Written By Jason Roth, Geoffrey Stenger, Mark Kortbeek, Charlene Hiller and Parker Mckibbon
On December 1, 2020, the Alberta Ministry of Infrastructure released the new Public-Private Partnership Framework and Guideline (P3 Framework) and the new Unsolicited Proposal Framework and Guideline (USP Framework), with the aim of finding alternative ways to deliver infrastructure projects, while enticing the private sector to come forward with creative financing solutions. Both the P3 Framework and USP Framework seem to indicate a heavy shift towards the usage of the public-private partnership (P3) model in Alberta on capital projects. Further, the USP framework presents a structured approach to submitting USPs for capital projects. This blog post will provide an overview of the new frameworks.
The P3 Framework is a detailed guide, designed as a tool to assist Government of Alberta public servants and elected officials with assessing potential P3 projects and delivering them in accordance with established P3 practices. The P3 Framework also expands the definition of the P3 model in Alberta, to include variations such as design-build-finance and build-operate-transfer, to help increase the usage in Alberta.
The P3 Framework applies to capital projects that meet certain conditions, such as projects that:
- require capital and/or operating financial support from the Government of Alberta;
- involve private financing;
- provide capital assets; and
- may have long term services associated with the project.
Definition of P3 Projects
The P3 Framework defines a P3 project as an infrastructure project where the proponent provides some or all of the financing for the project, designs and builds the project (at times also providing operations and maintenance) and receives payments over an extended period of time. The definition of a P3 under the P3 framework does not include design-build projects, but may include design-build-finance, build-finance, or other alternative variations of P3s, due to the inclusion of private financing within these models. This broad definition was utilized to encourage increased usage of the P3 model in Alberta, while allowing the Government of Alberta to benefit from the advantages of alternative procurement models.
The enumerated characteristics of a P3 Contract under the P3 framework include:
- provision/enhancement of capital assets/services by an operator from the private sector;
- a long term service contract between the governmental or public sector procuring party and the operator;
- monthly payments covering investment, operations, maintenance and/or services;
- integrating design, building, financing and often operations and maintenance;
- allocation of risk to the party that is best suited to manage and price the risk;
- service delivery measured against specific performance standards set out in performance/output specifications; and
- a performance-related payment mechanism.
The principles forming the P3 Framework are segregated into different sections based on the different stages of a P3 project. We provide an overview of the main sections below.
P3 Project Assessment
During the capital planning process, projects are reviewed to determine whether value could be generated using the P3 approach and projects that meet the enumerated characteristics are required to be first considered using the P3 approach. This decision will be made after evaluating the quality, cost, schedule, value and delivery consistency, set out in the Business Case that is developed in the initial planning stage of the project. The P3 approach may not be suitable for all capital projects and in those circumstances, a more traditional procurement approach (e.g., design-bid-build, construction management) will be utilized.
During the Project Assessment phase, the procurement approach and financing methods for a P3 project will be structured to provide the best Value for Money. Value for Money is determined through a net present value comparison of comparable costs and risk of a P3 project against the 'Public Sector Comparator', being the cost of the traditional procurement approach.
P3 Review and Approval
The Treasury Board and Finance and Provincial Cabinet are tasked with approving a P3 project. The Business Case will provide the parameters for delivery of the infrastructure, providing some flexibility for the Ministries to include minor adjustments. The Treasury Board will make their approval decision based on the risk profile and project cost as determined in the Business Case. Ministries are required to return to the Treasury Board when project approvals are required, or material changes, such as reallocation of a significant risk, change in ownership of the project, or changes to the construction, are made to the project. If the project is approved at this stage, the Treasury Board and Cabinet will authorize the procurement of the project.
The P3 Framework requires the Treasury Board and Cabinet to authorize the procurement of the project and execution of the Project Agreement subject to certain conditions that must be met. These include that the lowest compliant bid must be less than or equal to the cost to do the project traditionally, the book value of the lowest compliant bid plus other project costs must be equal to or less than the approved budget and that there are no significant changes to the business deal. If these conditions are met, the project can move to project execution. If the conditions are not met, the project is referred back to the Treasury Board and Cabinet.
The P3 Framework states that the procurement process must be open, competitive, timely, fair and transparent, with ideally three proponent teams shortlisted to assure sufficient competition.
The Project Agreement should reflect the risk allocation set out in the Business Case, with certain amendments to reflect agreed-upon changes arising during the procurement process. Risks are assigned in the Project Agreement to the parties best able to manage them. Finally, specifications are structured so that the successful proponent has flexibility in determining how the specifications will be met, while still providing the required deliverables.
If the evaluation method includes a price-based approach, the P3 Framework states that the compliant bidders submitting the lowest bid on a net present value basis, shall be the preferred proponent. Under a value-based approach, the P3 Framework states that the compliant bidder scoring the highest score based on solutions and pricing will be the preferred proponent. Once a proponent is selected, the P3 project will shift to execution of the Project Agreement and Financial Close.
In June 2019, the Public-Private Partnerships Office (P3O) was established as the P3 arm of the Ministry of Infrastructure. The P3O is the central authority for P3s in Alberta, it reports to the Minister of Infrastructure and is responsible for the overall P3 portfolio within Alberta. The P3O is also the 'Centre of Excellence' for P3 delivery in Alberta, being one of the main parties involved in the development of the P3 Framework. The framework states that the P3O should be consulted when any interpretation or direction is required for the P3 Framework or P3 projects.
Unsolicited Proposal Framework
The USP Framework is another new detailed guide aimed at encouraging private sector involvement in infrastructure delivery, while ensuring that projects initiated as USPs follow a similar process as P3 projects that are initiated publicly.
The USP Framework defines a USP as a proposal for a project submitted by a private entity without an explicit request from the Government of Alberta. A USP shall not involve a project that has been approved under the governmental capital plan, is already under procurement, or has been substantially developed for procurement by the Government of Alberta.
Principles of Review
In the initial review of a USP, the Government of Alberta will focus on whether the USP meets key principles including:
- whether the USP project conforms with one or more public needs and whether it is in the public interest;
- whether the project provides value for money;
- whether the project is affordable for the government, based on direct or indirect government support;
- whether contracts resulting from the USP reflect market prices, reasonable private sector returns and include appropriate risk allocation; and
- transparency and accountability.
Submission of a USP
In the submission of a USP, proponents are required to submit certain information on the potential project and themselves, as the proponent for the project. This includes:
- a description of the proposed project, a preliminary assessment of the public need for the project, a description of the environmental and social features of the project and a preliminary assessment of economic feasibility or a cost-benefit analysis;
- a preliminary technical description of the proposed project, a preliminary assessment of financial feasibility and a preliminary service and operating plan;
- a preliminary assessment of project risks and proposed risk allocation and a preliminary assessment of competitive or negotiated P3 suitability;
- a description of the type and range of governmental support required; and
- reports on the project demonstrating the capability and capacity of the proponent to develop the project such as design and feasibility studies, economic studies, and/or legal studies.
If a proponent proceeds to the Stage 3 - Project Development phase, they will be required to pay a non-refundable review fee of $20,000.
The USP will then be evaluated based on certain criteria detailed in the USP Framework. The criteria includes: public interest criteria determining if a USP advances the public interest and is aligned with infrastructure priorities; project feasibility criteria evaluating a project's technical, financial, economic, environmental and social feasibility; P3 suitability criteria assessing whether a project will be suitable for development, looking at factors such as risk allocation; and affordability assessing the project's implications for government support.
If a project is approved after the evaluation stage, it will then shift to the project development and procurement stages, where it will undergo further evaluation and may ultimately result in the signing of the Project Agreement or abandonment of the project.
The Ministry of Infrastructure is emphasizing their commitment to new and innovative methods of delivering infrastructure, while trying to minimize risk through the announcement of the new frameworks. The P3 Framework and USP Framework present opportunities for members of the infrastructure industry such as contractors, designers, financiers, and lenders. Understanding these processes will provide entities wishing to participate in future infrastructure projects that fall within these frameworks a competitive advantage.
Notably, the USP Framework also presents an opportunity for proponents such as Indigenous groups to submit USPs for infrastructure needed in Indigenous or rural communities. USPs involving water, broadband and social infrastructure projects would be in line with the Government of Alberta and Government of Canada's recent infrastructure investments and commitments.
Our Capital Projects team has extensive experience in Public Infrastructure Projects, Construction, Infrastructure & Project Development, Project Finance and Aboriginal Law. If you have questions about the P3 Framework or USP Framework, or about a potential project, please contact a member of our team.
Please note that this publication presents an overview of notable legal trends and related updates. It is intended for informational purposes and not as a replacement for detailed legal advice. If you need guidance tailored to your specific circumstances, please contact one of the authors to explore how we can help you navigate your legal needs.
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