The United States differs from the previous examples in that it has no central PPP unit at the national level, and no overarching standard methodology for developing and implementing PPPs. At the federal level, legislation providing authority to establish PPPs is enacted on an agency-by-agency basis, so that the procedures for implementing a PPP to provide, for example, electricity for a national park, would differ in their specifics from the procedures for providing power to a military installation. At the state level, enabling legislation is developed on a state-by-state basis. However, at all levels there is a focus on the principles of open competition. To demonstrate how this functions in practice, this paper will discuss two PPP initiatives, one at the federal level and one at the state level.
The U.S. Department of Defense (DoD) has a policy of relying first on the private sector to provide housing for its 1.5 million active duty servicemen and women, and their families. This is done by paying the military personnel a housing allowance, which they can use to rent the housing of their choice in their local community. However, many U.S. military installations are located in remote rural settings, with little commercially available housing, or in high-cost urban areas, with little quality housing affordable for a military family. Where there is a deficit of acceptable housing available, based on cost, commuting time, and other established criteria, DoD traditionally financed, designed, built, and maintained government-owned housing on the base. By the mid-1990s, DoD owned and operated approximately 300,000 family housing units.
Amidst competing budget priorities, it proved difficult for DoD to obtain the construction and renovation funds necessary to keep the housing inventory up-to-date. In 1995, on-base housing had an average age of 33 years, and more than 60%, approximately 200,000 units, was regarded as substandard by then-current DoD standards.
Assessing this situation in 1995, DoD estimated that US $16 billion in supplemental funding would be required to bring the existing housing inventory to acceptable levels through a combined programme of replacement and renovation. A funding increase of this magnitude was simply not attainable. In response to this problem, DoD approached the U.S. Congress, and requested statutory authority to enter into Public-Private Partnerships for provision of family housing.
Congress recognized the need for action, and the National Defense Authorization Act for Fiscal Year 1996 (Public Law 104-106) provided DoD with a number of new capabilities. These included the ability to:
(a) Form limited liability partnerships with developers, and invest directly in military housing through stock or bond purchases, or other debt or equity instruments;
(b) Sell, convey, or lease DoD property to the private sector and use the proceeds to finance a housing-related partnership; and
(c) Provide direct loans to developers to help them acquire or build housing; and other authorities.
To encourage the creative application of these new authorities, DoD created a DoD-wide initiative. Under this programme, DoD granted each of the military services, the Army, Air Force and Navy (to include the Marine Corps), the power to determine which of these new authorities they would apply in any given situation. DoD did, however, establish two mandatory requirements:
(a) Each Service must eliminate all of its inadequate housing by 2010; and
(b) In any given transaction, the developer must provide at least two-thirds of the total capital investment.
The success of this programme has exceeded DoD's expectations, and the replacement and renovation of the substandard housing will be completed in 2008, two years ahead of the original goal. The entire $16 billion backlog will have been eliminated in 12 years from the start of the DoD initiative. The majority of installation-specific projects have required no government capital investment. In addition, the benefits transcend the avoidance of capital investment: the U.S. General Accounting Office reviewed the first dozen partnerships and concluded that the life-cycle cost of these agreements would be 11% less than the cost of equivalent government-built housing units.
The programme's success can be attributed in large part to the open competition practices employed by the military services. While the specific partnership structures employed varied from service to service and installation to installation, open competition was universally practised.
Pre-procurement. Each installation performs a detailed business case analysis of its housing requirements and potential partnership approaches. A key consideration is whether one partnership for the entire installation is feasible, or whether multiple PPPs should be established for geographically-dispersed housing areas.
Procurement. All partnership opportunities are publicly announced in the U.S. government's Internet-based procurement portal (early opportunities were announced in print, then in print and web-based media; current announcements are posted only via the Internet). Requests for Tender for each installation are performance-based. The government identifies the required number of units, the mix two-bedroom, three-bedroom, and other units, community standards, and certain material standards, and the developers are free to propose their own design solution and community amenities. Draft requests for proposal are released for public review and comment. Pre-proposal conferences are held, to further address questions and comments, and responses to questions and amendments to the Request for Tender are posted on the Internet. The Request for Tender also identifies the evaluation criteria to be used for tender evaluation purposes.
Typically, a two-step tender process is employed. In the first step, firms (and/or teams of firms) submit conceptual overviews of their partnership proposal, together with past performance data, and information on corporate capacity and financial stability. These firms with the highest evaluations are asked to submit comprehensive proposals. This two-step process helps to encourage broad participation from the developer community, because it reduces the cost of testing a design concept.
Evaluation. Tender evaluations are conducted by an independent board of reviewers, who use a Tender Evaluation Plan and evaluation criteria developed specifically for the individual acquisition. Each evaluator documents their rankings, with supporting rationale, so that the evaluations can be reviewed for consistency and objectivity.
Award and Appeals. Contract award decisions are publicly announced on the Internet, with direct notification of unsuccessful bidders, who can receive briefings on the evaluated strengths and weaknesses of their proposals, In addition, there is an established appeals procedure, based upon standard processes in the Federal Acquisition Regulations.
Contract Monitoring. Contract performance is evaluated based on the criteria in the Request for Tender. Contract administration staff are assigned at each installation. Dispute resolution is based upon the procedures established by the Federal Acquisition Regulations.
At the state level, the State of Virginia has one of many established programmes. The State of Virginia's Public-Private Transportation Act (PPTA) of 1995 is a legislative framework enabling the Virginia Department of Transportation (VDOT) to enter into agreements authorizing private sector entities to develop and/or operate transportation facilities. Private sector entities may identify a need, such as a new connector highway or light-rail system, and submit an unsolicited proposal to VDOT. Alternatively, VDOT may identify a requirement which may be appropriate for a Public-Private Partnership solution, and issue a Request for Tender. Proposal/project evaluation is then a six-phase process:
1. Quality Control. Does the proposal address needs identified in the appropriate local, regional or state transportation plan? Will it provide a more timely, efficient or less costly solution than the public sector? Is there appropriate risk-sharing?
2. Independent Review Panel (IRP.: The proposal is reviewed by an Independent Review Panel with members from the State Transportation Board (STB), VDOT, transportation professionals, academics, and representatives of the affected jurisdictions. The review is based either on the basic criteria established by the law (which is available on the Internet) or on a modified version of these criteria, as provided in the State's published Request for Tender. Public Meetings and input are part of the process.
3. State Transportation Board Recommendations. The STB reviews the proposals and recommendations of the IRP and recommends to VDOT whether to proceed with the project. A decision to proceed means that VDOT will advance to a public request for detailed proposals. Such requests are advertised on the State's procurement website and are open to participation by any responsible party. The Request for Tender will identify the State's evaluation criteria.
4. Submission and Selection of Detailed Proposals. VDOT forms a proposal review committee and requests detailed proposals. Based upon its review, VDOT may select none, one, or more proposals for further negotiation.
5. Negotiations. If the quality of proposals merits, VDOT will negotiate for the interim and/or the comprehensive agreement which will, among other things, outline the rights and obligations of the parties, set a maximum return of rate of return to the private entity, determine liability, and establish dates for termination of the private entity's authority and dedication of the facility to the State.
6. Agreement. The negotiated agreement undergoes final legal review, and is then submitted for signature and implementation. State law also provides for debriefings of unsuccessful bidders and an appeals process.
This process has been successful in generating effective partnerships. The first project to be completed as a result of this law was the Pocahontas Parkway, in 2002. This is a 14.1 kilometer, four-lane road, including a high-level bridge over the James River, which connects two major commuting routes in the Richmond, VA area. The business model was based on the premise that commuters would be willing to pay a modest toll to reduce their commuting time. After one adjustment in the toll price, in 2004, due to traffic volume being slightly under projections, this project is now performing well.
| ACTION POINT Each country uses its own unique approach to soliciting and evaluating partnership proposals. The examples show that each country has its own distinct procurement regulations, e.g. in the United States of America there are such regulations at both the federal and state levels. Yet a common factor, uniting all of these PPP programmes, is their commitment to the principles of open competition, which is reflected throughout the procurement process. This commitment must be maintained wherever PPPs are to be successful. |
Sources and Further Information
(i) British Columbia Ministry of Municipal Affairs, Public-Private Partnership: A Guide for Local Government, May 1999.
(ii) Deloitte and Touche, Closing the Infrastructure Gap, Global Addition, 2006.