© Dispute Resolution Board Foundation 2019© Dispute Resolution Board Foundation 2019
Session 6:
PPP: The Next Generation________________________________
Moderator: Kurt Dettman
Larry Baker, Senior Partner, Watt Tieder
Hugo Fontirrog, Project Manager,
Dragados, USA
Adam Nicolopoulos, President ADN
Capital Ventures
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PPP Project Delivery
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How Are PPPs Structured?Financial Commitment
Legal Relationship
Security
Legend
Government Entity (GE)
SPV/Concessionaire Senior LendersEquity Sponsor
O & M ProviderDesign-Builder
Security Package
Debt
Principal + Interest
O & M FeeContract Price
Dividend
EquityS
ecurity
Package
Security
Package
Secondary
Support
Secondary
Support
Design-Build
Agreement
O & M Agreement
Paym
ent
or
Rig
ht
Pro
ject
Agre
em
ent
Interface
Agreement
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PPP Friction PointsGovernment Entity (GE)
SPV/Concessionaire
Senior Lenders
Shareholders
O & M ProviderDesign-Builder
Subcontractors; Subconsultants;
Suppliers
Guarantors
Insurers
• Owner risk event s – DSCs,
permitting, ROW
• Scope/pricing Issues
• Owner changes (pricing)
• Owner Interference
• Production/execution delays
• Design/workmanship issues
• O & M issues (Especially
capital maintenance)
• Handback requirements
• Construction vs. operational funding
• Revenues vs. ROI
• Credit risk, especially if unfunded liabilities for additional
costs, delay, LDs, etc.
• Flow down requirements
• Sub production/execution
delays
• Scope / pricing issues
• Product Issues/Warranties
• Contractor/Designer
relationship (JV v sub)
• Quality/workmanship
issues
• E&O Claims
• Sub Surety Issues
• Builders Risk Claims
• Operational vs Construction
coverages
• Concession/DB/Operator
• O & M issues w/ materials & equipment
• Product Quality/Durability issues
• Guarantee/Warranty issues
• Quality v Schedule conflicts
• Design vs. workmanship issues
• Toll revenue / ROI issues
• Warranty issues
• O & M issues (Especially
capital maintenance)
• LOS/Performance issues
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Owner’s Lawyer Perspective
The Owner’s Lawyer drafts the Contract between Owner and Concessionaire
Concurrently, Concessionaire/Developer negotiates terms of an Agreement with the DBT
Risk allocation meeting
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Owner’s Lawyer Perspective
Change in Law
Was it foreseeable
Was Developer able to mitigate change
Discriminatory Changes in Law
Government Approvals and Permits
Right of Way Responsibility
Utility and Third Party Rights
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Owner’s Lawyer Perspective
Definition of Substantial Completion
Triggers Availability Payments
Liquidated Damages
Differing Site Conditions
Will Owner include clause?
Will costs be capped?
Handback Requirements
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Owner’s Lawyer Perspective
Construction Performance Security
Surety Bonds
Retention
Parent Company Guarantees
Demand Letters of Credit
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DBT Perspective• Dragados USA, Inc., subsidiary of Dragados, S.A, is the
construction arm of the ACS Group, with over 65 years of international experience in construction.
• ACS Group is one of the world’s largest transportation infrastructure developers, with:
• Over $50B in annual revenues and in over 65 countries.
• Over 100 P3 projects developed globally; current portfolio of 28 highway projects, 5 railways and 12 public facilities.
• Consistently ranked first amongst the list of World Top Transportation Developers in Public Works Financing.
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SPVDeveloper
Government Entity
DBT Perspective
DB Contractor
DesignerEOR
Joint Venture Partners
Designer Subcontractors
Subcontractors & Suppliers
Quality Control
Operation &Maintenance
IndependentQuality Firm
LendersPublic/Private
QualityOversight
Public Private Agreement
Design Build AgreementJV Agreement
Design AgreementSubcontract AgreementQC Service Agreement Design Sub Agreement
O&M Agreement IQF Agreement
Insurers(e.g. BR, GL)
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SPVDeveloper
Government Entity
DB Contractor
DesignerEOR
Joint Venture Partners
Designer Subcontractors
Subcontractor & Suppliers
Quality Control
Operation &Maintenance
IndependentQuality Firm
LendersPublic/Private
QualityOversight
1
2. Force Majeure
1
3
45 6
7
8 9
1Insurers
(e.g. BR, GL)
2
1. Differing Site Conditions
3. DBJV Defective Construction
4. DBJV Subcontractor’s Error
5. Defective Monitoring
6. Defective Design
7. Defective Geotech Design
8. O&M Impact
9. IQF Added Scope
2
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DBT Perspectiveo RFP process
• Balanced, adapted and in harmony with the characteristics of P3.• Role and primary responsibilities (and authority) of the
Owner, Developer, Independent Quality Firm, DB Contractor, and Engineer of Record.
• Design and Construction constraints and flexibility. Prescriptive requirements vs. performance requirements.
• Reference Information: Provide appropriate geotechnical/ environmental investigations, ROW, and permit acquisitions to reasonably rely upon in order to establish price.
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DBT Perspectiveo RFP process
• In addition to RFP Teaming Agreement (RFQ phase), final development of Multiple and Complex Agreements, among DBT and Owner, Lenders, Developer, Insurance Carriers, Designer, Key Subcontractors. • DB Agreement. “Back to Back” with strong security
package (Bond, Retainage, LOC). Warranty, Latent Defects Provisions, and Indemnity Provisions (O&M).
• Professional Services Agreement. Owner and Developer flow down provisions. Design and Construction Services (RFIs, NCEs, Post-RFCs, Redlines).
• Agreements should be fair and balanced, allocating risk to the party best capable of addressing and mitigating.
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DBT Perspectiveo Project Execution.
• Procurement Process after RFP. • Non Key Subcontractors and Main Suppliers. Limited P3
industry experience.• Appropriate “flow-down” of obligations from the DB
Contractor. • All parties’ staff educated and experienced in P3 projects,
adapted to its collaborative nature.• Expeditious administrative process. Timely decisions.• Co-location. Communication vs. Interference. Owner,
Developer, IQF, DB Contractor and EOR coordination.• Value Engineering vs. Schedule. Design Phase & Construction
Phase.Schedule, Schedule, and Schedule
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DBT Perspective
P3 Dispute Resolution Challenges:
- Large, multidisciplinary and complex structure. Multiple Agreements, but with Flow Down Provisions.
- High Degree of Interrelationship. Affects multiple agents.- Understanding of PPP. Risk Management & Authority.
Understanding of “Urgency”.- “Relatively New” in the US market.
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Sangster Int’l
Airport, Jamaica
South African
Airports Authority
$200mm Trans-
shipment Port
Facility, LA
Ngqura Container
Port, South Africa
Greek Port System
Privatization
Ferry Passenger
Terminal, Anguilla
Corpus Christi
Container Port
Terminal, TX
Port Privatization,
Bahrain
Conf. Port Terminal,
Mediterranean
Bina Istra Motorway,
Croatia
Road 1604, TX
Indiana Toll Road,
IN
Ionia Odos
Motorway, Greece
Highway 2000,
Jamaica
Maliakos – Kleidi
Motorway, Greece
Sofia – Varna Road,
Bulgaria
N4/N6 Motorway,
Ireland
Funding Alternatives,
Transport Infrastructure
Asset Monetization
Program/PPP
Development, USA
220 MW, 440 MW, 779
MW and 748 MW Power
Projects, UK
685 MW Sidi Krir Power
Station, Egypt
500 MW Power Project,
Tunisia
770 MW, 1540 MW and
1520 MW Power Projects,
Turkey
$200 million Private
Equity Power Fund,
Turkey
Road Transportation – 2,000+ miles
Airports & Aviation – 2 airports
Ports - 8 container ports
Power Projects - 10,000+ MW
Northwest
Parkway, CO
24 MW Solar Farm,
Puerto Rico
US Power Gen: 1,500
MW in total
512 MW Isab Tar
Gasification (Mission
Energy), Italy
ADN Project Track Record
153 MW Solar Farm,
Chile
Johannesburg
Building EE Retrofit,
South Africa
Empire State Building
$12mm Energy
Retrofit, NY
*Represents experience of team members
both while with and prior to ADN
Expert Witness
BrissConnections
ICC Arbitration
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Key Drivers of Value for Money - PPPs and PFI
♦Risk transfer
Optimal risk allocation to party that is best able to manage risk
♦Output based specification
Measurable outputs
♦Long-term nature of contracts
♦Performance measurement and incentives
Contract performance
Assess whether public entity can procure the project through PPP at
life cycle cost less than if procured through a typical public
procurement
♦Competition
Selection of contractor/concessionaire/other on competitive basis
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Project
company - SPV Operator
Operations and Maintenance
Agreement
Contractor
Technology
supplier
Byproducts/
Additional Services
Fixed Price
ConstructionContract
Fees
State – governance
Senior debt providers /
bond holders
Credit Agreement and
Security
Enabling
legislation
Sponsors – equity Other potential
investors
Financial Revenue InsuranceTechnical Legal
Contracting Authority/
GrantorConcession / Offtake
Agreement
Permits
Project team & advisors / areas of expertise
Capital Providers
Owners
General Project Contractual Framework
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year of concession
Mill
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Opex Capex
Senior debt interest & fees Senior debt repayment
Dividends Tax
Equity subscribed Debt drawdown
Total Revenues
Infrastructure Project Finance Profile - Theory
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year of concession
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Opex Capex
Senior debt interest & fees Senior debt repayment
Dividends Tax
Equity subscribed Debt drawdown
Total Revenues
Infrastructure Project Finance Profile – Practice ?
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What can go wrong? Lots of thigs...
N...
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Base Case
Financial Model
Project Operating
Data
Economic Assumptions Project Assumptions
♦ Tariffs / user fees
♦ Technical Assumptions
♦ Construction costs
♦ Maintenance costs
♦ Operating costs
♦ Timing profile
♦ Contract terms
♦ Growth / escalation
rates
♦ Inflation
♦ Interest Rates
♦ Tax
♦ Depreciation
♦ Commodity indices
Financing Assumptions
♦ Debt size
♦ Debt term
♦ Amortisation profile
♦ Required DSCR, cash
sweeps
♦ Cost of finance
♦ Equity assumptions
Sources &
Uses of Funds
Revenue & Cost
Forecasts
Driving
Assumptions Cashflow P&L
ConstructionFunding Schedule
Balance
Sheet
Tax &
Depreciation
DebtSizing Equity Sensitivities
Importance of Project Financial Model
DSCR
IRRs
Risk
Analysis
OUTPUT
INPUT
ScenariosDrawdownSchedule
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Value Creation – Value of DRBs (Risk Prevention)
0%
10%
20%
30%
40%
Concept & Design Permits Concession
Agreement
Financial Close Construction
Completion
Ramp Up Maturity - Post
RampUp
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Equity
Valuation
Equity
Valu
e
Cre
atio
nRequir
ed
Equit
y IR
RRisk and return
Value Drivers
Target IRR
- Yield
Debt repricing/
Re-gearing
Senior debt pricing /
re-pricing events
Debt pricing
Note – graph not on scale – for illustration purposes
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Lessons Learned
♦Sound finance structures
♦Strong contracts
♦Experienced advisors
♦Strategy and focus on specific targets & goals
♦Clear objectives
♦Win-win positions
♦Manage Timetable
♦Use / work with government commitment
♦Take advantage of history
♦Plan for more than one funding option
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PPP Questions for the Future
Multiple DRB Panels – What is Too Many?
How Far Should the DRB’s Jurisdiction Extend into the PPP Structure?
Are Owners Too Involved in PPP Implementation?
Who Does (Should) Call the Shots on PPPs?
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PPP Questions for the Future
What Are Owners/Developers/DBT’s Looking for with DRB Chairs + Members?
Where are PPPs headed in the US and Canada Marketplace?
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Speaker Contact Information
Kurt Dettman: [email protected]
Lewis Baker: [email protected]
Hugo Fontirroig: [email protected]
Adam Nicolopoulos: [email protected]
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Q + A
Dispute Resolution Board Foundation
www.drb.org