Back in 2007, the legislature authoried the AOC to investigate PPP as a delivery method, and Gov. Code 70391.5 specifically authorized a PPP for Long Beach Courthouse. In response, the AOC embarked on an evaluation of various delivery models attempting to determine the value for money entailed with different delivery models, including traditional design-bid-build, design-build, design-build-operate, and design-build-operate-maintain-and finance ("DBFOM").
The report is billed as a neutral investigation into which delivery method was best, but, perhaps betraying a certain outcome bias, the project team adopted the term “performance based infrastructure” for its DBFOM model.
The report describes how the risk-adjusted whole life cycle cost of DBFOM compared to traditional DBB (Public Sector Comparator). The team then compared the net present value of these methods, with assistance from Ernst & Young and Davis Langdon Construction cost consultants.
As a negotiating tool, the project team shared its Public Sector Comparator (DBB) cost with the selected proposer to show them what they had to measure against. The efficacy of this strategy for future projects will be interesting to explore.
A separate risk analysis and quantification was conducted for each method. Mean value of each risk was quantified through computer Monte Carlo simulation modeling. Risk duration was measured for each project delivery method for planning, construction, operation. Adjustment is made for fact that under DBB not all construction risk is factored into the price. Under the selected Performance Based Infrastructure model (DBFOM) most of the design, construction, and operational risk for the project was transferred to the successful team.
The AOC acquired the property, developed design criteria, and the request for proposals.
The report asserts three main reasons for adopting PBI: 1) Speed [D-B and don’t need to wait for committed state funding]; 2) Location and size would attract the market; and 3) DBFOM would free up construction funds for other projects. [This last factor is now seriously in question, see prior post]
The Department of Finance found there wold be no negative impact on credit rating of state and approved the project. Although it involved higher fiance cost than DBB, the anticipated savings in development and operation were deemed to justify the selection of DBFOM.
The Department of Finance found there wold be no negative impact on credit rating of state and approved the project. Although it involved higher fiance cost than DBB, the anticipated savings in development and operation were deemed to justify the selection of DBFOM.
The report details some incompatibilities between tax-exempt financing and PPP, in particular: 1) The need to separate project company from owner risk; 2) the fact that risk capital or equity cannot reside in project company; and 3) that tax exempt bonds are limited to 15 years and thus cannot readily be reconciled with a 35 year operate and maintain contract.
The report notes that steel erection proceeded 1 year after NTP; would be 2 years with DBB.
Anybody with an interest in PPP projects would be well served by taking a look at this unusaully exhaustive and detailed report. It will offer up many lessons and ideas.
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