 224,720 238,203 252,495 267,645 283,704 300,726 318,770 337,896 358,170 379,660

Administrative overhead costs 561,800 595,508 631,238 669,113 709,260 751,815 796,924 844,739 895,424 949,149

Third-Party Revenue 8,427,000 8,932,620 9,468,577 10,036,692 10,638,893 11,277,227 11,953,861 12,671,092 13,431,358 14,237,239

SUBTOTAL: BASE PSC 29,150,000 47,541,000 2,471,920 2,620,235 2,777,449 27,433,624 3,120,742 3,307,987 8,766,164 3,716,854 3,939,865 10,440,642

Discount Factor:

10.00% 1.00 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47 0.42 0.39 0.35

Discounted Cash Flow 29,150,000 43,219,091 2,042,909 1,968,621 1,897,035 17,034,122 1,761,578 1,697,520 4,089,480 1,576,309 1,518,988 3,659,381

Net Present Value 114,956,778

Result: NPV of Base Case PSC = $114.9 m

Base Case PSC Costs, by Category

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,00045,000,000

50,000,000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

o s t s

Direct Capital Costs Direct Maintenance Costs

Direct Operating Costs Indirect Costs

Subtotal: Base PSC

NPV (@10%) of PSC = $114,956,778

Nominal & Discounted (10%) PSC Costs (NPV = $115 m)

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

0 1 2 3 4 5 6 7 8 9 10 11 12

C o s t s

SUBTOTAL: BASE PSC Discounted Cash Flow

4. Risk Identification Design & Construction Risk

The Risk that the construction of the physical assets is notcompleted on time, on budget or to specification

Cost overruns: Increase in construction costs assumed inthe base PSC model

Time overruns: Increase in construction costs assumed

in the base PSC model due to delay in constructionschedule (May include costs of interim solution)

Upgrade Costs: Increase in costs if planned facility is notsufficient and additional capacity must be added

Operating Risk: risk that required inputs cost morethan anticipated, inadequate quality, orunavailable

Performance Risk: risk that services may not be

delivered to specification

Risk Identification (Contd.)Maintenance Risk:

General Maintenance Risk: Risk of higher thananticipated maintenance costs in general area offacility (assumed to be 25% of facility)

Bus Terminal Area Maintenance Risk: Risk ofhigher than anticipated maintenance costs forpatient area of facility (assumed to be 75% offacility)

Technology Risk: Risk that technical inputsmay fail to deliver required outputspecifications, or technological advances mayrender current technology obsolete.

5. Risk Valuation

Based upon a similar project undertakenrecently, the following probabilities showthat the actual Construction costs, in relation

to the base PSC model:Are less than base PSC by 5% = 5% likelihood

Are the same as the base PSC = 15% likelihood

Exceed base PSC by 10% = 40% likelihood

Percentage Effect on PSC

Base Cost Assumption

Impact of Risk

(in Costs)

Likelihood of Risk

Occurring (%)

Value of

the Risk

Cost Overrun Risk

50,000,000

Below base PSC -5% -2,500,000 5% -125,000No Change from base PSC 0% 0 10% 0

Overrun: Likely 15% 7,500,000 50% 3,750,000

Overrun: Moderate 30% 15,000,000 20% 3,000,000

Overrun: Extreme 40% 20,000,000 15% 3,000,000

Total Cost Overrun Risk 9,625,000

Time Overrun Risk (% of D&C Cost)

50,000,000

No time overrun 0% 0 15% 0

Overrun: Likely (1 Year) 10% 5,000,000 50% 2,500,000

Overrun: Moderate (1.5 Years) 15% 7,500,000 25% 1,875,000

Overrun: Extreme (2 Year) 20% 10,000,000 10% 1,000,000

Total Cost Time Overrun Risk 5,375,000

Upgrade Cost Risk (% of Project Cycle Capital Exp.)10,000,000

Below Base PSC -5% -500,000 5% -25,000

No change from Base PSC 0% 0 10% 0

Overrun: Likely 15% 1,500,000 50% 750,000

Overrun: Moderate 30% 3,000,000 20% 600,000

Overrun: Extreme 40% 4,000,000 15% 600,000

Total Cost of Upgrade Cost Risk 1,925,000

Risk Valuation

Risk Valuation Operating Cost Risk (% of Direct Operating Costs)

5,200,000

Below Base PSC -5% -260,000 5% -13,000

Overrun: Likely 15% 780,000 40% 312,000

Overrun: Extreme 40% 2,080,000 5% 104,000

Total Cost of Operating Risk 793,000

Performance Risk (Underperformance = 5 m/Year)

5,000,000

No deviation 0% 0 70% 0

Overrun: Likely 100% 5,000,000 30% 1,500,000

Overrun: Moderate 0% 0 0% 0Overrun: Extreme 0% 0 0% 0

Total Cost of Underperformance Risk 1,500,000

Genaral Maintenance Risk (25% of Annual Maintenance Costs)

1,000,000

Below Base PSC -5% -50,000 5% -2,500

Overrun: Likely 15% 150,000 40% 60,000

Overrun: Moderate 30% 300,000 25% 75,000

Overrun: Extreme 40% 400,000 5% 20,000Total Cost of Maintenance Risk 152,500

Bus Terminal Area Maintenance Risk (% of 20% of Annual Maintenance Costs)

3,000,000

Below Base PSC -5% -150,000 5% -7,500

Overrun: Likely 45% 1,350,000 45% 607,500

Overrun: Extreme 120% 3,600,000 10% 360,000

Total Cost of Patient Area Maintenance Risk 1,522,500

6. The Timing of Risk Costs

NOTE:•NPV of Base PSC =$114.9 m•NPV of Additional Risks = 54.8 m (47.7%)

The Timing of Risk Costs

RISK 0 1 2 3 4 5 6 7 8

Design & Construction Risk

Cost Overrun 3,570,875 7,029,523 0 0Time Overrun 1,881,250 3,493,750 0 0

Upgrade Cost 2,576,084 3,068,158

Total Design & Construction 0 3,570,875 8,910,773 3,493,750 0 2,576,084 0 0 3,068,158

Operating Risk 944,476 1,001,144 1,061,213 1,124,886 1,192,379 1,263,922

Performance Risk 1,786,524 1,893,715 2,007,338 2,127,779 2,255,445 2,390,772

Maintenance Risks:

General Maintenance Risk 181,630 192,528 204,079 216,324 229,304 243,062

Bus Term. Area Maint. Risk 1,813,322 1,922,121 2,037,448 2,159,695 2,289,277 2,426,634

Total Maintenance Risks 0 0 0 1,994,952 2,114,649 2,241,528 2,376,020 2,518,581 2,669,696Technology Risk 0 0 0 0 0 0

Sub-Total 0 3,570,875 8,910,773 8,219,701 5,009,509 7,886,163 5,628,684 5,966,405 9,392,547

Discount Factor

10.00% 1.00 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47

Discounted Cash Flow 0 3,246,250 7,364,275 6,175,583 3,421,562 4,896,687 3,177,245 3,061,709 4,381,692

Present Value of Risk 54,863,216

7. The Risk-Adjusted PSC

Risk Adjusted PSC

0 1 2 3 4 5 6 7 8

Direct Capital Costs 28,150,000 46,481,000 0 0 0 24,489,528 0 0 5,259,699

Direct Maintenance Costs 0 0 4,494,400 4,764,064 5,049,908 5,352,902 5,674,076 6,014,521 6,375,392

Direct Operating Costs 0 0 5,618,000 5,955,080 6,312,385 6,691,128 7,092,596 7,518,151 7,969,240

Indirect Costs 1,000,000 1,060,000 786,520 833,711 883,734 936,758 992,963 1,052,541 1,115,694Less - Third Party Revenue 0 0 8,427,000 8,932,620 9,468,577 10,036,692 10,638,893 11,277,227 11,953,861

Subtotal: Base PSC 29,150,000 47,541,001 2,471,922 2,620,238 2,777,453 27,433,629 3,120,748 3,307,994 8,766,172

Risk Value 0 3,570,875 8,910,773 8,219,701 5,009,509 7,886,163 5,628,684 5,966,405 9,392,547

Total Cash Flows 29,150,000 51,111,876 11,382,695 10,839,940 7,786,962 35,319,793 8,749,432 9,274,398 18,158,719

Discount Rate

10.00% 1.00 0.91 0.83 0.75 0.68 0.62 0.56 0.51 0.47

Discounted Cash Flows 29,150,000 46,465,342 9,407,186 8,144,207 5,318,600 21,930,812 4,938,826 4,759,233 8,471,176

Present Value or RA-PSC 169,820,042

NPV (@10%) of RA-PSC = $169,820,042

Timing & Costs of Risks

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

o s t s

Total Design & Construction Risk Total Maintenance Risks

Operating Risk Performance Risk

Technology Risk Sub-Total

CASE: Partnerships VictoriaVictoria: 2nd Largest Australian State, by economy

& population (pop. = 5.0 million)Plans to spend $A 3.2 Billion ($US 2.3 Billion) onpublic infrastructure 2006 – 2010

Prior history of individual PPPs & BOTs in 1980’s

to finance public projects “Off Balance Sheet,” andseek to avoid public borrowing limits, but littlerisks transferred to private sector (significant off-take guarantees)

1990’s, however, State sought to maximize risktransfer to private sector, but some projects couldnot be sustained (too risky)

June, 2000: New “Partnerships Victoria Policy”

Adopted

Partnerships Victoria Policy, 2000

A more balanced policy to integrate sustainableprivate investment into public infrastructure

Primary goal of providing “Value for Money” inthe public interest

Does not assume that the private sector isnecessarily more efficient at building & operatinginfrastructure assets

Requires estimating and recognizing whole-lifecosting for projects

Emphasizes “Optimal Risk Transfer” to privatesector, instead of “Maximal Risk Transfer”

P t hi Vi t i P i i l

Partnerships Victoria - Principles PPP is not “another bucket of money” for projects

PPP does not avoid public funding procedures

PPP does not get projects & public liabilities “Off theBalance Sheet”

PPP is not just about “building new things”

PPP is not privatisation

PPP does not suit all projects & service delivery needs(goal of just 10% of all public investment projects)

PPP is one option for procuring and delivering neededservices

PPP IS about delivering services, and not just aboutfinancing & building

Overarching goal is providing “Value for the Public’sMoney”

Partnerships Victoria –PPP Models & Publications

•June, 2000: Partnerships Victoria Policy

•June, 2001: –Partnerships Victoria Practitioners’ Guide

– Risk Allocation & Contractual Issues Guide

– Public Sector Comparator – Technical Note

•June, 2003: Contract Management Framework

•July, 2003: – Public Sector Comparator – Supplementary Technical Note

– Use of Discount Rates•June, 2005: Standard Commercial Principles•All are FREE and available for Download at

www.partnerships.vic.gov.au

Major Steps in Developing

PartnershipsVictoria

Projects

Partnerships Victoria PPP Process

Partnerships Victoria – PPP Process 1. Business Case

Assess the PFI Potential & Commence PSC

2. Funding ApprovalReview preliminary PSC

Funding approval signals bankability to private investors & lenders

3. Expressions of InterestFormally notify private market about the project

Define timetables & deadlinesConfirm the level of market interest

Allow potential bidders to comment on proposed project structure

Shortlist at least 3 bidders

4. Project Brief (Request for Proposals)Formal Govt. commitment to project

Detailed Project information & requirements for bidders

Bid evaluation criteria & process

5. Final Negotiation

P hi Vi i P j

Partnerships Victoria Projects Partnerships Victoria Projects Size (NPV) VFM

# Name Sector ($A Millions) Term Savings Status

1 Victorian County Court Public Facilities $195.0 20 N/A Construction Complete

2 Casey Hospital Health Care $115.0 25 9.0% Construction Complete

3 Docklands TV & Film Studio Public Facilities $8.7 20 N/A Construction Complete

4 Wodonga Wastewater Water & Enviro. $32.5 10 N/A Construction Complete

5 Echuca Wastewater Water & Enviro. $51.5 25 28.0% Construction Complete

6 Correctional Facilities Public Facilities $275.0 25 Construction Complete

7 Mobile Data Network Info.& Comm. Tech. $85.0 5 11.0% Construction Complete

8 Southern Cross Station Transport $309.0 30 5.0% Contract Signed

9 Enviro Altona Water & Enviro. $20.3 10 6.0% Contract Signed

10 Metropolitan Mobile Radio Info.& Comm. Tech. $120.0 7 Contract Signed

11 Emergency Alerting System Info.& Comm. Tech. $100.0 7 Contract Signed

12 Mitcham Frankston EastLink Transport $2,500.0 39 Contract Signed

13 Royal Women's Hospital Health Care $364.0 25 Contract Signed

14 Royal Melbourne Showgrounds Public Facilities $108.0 25 Contract Signed

15 Melbourne Convention Centre Public Facilities $367.0 25 Contract Signed

16 North Ballarat Reclaimed Water Water & Enviro. $50.0 15 Contract Signed

2004 Review of 8 early PPP projects revealed averagesavings (VFM) was 9% against the Risk-Adjusted PSC

Partnerships Victoria Project

Partnerships Victoria–

Project Selection Criteria:

Scale: Minimum of $A10 million ($A 50m - $A100

m is better) ($US 35m - $75m)Key Performance Indicators: Measureable service

outputs

Risk Transfer:Clear opportunities to transfer risks(construction, completion & operation)

Term: Long term of contract (15 – 30 yrs.)

Innovation: Project allows opportunities for private

sector to innovate in designing, building, financing,and operating projects

Market Appetite: clear indications that there areexperienced private developers interested in these

contracting opportunities

Partnerships Victoria Lessons Learned

Partnerships Victoria – Lessons Learned The first stage, the Business Case, is the most important

opportunity to establish a project’s clear strengths, or tostop unsuitable projects from advancing

Focus on the project’s clear, stated objectives throughoutthe process

Clear output specifications are essential for an effectiveproject development process

PPP Procurement processes are complex and time-consuming

Contract signing is the “beginning,” not the “end.” PFIContract management requires more legal & commercial

resources than assumed Multiple Public Sector parties to a PFI make governance

very challenging

PFI processes must be flexible to learn lessons of

experience and to adapt & improve

PPP A l i C St d

PPP Analysis Case Study: Berwick (Casey) Hospital -

Victoria, Australia

Berwick (Casey) Hospital PFI The need for a new, large multi-service communityhospital in Berwick region of Melbourne firstidentified in early 1990’sFirst BOT tender announced in 1999 for new 150-bed hospital. Required contractor to both build andto staff & operate the hospital. Preferred bidder,“Ramsay,” and next preferred, “Catholic MercyHealth” tried to negotiate contracts, unsuccessfully(2001). Reportedly, bids were too low to coverconstruction costs

Second attempt initiated in 2001 under the newPartnerships Victoria Policy of 2000. The first hospitalPFI attempted under the new PFI framework

PPP T i Ad i

PPP Transaction Advisors April – December, 2001: Victoria’s Human Services

Dept., with assistance from Partnerships Victoria,hires PPP transaction advisors (under separatecontracts) to prepare & manage competitive PPPtendering

Berwick Hospital PFITransaction Advisor

Costs $ Australian Percent

PPP Legal Advisors $599,600 22.1%

PPP Financial Advisors $788,550 29.1%PPP Design & Construction Advisors $159,300 5.9%

PPP Hospital Technical Advisors $492,700 18.2%

PPP Procurement Director $567,000 20.9%

PPP Probity Auditor $101,410 3.7%

Total $2,708,560 100.0%

Hospital PPP Structure

Hospital PPP Structure Facility to be privately designed, constructed, financed &maintained for 25 years. Publicly staffed & operated. State

provided the land.Summary of Performance Standards & Capabilities:

A public community hospital providing in-patient medical, surgical

and obstetric services, ambulatory care and emergency care,

mental health and sub-acute servicesThere will be a total of 224 beds

The pre and post-acute care & outpatient services will include;Women’s Health

Community Mental Health

Chronic Illness Management Administration/Discharge Planning

Hospital in the Home

The hospital will also have 4 operating theatres, an emergency

department, pharmacy, pathology and library/education services.

Finished Facility,Oct., 2004

PPP Tendering Chronology

PPP Tendering Chronology November 5, 2001: Revised PPP Tender announced

November 29, 2001: Interested Bidders’ Conference

December 13, 2001: EoIs Due. 10 consortia submitFebruary 13, 2002: 3 consortia short-listed

1. Progress Health (ABN-AMRO, Multiplex, Honeywell);

2. Berwick Partnership (Deutsche Bank, Theiss, Tempo Services); &

3. Public Health Infrastructure Consortium (Babcock & Brown, Leightons,

Honeywell).March, 2002: RFP released

June, 2002: Bids Due

Sept., 2002: Preferred Bidder Announced “Progress Health”

October, 2002: PPP Contract signedNovember, 2002: Financial closure reached & constructionbegins

September 2004, construction completed on-time (22months), on-budget

Berwick Hospital PPP Structure

•25 year PPP contract term

•NPV of Cost to Govt. = $115,000,000 (disc. @ 8.65%)

•Value for Money savings of PPP

calculated at 9% = $11.4 million

•Berwick Hospital PFI contract,206 pages, plus 260 pp. of attached schedules (KPIs)

•Copies of all Partnerships Victoria

PPP project contracts & agreements are

available for download (Free) at: – http://www.tenders.vic.gov.au/CA256AEA00206A7D/webpages/PublicContractsFrameset?Open

Berwick Hospital PPP Lessons Learned

PPP was used to after 2 previous awards of BOTcontracts for the hospital had failed.

Separating the D-B-F-M functions from Staffing &Operating made the project simpler to analyze, tostructure, to contract & to finance:

Procurement period of just 11 months (fromannouncement to contract signing) was very quick.

Financial Closure within just 2 months (“bankable”)

A new, clear policy, PPP tools & guidelines, and

qualified PPP transaction advisors were critical to asmooth, efficient & competitive procurement

Transaction did achieve important Value for Moneysavings of 9% ($A 11.4 million = $US 8.3 m)

Questions?

2 2 Case Studies of PSC VfM NW

Documents