Tools for Facilitating P3s – and - Gaining Political Consensus

David S. Zelenok, PE Formerly Public Works Director

Interim City Manager Chief Innovation Officer

David.Zelenok@gmail.com

Simply Put – A Public/Private Partnership (P3) =

Risk Sharing

Service Level Analysis

Centennial, ColoradoDecision to Comprehensively review Public Works Services• “Best Value” - $100M Contract / In HouseQuantified Pre-existing Levels of Service

– Snow Routes - # Plows, # Lane Miles– Miles of Street Sweeping– Tons of Pothole Patching– Signs Replaced– Citizen Requests – Call Volumes– Emergency Response Ability

“Managed Competition…”Public vs Private Sector Bidding

“Value for Money…”Find best method to provide service

Step 1: Learn the “Lingo”

Selection Process - Results

Largest Public-to-Private Conversion of its Kind in the Nation

Snow Removal Unique

Only 33 Pages (+28 pp exhibits)

Success, but…No Plan Survives Execution

“Value Exchange”

5=30?

Flexible Service Account

6

Year FSA Annual Funding

Maximum with Rollover

2013 $500,000 N/A

2014 - 2018 $400,000 $500,000

• Flexible Services Account (FSA) used for…– Snow removal services beyond 3,100 CDL Hours– Ice removal on unplowed streets – Damage and repairs– Technology innovations– Minor nuisance issues

Summary – P3 Benefits

• Partnership• Risk• Level of Service • Performance Measures• Technical Standards • Responsiveness • Flexibility • Innovation • Compensation

7

ProvenReducedExpandedEnhancedUpdatedIncreasedImprovedAcceleratedReduced

In House vs Contract (?)

•Colorado Springs – Asphalt Paving Companies Complained and alleged – Contractors can do it cheaper•Result: City Auditor Independently Investigated•Not only should city employees continue to pave streets...•They should consider following the Denver model

• Buy an asphalt plant!

The source selectors’ accountants’ Assumptions are crucial

Key Problem in Public Sector:Fully Load Cost Comparisons – “apples to apples”

NCPPP Termed - Public Cost Comparator

Public Cost Comparator -

Major Elements of a PCC1. Start-up Costs2. Operating Costs3. Personnel Costs4. Equipment Costs 5. Facility Costs

Other considerations – Crucial to winning6. Salvage value7. Depreciation8. Capital reserve

Toll Road FinancingSource: Randy Salzman, ThinkingHighways.com Vol 9, No 3 North American edition Fall 2014

No toll operators remain in business 15+ years post-construction in US

Private sector capital carries very little riskVirtually all the risk is carried publically in one way or another

No American toll companies are meeting their traffic projections Most traffic and revenue estimates are about 109% overly optimistic

P3’s are consuming much of the limited public funds Think: State DOT general fund dollars – priorities to P3’s

Reliance on Exclusivity – Improvements usually prohibited on parallel facilities

~1/2 Penny on a dollar in the adjacent retail

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Lesson Learned – accountants will tax surcharge

Innovative Financing

Park Meadows Mall

20 Year Bonds Issued ~ 1¢Defeased in ~ 7 years TABOR-Proof (fee vs tax)Opportunity?

Lessons Learned

• Companies don’t enjoy gov’t immunity – • Liability is unlimited

• Minor Amendments – Make them easy!– Reimburseables – Pass throughs– Offsets– Plus-ups– Recompete for similar work?– Exclusive - or can the city go out for other contractors?

Fact:Agencies don’t know exactly WHAT they want. Opportunity or Fatal Flaw (?)

Get some professional help Up-front

+Build in

QA/QC during

FUTURE P3OPPORTUNITIES

Traffic Mgt

Telecom

P3 ‘s & Private Capital

Questions???

More info: Dave ZelenokDavid.Zelenok@gmail.com