A public-private partnership (P3) is a project delivery model that is employed for large projects with high capital costs or projects that involve complex factors and significant risk, and involves partnering public agencies with private firms. In the province of Ontario, the P3 delivery model is administered by Infrastructure Ontario (IO). Studies of P3 performance highlight many successful outcomes, with 95 per cent of projects coming in on budget, and 69 per cent of projects being delivered on time.
WSP recently published a detailed review or risk transfer in P3 projects. The review includes an analysis of Value for Money (VFM) that was undertaken on completed projects which utilized the design-build-finance (DBF) and design-build-finance-maintain (DBFM) delivery models. The objective of the research was to establish typical VFM ranges achieved on P3 projects in Ontario. In total, 42 projects were observed and analyzed. Figure 1 summarizes the sector and project value of projects that were reviewed.
Value for Money (VFM) is the quantitative measure that involves a combination of quantity, quality, features and price over the project’s life cycle. VFM is said to be achieved if delivering a project through the P3 delivery model is found to have a lower total cost than delivery through traditional means (referred to as the Public-Sector Comparator, or PSC). IO has developed a methodology to standardize how firms determine VFM for P3 projects.
Risk is defined as “the probability that the actual outcome will deviate from the expected outcome”, and is a major driver of VFM. Figure 2 shows the percentage of total project cost that retained risk accounts for before and after risk transfer under the P3 approach.
The retained risk clearly accounts for a large portion of total project costs, and can solely account for a large portion of potential project costs savings from a shift in delivery model. Figure 3 shows the VFM obtained in projects that were reviewed for this project. The average VFM was 15.2 per cent and had a range between six per cent to 24 per cent.
When comparing to the average VFM, it was found that for each sector (e.g. transportation, healthcare, justice, etc.) the average VFM was +/- 2.9 per cent from this average, meaning that this average is generally applicable across different sectors.
Risk transfers are the key driver in determining the VFM that a project can provide. An expectation of typical ranges for VFM was established based on P3 projects in the province of Ontario. To determine what delivery model works best, Procurement Options Analysis (POA) is a standard assessment involving three pieces of work:
- A technical piece, provided by an engineering consulting firm;
- A financial piece, assessing VFM and risk, provided by a financial advisory firm; and
- A commercial / transactional piece, typically provided by a law firm.
WSP's Advisory Services has the capacity to complete all three pieces of work. WSP is confident in its ability to deliver this type of work, and takes pride in delivery solutions that are future ready, adapted to local markets.