Public-private Partnerships

Public-private Partnerships

INTRODUCTION

During the past few years, the Province of New Brunswick has entered into several public-private partnership projects. It was one of the first provincial governments to embark on such endeavors and has been able to develop "best practices" to be applied to public-private partnership projects.

This document contains guidelines for public-private partnerships reflecting these best practices.

DEFINITION

The Canadian Council for Public-Private Partnerships has adopted the following definition to help clarify what is meant by this concept. A public-private partnership is defined as "a cooperative venture between the public and private sectors, built on the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards."

The essence of a public-private partnership arrangement is the sharing of risks. Central to any successful public-private partnership initiative is the identification of risk associated with each component of the project and the allocation of that risk factor to either the public sector, the private sector or perhaps a sharing by both. Thus, the desired balance to ensure best value (for money) is based on an allocation of risk factors to the participants who are best able to manage those risks and thus minimize costs while improving performance.

Best value is also enhanced by the social benefits (i.e. educational, health) accrued through the ability to deliver programs earlier than otherwise might have been possible. The opportunity and ability to share resources with the private sector through a long-term relationship allows the government to pursue initiatives which may not otherwise have been possible for several years had a partnership arrangement not been achieved.

Through an array of techniques, the private sector can apply its skills and resources to services that have traditionally been provided by the government.

POLICY

Government policy is to utilize procurement practices that will provide the best value in meeting the needs of the Province of New Brunswick. A public-private partnership is an acceptable procurement practice to achieve best value for the delivery of a public service or provision of public infrastructure.

A policy for public-private partnerships must encompass guidelines, protocols and an acceptable process to be followed. The policy must serve the following purposes:

provide specific criteria against which all public-private partnerships will be measured and approved, to ensure the best interests of New Brunswickers are met;
provide a consistent, fair and transparent review process to be followed for all public-private initiatives, and
provide a high level of confidence to New Brunswickers that decisions made with respect to public-private partnerships are fully informed and justifiable, and have been found to be the best alternative.

OBJECTIVES OF PUBLIC-PRIVATE PARTNERSHIPS

Public-private partnerships must demonstrate that the following objectives are met in a balanced way to reflect the best interests of all stakeholders:

to ensure government services are delivered in the most economical, effective and efficient manner;
to create opportunities for private sector growth and to contribute to the overall economic development of New Brunswick through the stimulation of competitiveness and initiative;
to ensure the best interests of the public, the business sector and the community are served through an appropriate allocation of risks and returns between partners.

GUIDING PRINCIPLES

As with any proposal, the first step is a full evaluation to determine whether it is a government priority. A public-private partnership may be pursued only after alternative methods of delivering the project have undergone careful evaluation, it has emerged as the best alternative, and where it offers the best solution demonstrated through a sound business case.

Principles
All public-private partnerships will be based on the following guiding principles:

project definition: the project is of sufficient size and/or complexity to provide opportunity for the private sector to demonstrate its initiative, innovation and expertise in providing best value to New Brunswick.

competitive private sector market: sufficient qualified private sector proponents exist to ensure a competitive process.

shared rewards: the public receives 'value for money' from the initiative, while the private sector can reasonably expect to receive a fair return on its investment.

premise of risk transfer: risks are allocated to the partner best suited to assume the risk.

procurement process: must be fair and transparent and will be subject to due diligence.

signed contract: the acceptance of a usually long-term relationship established through signed contractual arrangements.

communications: a proactive, ongoing and transparent communications plan designed to keep people informed is implemented.

Protocols
Protocols establish the ground rules that all public-private partnerships will follow to ensure that the objectives and guiding principles are met.

Project Definition
The project must be of sufficient size and/or complexity such that value can be created when various components (design, construct/implement, finance and operate) are unified under one procurement request. This provides the private sector the opportunity to demonstrate initiative and innovation when responding to a public-private partnership initiative.

Components should be bundled to provide an opportunity to maximize savings. The resulting package, however, must remain clearly defined and of a manageable size.

Ongoing operations should be included to ensure the private sector maximizes all potential life cycle benefits beyond the initial project construction/implementation.

Functional program and/or preliminary design for the project must be provided up-front to ensure clear project definition.

Competitive Private Sector Market
By definition a public-private partnership includes a variety of components and therefore requires a private sector market capable of responding to all the identified needs of the government. This will, in many instances, require proponents to form teams in order to respond to the request fully. In assessing whether a project will be suitable for a public-private partnership an assessment of private sector interest will be required.

Identifiable private sector skills required must be defined.

These skills must be available in a meaningful number of private sector organizations.

It must be likely that these private sector organizations will respond to the opportunity.

Value for Money
Value for money is the ultimate test for a project. When considering a public-private partnership approach and one proposal versus another, the comparison of future cash flows is the primary financial analysis required in evaluating value for money. Other factors to consider include a commitment to ensure that government's resources are managed with due regard for economy, efficiency and effectiveness.

A public-private partnership arrangement will only be approved if it demonstrates the lowest cost alternative to the taxpayer.

The project should demonstrate an economic advantage to the Province.

A project must commence with a sound business case, establishing reasonable estimates of costs and benefits. The business case must continue to be sound throughout the process.

Anticipated efficiency and effectiveness of service delivery must meet or exceed identified standards.

Quality service, which is responsive to the needs of the public, must be ensured.

Transfer of Risks
The ability to transfer certain risks to the private sector has a value because it eliminates those risks for the Province and, by extension, for the taxpayer. Examples include design risk, construction/implementation risks (i.e., project cost risk, completion risk), and financing risks (i.e., interest rate, ownership, property, operating risks associated with inflation and/or maintenance). The elimination of these quantifiable risks by the government provides greater certainty in its future financial commitments.

A demonstrated transfer of risk from the Province to the private sector must be evident and clearly documented.

The optimal allocation of risk between the public and private partners must be based on which partner is best suited to manage and/or mitigate each risk.

The respective roles of the public and private sectors in the partnership are based upon which party can provide the functions most efficiently and cost effectively.

The transfer of risk for various elements has a value that must be quantified where possible.

Due Diligence
A thorough due diligence process is important to assure the integrity of the project review process. It must identify, in advance, a planned schedule of events, processes to be followed, activities to be carried out, considerations, evaluation criteria, etc.

For all projects, a comprehensive Reference Case must be developed independently and in advance of the evaluation process.

The Reference Case must be used in the evaluation process.

The evaluation process must be transparent and objective.

The procurement process must be fair and transparent

Government must make every reasonable effort to ensure protection of proprietary rights of bidders.

Contract Administration
A signed contract between the provincial government and a private sector proponent is mandatory for every public-private partnership project. The contract will identify the roles and responsibilities of both parties. The contract must be carefully developed, as well as responsibly managed throughout the term of the relationship. It is important to note that the public-private partnership review does not end once a contract is signed.

There must be a signed contract between the Province and the private sector proponent in place before any work is started.

No contract may be signed until appropriate approval of the procurement is received from the Minister of Supply and Services, as required under the Public Purchasing Act.

The contract must clearly identify the accountabilities and responsibilities of the government and the private sector.

The contract must clearly identify the financial terms of the agreement.

The contract must identify agreed upon performance standards, target dates (milestones), deliverables and options for terminating the contract.

Performance in relation to the contract must be monitored by a qualified contract manager on behalf of the government.

Ongoing contract management/monitoring must be ensured through the provincial government department which assumes lead responsibility for the partnership.

Communications
Effective communications are key to the public's understanding of public-private partnerships. Communications must be planned and carried out as an integral part of the management process for any project.

A comprehensive, multi-audience communications plan must be prepared before a public-private partnership project commences.

The communications approach must be proactive, ongoing and transparent. The objective is to ensure the public is not only consulted but also informed about the purpose, cost and progress of the initiative.

The plan must be monitored and refined as circumstances warrant during the life of the project. It is important to note that communications do not end once a contract is signed.

CONCLUSION

Formal definition of the guidelines and protocols contained herein is a major step towards ensuring future successful endeavors in the field of public-private partnerships for the New Brunswick government. These protocols provide specific criteria against which all public-private partnerships will be measured and approved, and will ensure the best interests of New Brunswickers are met.

Formal definition and publication through this document will provide a higher level of confidence to New Brunswickers that decisions made with respect to all public-private partnerships are fully informed and justifiable, and have been found to be the best alternative.