Public Private PartnershipsAudit Guide Update

AASHTO Audit Subcommittee Action

• Carrying through on the Implementation Strategies in the Scanning Program Report, the AASHTO Administrative Subcommittee on Internal and External Audit established the Public Private Partnership Guide Task Force.

• The goal of the task force is to develop an audit guide for public-private partnership (PPP) projects. The purpose of the guide is to provide a tool for auditors and financial managers’ use in the stewardship and oversight of PPP projects, throughout a project’s life cycle. The guide is not intended to provide a comprehensive, detailed, auditing procedures manual.

Task Force Members

• Judson Brown – Virginia DOT• Karen Grosskopf – Federal Highway Administration• Daniel S. Hixson – Florida DOT• Andy Jackson – Indiana DOT• Jerry J. Jones – Michigan DOT• Raymond Martinez – Texas DOT• Lamar McDavid – Alabama DOT• Brian McInnis – Arizona DOT• Marnie Parry – Florida DOT• Paula Rivera – California DOT• Owen Whitworth – Texas DOT

* For contact information please see page 52 of the draft Audit guide.

Definitions

Public-Private PartnershipA public-Private Partnership is a contractual agreement between public and private sector partners that allows more private sector participation and/or ownership than traditional methods of procurement. PPP agreements define an expansive set of relationships from relatively simple contracts to very complicated and technical contracts.

Audit StewardshipAudit Stewardship includes audit practices before contract initiation, including how financial evaluations are made to obtain the best outcome for the funds invested, how the government can receive the best value for the public, whether the proposing company has the resources to perform the project, evaluation of proposal costs, the sale and valuation of State assets, and audit reporting methods used to advise agencies on the mitigation of risk in the event of project difficulties.

Audit OversightAudit Oversight includes audit practices during contract and post-contract periods involving the evaluation of work performed, use of project costing standards, distribution of profits from concessions, compliance with contract provisions, and an evaluation of overall price and quality of services received.

*Citation: Pages 5, 7, and 8, FHWA (March 2007) “Audit Stewardship and Oversight of Large and Innovatively Funded Projects in Europe.”

Do You Have PPP Projects?

Types of PPP Projects

Citation: Page 4, Guidebook on Promoting Good Governance in Public-Private Partnerships, 2008 Publication. Retrieved July, 8, 2008.

PPP Project Life-Cycle

Citation: Page 76, Guidelines for Successful Public-Private Partnerships, March 2003 Publication. Retrieved July, 8, 2008.

Contents of the PPP Audit Guide

PPP Audit Guide Format

Chapter Highlights

ENABLING LEGISLATIONThe enabling legislation underlying Public Private Partnerships plays a crucial role in the success or failure of PPP projects. If the enabling legislation is too restrictive or limiting, the public agency may be less likely to attract private participation in PPP projects, or may incur additional costs. If the enabling legislation is unconstrained, the public agency may give up too much, and the ownership rights in the infrastructure may be undermined.

PLANS, GOALS, AND OBJECTIVESThe public agency’s goals and objectives are essential elements to the successful delivery of the public agency’s overall program. Likewise, the successful completion of individual public, private, partnership projects requires that the plan, goals, and objectives of the PPP project are clearly set forth and aligned with the public agency’s overall program.

OVERSIGHT AND ADMINISTRATIONThe oversight and administration of the Public Private Partnership program involves the management and control over all phases of the program from the initiation of the program through the operation and maintenance of a specific project. The establishment of this structure is critical to the success of the program.

Chapter Highlights

SPECIFICATIONSSpecifications for a PPP program involve the strategy and requirements for selecting a private partner for a specific project. This preparation is critical for the successful procurement of a partner.

PROCUREMENTProcurement for a PPP project includes the preparation of the solicitation as well as the effective

management of the procurement process. The quality and completeness of the solicitation are

critical to a successful procurement.

SELECTION AND NEGOTIATIONSelection and negotiation is one of the most important phases in any Public Private Partnership. Finding the right partner is critical to the success of the Public Private Partnership.

Chapter Highlights

CONTRACT DEVELOPMENTThe contract development phase of a PPP plays a pivotal role to ensuring a successful partnership. Departments should assess whether the contract has adequate incentives, remedies, and safeguards to provide a high level of confidence that the service will be delivered satisfactorily throughout the life of the contract. A well-developed PPP contract should satisfy public agency concerns regarding the: adequacy of the arrangements to manage the contract; incentives provided by contractual sanctions and bonuses are appropriate and reasonable; arrangements for compensation for poor performance are appropriate; termination or hand-over arrangements are well-defined; and the contract contains appropriate provisions for dealing with change requirements.

IMPLEMENTATIONIn this phase of the PPP life-cycle the focus is on ensuring that the delivery of the asset is proceeding as planned and may extend throughout the remaining life of the PPP.

OPERATIONPublic Private Partnerships as merely a financing instrument, leads to poor operational

focus. Careful attention must be given to the terms and conditions of the contract affecting operations and maintenance. The focus during the operational period is to monitor the public sector’s performance, identify risk resulting from changing circumstances, update procedures or contract provisions to mitigate risks, and maintain a balance between cost, quality and flexibility. During this period, it is also important to keep the quality of service received by the end user in mind.

Chapter Highlights

MAINTENANCEThe Public sector is normally responsible for maintaining the asset with the main objectives of maximizing safety, reliability and availability.

COMPLETIONCompletion in a PPP life cycle focuses on ensuring the public agency has planned and provided for an

Effective and efficient conclusion to a PPP project.

Contract Format

PPP Audit Guide

The Next Steps