the 2009 outsourcing world summit - iaop

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The 2009

Outsourcing World Summit®

“Outsourcing and Private Public Partnerships”

Jean-François Poisson, VP/GM

SNC-Lavalin [email protected]

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Copyright © 2009 JFPoisson, All rights reserved

About JF

� Joined SNC - Lavalin ProFac/Nexacor

� Implementing and managing outsourcing contracts for Bell Canada

� Part of a start up team dedicated to outsourcing management

� Graduated from Montreal Polytechnic Eng. School� Management Certificate � Certified Outsourcing Professional� IAOP Founding Member

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About SNC-Lavalin ProFac

� SNC-Lavalin (TSX: SNC) is one of the

leading groups of engineering and

construction companies in the world, a

major player in the ownership of

infrastructure and in the provision of

operations and maintenance services

� SNC-Lavalin companies have offices across Canada and in 34

other countries worldwide, working on projects in some 100

countries

� Leader in PPP world wide

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Agenda

� Understand Private Public Partnerships (PPP) or (P3)

� Analogies/Differences between outsourcing and PPP

� PPP Processes

� PPP Models

� Risk Transfer and Management

� O&M in a PPP vs outsourcing

� Some Parting Thoughts

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Understand P3

� Long term contract between the public and private sectors with or without financing from the latter to design, build, operate and manage a public asset

� Long term contract where a public entity acquires from the private sectors a public service

� A cooperative venture between the public and private sectors, built on the expertise of each partner that best meets clearly defined public objectives through the appropriate allocation and definition of results, investments, resources, risks and rewards

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Understand P3

� Private Public Partnership is certainly Outsourcing

� Outsourcing doesn’t have P3 intricacies� Most often because of the financing � More complex contract structure� Major difference in the term

� IT IS NOT PRIVATIZATION where the public sector:� Release of assets� Public sector has no control beside laws and rulings� All risks and benefits are for the private sector

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P3 Models

Spectrum of models that progressively engage the expertise or capital of the private sector

Outs BD DBO DBFO BOO BOOTO&M

Typical OutsourcingDB – Design, Build DBO – Design, Build, OperateDBFO - Design, Build, Finance, OperateBOO – Build, Own OperateBOOT – Build, Own, Operate, Transfer

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Where to find P3

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P3 RFQ/RFP Processes

1. PPP process typically could last between 12-24 months2. Request for Qualification and Inputs – Multiple bidders3. Short list – at least 3 candidates4. Request for Proposal – (Bilateral discussions between client

and all bidders about design, scope, services and even prices)

5. Technical offers deposit – (Validation, evaluation of design)6. Financial deposit7. Bidder award8. Financial plan implementation – (Bid bonds)

2 3 4 5 6 7 8

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Operational differences Outsourcing & P3

� Conventional/Outsourcing

� Short-term or no O&M contract

� Owner is coordinator of services

� Owner keeps risk or,

� Owner transfers risks to the extent it is able to

� Owner has flexibility to do what it wants� Build or not

� Change design or services

� Maintenance decision

� Replacement of the assets

� Has all decision making abilities

� P3

� Long-term contracts

� Transfer of all responsibilities to a concessionaire (JV)

� Owners risks transferred in whole or in part

� Risks packaged and transferred to various parties

� Operator performs all operating activities

� Limited flexibility on owner to make changes

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Contractual differences Outsourcing & P3

1. Once the RFP process ends, there is no more changesand one on one negotiation

2. Almost no negotiation during the term – Limited opportunities beside the ones listed in the contract

3. No further risk rebalancing after the adjudication

4. Extremely difficult to cancel and or terminate because of the financial model which includes the financing and risk transfer to the private sector

5. Potential lawsuits and litigation from the others

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Typical P3 Bidder Structure

Project Company - Project JV

Concessionaire dedicated to the project

Sole liability is in the project

ConstructionEngineering Ops and Mgmt

Subcontractors – SME - Others

Public Entity

Lenders

P3

Client

Outs.

Ops and Mgmt

Subcontractors

X

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Risk Transfer

� Objective

� Approach

� Ultimately

� Party that is most capable to evaluate, control and reduce the risk would bare it

� Typically the public sector decides the PPP model it would like to used

� Conditional to market appetite for financing the project, economy, politics, type of project

� Wrong risk transfer model make the project more expensive

� Won’t attract the best suppliers � Usually would put the project at risk

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Project Company - Project JV

Concessionaire dedicated to the project

ConstructionEngineering Ops and Mgmt

Subcontractors – SME- Others

Public Entity

All risks

Risk Allocation

Targeted risksHeads of termsBack/back contract

Lenders

Client

Risk Sharing

Risk sharing

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Risk Types

� Public

Land acquisition and purchaseLand expropriationTaxationInsuranceEnvironmentalToo difficult to assessToo expensive to finance

� Private

Operation and maintenanceCost increase for constructionCost increase for operationResource availabilityDesign performanceTechnologyProject deadlineFinancing – Interest rateInflation ( CPI-EPI)Payment start on deliverySoil managementArbitrage on material and supplyAsset life cycle

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Benefits

� Public Sector

� Infrastructure projects are expensive

� More projects could be launched at the same time

� Debt raised by the private sector

� Government to spend on social programs

� Payment stream based on 30 – 50 year payback

� Costs of construction and operation for the long-term under one entity

� Performance mechanisms which guarantee performance by the private sector partner

� Fixed fee structure - Cost certainty for public sector on an on-going basis

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� Private Sector

� Long-term contract which allow investment

� Predictable revenue stream

� Attractive large projects

� Manageable stream of risk sharing and insurable risks

� Leverage all parts of one organizationFinance, Design, Construction, O&M

Benefits

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� Participation during design and construction

� Transition agreement

� Warranties and Guaranties� Pass thru obligations� Changes during the construction that affect O&M� Sign off on changes� Due diligence with initial proposal� Commissioning� Deficiencies

� Mobilization – Phase in up to a year

� Staffing short and long term

� Complex operational and financial hand-off process with the client

O&M in a P3 vs Outsourcing

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Some Parting Thoughts

� Heads of Terms between JV & O&M - Risk allocation, transition and $

� JV structure – O&M doesn’t control all aspects of the agreement with client

� Long term - Limited upsides

� Long term - Higher risk of cost increase

� Client focus change of mindset and management style

� Major economical disruption - Economic cycle at play

� Asset transfer - Life cycle management

� Terms well beyond typical outsourcing agreements

� Successful ventures

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Thank You

the 2009 outsourcing world summit - iaop

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