larry baker, hugo fontirrog, · 2019-10-18 · © dispute resolution board foundation 2019 session...

© 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

© Dispute Resolution Board Foundation 2019

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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


24© Dispute Resolution Board Foundation 2019

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




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




Definition of Substantial Completion

Triggers Availability Payments

Liquidated Damages

Differing Site Conditions

Will Owner include clause?

Will costs be capped?

Handback Requirements




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.


32


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.


33


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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The picture can't be

displayed.

(800)

(600)

(400)

(200)

0

200

400

600

800

1 23 3 4 - 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

year of concession

Mill

ion

s o

f U

S$ n

om

ina

l

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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The picture can't

be displayed.

(800)

(600)

(400)

(200)

0

200

400

600

800

1 23 3 4 - 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

year of concession

Mill

ion

s o

f U

S$ n

om

ina

l

Opex Capex

Senior debt interest & fees Senior debt repayment

Dividends Tax

Equity subscribed Debt drawdown

Total Revenues

Infrastructure Project Finance Profile – Practice ?

1

32

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What can go wrong? Lots of thigs...

N...

40

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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41

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

© Copyright



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?



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?



Speaker Contact Information

Kurt Dettman: [email protected]

Lewis Baker: [email protected]

Hugo Fontirroig: [email protected]

Adam Nicolopoulos: [email protected]



Q + A

Dispute Resolution Board Foundation

www.drb.org

larry baker, hugo fontirrog, · 2019-10-18 · © dispute resolution board foundation 2019 session...

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