Innovative Financing for Security - ACC Online · Innovative Financing for Security George Merritt...
33
#SecurityCapabilities Innovative Financing for Security
Transcript of Innovative Financing for Security - ACC Online · Innovative Financing for Security George Merritt...
#SecurityCapabilities
Innovative Financing for Security
Lease Versus Buy Analysis
Robyn Peters - TSA
Alan Estevez - Deloitte
ACC/TSA Security
Capabilities Workshop
July 2018
Introduction
As the threat environment rapidly evolves, TSA APM must
provide innovative, mission-driven capabilities to detect
current and emergent threats through enhanced Transportation
Security Equipment (TSE).
TSA is exploring new acquisition
approaches, including leasing, to quickly
and efficiently deploy TSE while:
• Increasing the pace of security
equipment innovation
• Enhancing operations
• Improving the customer experience
2
Phase 1: Initial Feasibility Study
An initial, high-level, analysis completed
in early 2018 supported leasing TSE as
a method of driving innovation to
improve security, customer experience,
and/or operations.
It also noted that leasing has the
potential to smooth financial outlays,
though it may increase total lifecycle
cost.
3
Security
Customer
Experience
Operations
Focus Areas
Phase 2: Overview
4
• Engage aviation security stakeholders
including airlines, airports, OEMs, and
potential third-party financing providers – to
more fully understand:
• Current market options for leasing
arrangements and their implications to
TSA acquisitions
• Environmental or policy barriers and
high-level mitigation options
• Develop a quantitative cost and
qualitative benefits case for arrangement
options (including incentives and
parameters) suited to a specific TSE type Image courtesy of Deloitte
Phase 2: Considerations
5
Multiple considerations may impact execution of both the deep
dive study and value to stakeholders. The exploration will include:
1based on validated assumptions
Policy and Regulations
Intellectual Property and Proprietary Technology
Technology Maturity / Lifecycles
Stakeholder Interest Alignment
Phase 2: Outputs
6
There will be three key outcomes of this study, including:
1based on validated assumptions
• An executable framework that can guide TSA’s
acquisition approaches for TSE in the future
• Guidance on the form, parameters and
potential participants for leasing
arrangements for four groupings of TSE
• A catalog of barriers to leasing, and a
roadmap for responding to those barriers
Checkpoint Baggage
(CT & AT)
Tabletop Systems
(CAT & ETD)
Checked Baggage
(RSEDS & MSEDS)
Passenger Scanning
(AIT)
Months June July August Sept. Oct. Nov.
Mark
et
Op
tio
ns &
Barr
iers Stakeholder Interviews
Build the Baseline
Outline Future Needs
Create Options
Conceptual Strategy
Roadmap
TS
E S
trate
gy
Checkpoint Baggage
(CT & AT)
Checked Baggage
(RSEDS & MSEDS)
Tabletop
(CAT & ETD)
Passenger Screening
(AIT)
Phase 2: Timeline
7
#SecurityCapabilities
Innovative Financing for Security
ACC/TSA Security Capabilities Workshop
Innovative Financing for Security
Airline Procurement Options: Leasing vs Financing or Something Else…
11
Procuring Checkpoint Security Technology
12
ASLs CTs
Steps to Procurement in a Challenging Budget Environment
13
• Be organized with existing technologies and know
when to replace/obsolete
• Look for opportunities to be a trial/demo/test case for
manufacturers and others (i.e. TSA Test Beds)
• Sharing financial burdens amongst stakeholders
• Participating in outside-own-industry tech
conferences for new ideas
Examples of Public-Private Partnerships (P3) at Airports
14
• Participating in TSA Technology Test Beds
• Participating in Vendor trials for CBP Biometric
Exit/Entry
• Known Crew Member (KCM)
#SecurityCapabilities
Innovative Financing for Security
Innovative Financing for Security
George Merritt
SVP of Government and Community Affairs
JULY 2018
17
DEN OVERVIEW
18
CURRENT CONFIGURATION
19
FEDERAL ASSISTANCE
• Sought Federal funding
• Entered a Memorandum of Understanding with TSA
• Passed legislation creating pilot programs for security innovation within
TSA
• … Became clear that a federal funding was not coming.
• Fixed price and
delivery date
• Security checkpoint
delivery
• Noncompliance
penalties
• Revenue shortfall
standards
Great Hall Partners Mutual DEN
20
PUBLIC-PRIVATE PARTNERSHIP: MITIGATING RISK
• Exclusive license
• Compensation/ delay
events
• DEN performance
standards
• Negotiated scope
• Governing documents
• Dispute process
• Default mechanism
21
GREAT HALL LEVEL 6
22
DENVER INTERNATIONAL AIRPORT
#SecurityCapabilities
Innovative Financing for Security
Classification - 24
A Discussion with Key
Government Finance
ACC / TSA Security Capabilities
Workshop
July 25, 2018
Toni Egan
VP, Federal
Finance
Key Government Finance - Federal
Classification - 25
Vision▪ Largest lender in the
Federal Market; Largest active Bank-owned Lender
▪ Committed to Federal since 2000
▪ Managed portfolio: $400MM
▪ Annual Originations: $475MM
▪ All asset classes, including Maintenance & Support
Value Proposition▪ Depth, Breadth: Most experienced Federal lender. Sole Federal dedication
▪ IT/Energy/Infrastructure Experts: KGF pursues and deploys industry differentiating
market, client, end user and asset expertise
▪ Structuring Experts: Combine OEM/Prime needs with product and structured finance
capabilities
▪ Execution: Contractual/legal/billing/credit expertise sets KGF as industry leading
educators, solutions-providers and transactional execution experts
▪ Capital Markets: Leverages balance sheet confidence with investor reach to bring entire
capital solution to the opportunity
Multi-year Payment Solutions
Using Base Plus Option Year Contracts
Classification - 26
Agencies are capable of spreading out payments over multiple years
▪ Prudent alternative for budget constraints
• Leverages current-year budget as Base Year payment
▪ Delivers entire solution upfront
▪ Ensures Agency’s needs and mission are fully supported
▪ Mitigates risk of future unmet needs
▪ Federal Acquisition Regulation (FAR) compliance
• Deferred payments allowable without violating Anti-deficiency Act
• Allows for Option to Extend contracts and assignment of payments
▪ Flexibility to use Capital or Operating funds
• Agency can determine funding used
Deferred Payment Strategy
Classification - 27
Agency has a need to acquire technology to support mission operations
OEM submits bid with multi-year payment plan
Financing Partner (FP) funds OEM equipment price in full
▪ Agency identifies technology that meets their requirements
▪ With support of Financing Partner (FP), bid includes complete solution
▪ FP takes assignment of the receivable under the contract
▪ FP assumes termination and balance-sheet risks
▪ FP has no rights or obligations beyond payment stream
Allows Agency to acquire entire solution today and pay for it over time.
Multi-Year Payments Workflow
Classification - 28
Finance Structure
OEM Financing
Partner
Fed Agency
(Contract
Vehicle)
Scheduled
Payments
Product
and/or
service
Master Purchase
Agreement [MPA]
Amount Financed $
Assignment of Claims
Prime
Contract
(PO/DO)
Agency and OEM
• Federal Agency awards contract for
acquisition of security equipment
• OEM maintains privity of contract with
Agency and selects Financing Partner
Finance Partner
• Partners with OEM to determine needs
• Enters into assignment of claims with OEM
• Pays OEM in full on behalf of Agency
• Collects periodic payments from Agency
• Assumes all Federal Termination Risk
APPENDICES
Classification - 30
• Sample Agency client equipment costs for HW, MNT & SW = $2.7 million
Item Part Number Equip Type Product Description Qty. Price Extended Price
1 Xyz-100a HW HW 6 $250,000 $1,500,000
2 Xyz-100a-mnt HW MNT HW Support 6 $15,000 $90,000
3 Abc001 SFT MNT Customer Support, SFT Only 6 $35,000 $210,000
4 Xyz-100c-1 HW BHW 10 $75,000 $750,000
5 Xyz-100c1 HW MNT HW support 10 $2,500 $25,000
6 Abc-002 SFT MNT Professional Services, SW Support 10 $10,000 $100,000
Total $2,675,000
Example Payment PlanAgency budget less than solution cost
• Agency client has $1.0 million in their budget this year; anticipates receiving $1.0+ million each year to meet needs
Budget Shortfall Scenario
Client current budget $1,000,000
Client current needs $2,675,000
Delta ($1,675,000)
Option 1: Modify Equipment Proposal Option 2: Propose Deferred Payment Options (supported by Finance Partner)
Modify proposal to meet budget constraints Maintain original proposal - offer Payment Plan option to pay over time
• Decreases contract economics – no volume
discount; smaller contract awarded
• Enhances contract economics – provides for a larger contract than existing budget allows;
locking in cost today mitigates future price increases
• Decreases footprint of original proposal • Maintains / increases footprint of proposal solution
• Does not meet Clients’ current technology
needs• Meets Clients’ current technology needs & mission; mitigates risk of future unmet needs
• Compromises future potential • Provides Client with potential volume discount not possible with smaller contract
• Options when Agency client budget is less than the proposed equipment cost
2
Finance total to OEM
Hardware: $2,250,000
Hardware MNT: $115,000
Software MNT: $310,000
Solution Total $2,675,000
Item Part Number Equip Type Product Description Qty. PriceExtended
Price
1 Xyz-100a HW HW 6 $250,000 $1,500,000
2 Xyz-100a-mnt HW MNT HW Support 6 $15,000 $90,000
3 Abc001 SFT MNT Customer Support, SFT Only 6 $35,000 $210,000
4 Xyz-100c-1 HW BHW 10 $75,000 $750,000
5 Xyz-100c1 HW MNT HW support 10 $2,500 $25,000
6 Abc-002 SFT MNT Professional Services, SW Support 10 $10,000 $100,000
Total $2,675,000
1
Financing Costs Built-in
Solution $2,675,000
Financing $193,770
Total Gov’t Cost $3,015,000
Client Proposal using Extended Payment Options
3 Annual Level Payments
Base Year $1,005,000
Option Year 1 $1,005,000
Option Year 2 $1,005,000
Gov’t Total Cost $3,015,000
By offering an alternative to pay over time, you help them optimize their investment and retain the total value of the
contract, while minimizing discounting exposure.
*OEM gets paid upfront for solution (including margin), KGF collects Base + OY
payments from gov’t. directly
Example Payment Plan, cont’d.Agency budget < Solution cost
#SecurityCapabilities
Innovative Financing for Security
