SK Columbus School, Essex, United Kingdom

Objectives of the Performance Based PPP approach include:

  • Accelerated delivery of new and rehabilitated facilities
  • Better control of school facility costs, schedule and maintenance
  • Predictable funding requirements for school infrastructure and services
  • A whole-life solution to school construction and maintenance
  • Transferring risk to the private sector
  • Frees up funds to finance improvements for other buildings
  • Selectivity – PPP is only pursued if it yields greater benefits than traditional procurement
  • Specialization – allows for both mainstream integration and upgraded, dedicated facilities for special education

Traditional Comparator (for reference) Conventional Design-Bid-Build Model Structure

  1. Process is segmented: parties are less able to realize innovation or efficiencies.
  2. Public Sector manages each segment of the process independently.
  3. Public Sector assumes budget and schedule accountability throughout.
  4. No private sector incentive for asset quality or timely delivery.

Basic P3 Model Structure

A typical PPP is structured as a long-term agreement / concession in which the public sector assigns to a private sector company the right to design, build, finance and/or operate the infrastructure asset for a defined period of time and per a financial arrangement.

  1. One contract awarded to a private design, construction, O&M consortium to operate for a specified time
  2. P3 consortium is motivated to provide the best value, whole-life solution
  3. Private sector assumes more risk in both the short and long term
  4. Greater incentive and reward for private sector innovation and efficiencies
  5. Often higher cost of finance (mitigated if access to PABs and TIFIA)

Why private financing?

Value for Money
Long-term contracts (25+ years) capture the asset’s lifecycle costs. Current tax code prohibits a DBOM project from having a contract of more than 15 years (or 20 years for utilities).

Performance is incentivized
Private finance = skin in game. Payment is contingent on performance: on-time and on-budget delivery and long term performance of the asset.

Increased Cash Flow
Private financing reduces demands on the public’s bonding capacity, freeing up government funds for other vitally needed public services.
Public payments begin when construction is complete, reducing upfront financing costs and incentivizing an accelerated completion schedule.

Risk Transfer
A P3 (design-build-finance-operate- maintain) structure, not the public sector, absorbs the risks of short- and long-term cost overruns. Guarantees quality of maintenance.
Highly complex projects especially benefit from this approach (such as the Port of Miami Tunnel in Florida and the Goethals Bridge Replacement in New York).

A Conventional Lifecycle Profile

A Performance Based PPP Lifecycle Profile