The Procurement Process P3 Contract Administration · o Contract terms and conditions Technical Provisions o Project-specific scope and technical requirements (performance-based specifications)

P3BOOTCAMP THE PREMIER P3 TRAINING COURSE

The Procurement Process & P3 Contract Administration Parts 1 & 2 Frank Bigelis Of Counsel, K&L Gates LLP

John Muñoz Vice President, CDM Smith Inc.


All About Achieving Best Value

• In a P3, the parties negotiate to get best value for both • Focus on performance • Priceable risks, allocated to the party best positioned to manage them • Reliable payment stream • Reduced political volatility • Financial incentives (but not at the expense of performance)

Public Agency Owner is used to: • Focus on quality • No risk • Specificity (prescriptive specifications) • Low bid

Private Sector wants: • Payment certainty, “good faith and credit” • Capped risks • Transparency • Public buy-in, political front-end approval


Overview of P3 Procurement Processes A few words about what you’re getting into Pre-Procurement

o Request for information (RFI) o Industry forum

Request for qualifications (RFQ) o First of two-step procurement process

Shortlisting Request for proposals

o Second of two-step procurement process Evaluation and selection Limited negotiation Commercial close Financial close ALL PHASES involve fairness monitoring (formally or informally)


P3 Procurements are not Typical Procurements

Before thinking great thoughts, read the statute! o Consider applicability of general contract code provisions to the P3

P3 procurements usually carried out by agency staff (P3 office?), and not (effectively) by agency’s procurement staff

P3 procurements are interactive. Prepare a detailed roadmap; be 2 steps ahead in

your planning o This includes consideration of any contestable period for NEPA decisions.


Preparation, Timeliness are Front-End Efforts Orchestration of parallel pre-development paths is vital:

o Environmental process (permitting especially) Best value = NEPA clearance before proposals due (ideally earlier) Proposers can price in NEPA obligations/requirements Procurements can proceed pre-NEPA approval, but see below

o Third party stakeholder preparation, agreements o Realistic real property acquisition schedule o Borings, etc. – more unknowns = more time, more contingency

pricing, more negotiation Prepare for (some) P3 market-driven

opening positions; save pain and time o Equity/Lenders will RARELY take on environmental approval risk o Pass through of mitigation measures to the private sector o How much is the permit dependent on final design?

No deal is ENTIRELY free from protest


The RFI, RFQ and RFP Processes Designing an interactive procurement process


The Request for Information Request for information / request for expression of interest

o Purpose Disseminate project information and plans

permits

Generate industry buzz Propound questions on key issues to get industry views Market sounding - identify industry interest, proposer teams, strength of

competition

o Process Informal Procurement rules don’t apply Contacts less structured Responses generally subject to public disclosure Couple with industry forum Invite/schedule reservations for individual meetings


Industry Forums Purpose

o Present owner team, project, plans, procurement schedule, delivery method

o Enable teaming o Receive input

Structure o Group presentation o Closed-door, individual meetings with key players to foster frank

communications

Post-forum processing of information


The Request for Qualifications Purpose – create a “shortlist” of qualified teams

invited to submit proposals o Identify teams with most suitable qualifications – legal, financial,

technical o Identify teams with best understanding of project o Obtain key personnel commitments

Backward-looking Legal qualifications

o Legal organization o Teaming agreements o Professional licensing o Conflicts o Certifications re “bad acts” Debarment, integrity checks (Can.)


Pause: Transparency v. the need for confidentiality

How to deal with some state public records act requirements

Bidders expect confidentiality for certain information What to release, when to release and to whom Submissions in writing in one-on-one meetings (see later

slides)


More on the RFQ… Technical qualifications

o Sample similar projects o Success stories o Narrative of technical expertise and experience o Project management experience o History of work with team members o Safety record o Environmental record o Key personnel

Financial qualifications o Recent financial statements o Material changes in financial condition o Auditor letters o Surety and parent company letters


Evaluating Statements of Qualifications Evaluations

o Responsiveness (did the proposer follow the RFQ req’mts?) o Pass-fail (legal, financial) (does it meet required criteria?) o Constitutional duty of due process o Proper use of requests for clarifications o Scoring (technical) – identify evaluation criteria; identify relative

weighting

Fair and neutral application of evaluation criteria o Adjectival ratings; use of examples to calibrate o Documentation of process

Evaluation organization o Selection committee or official o Committees, subcommittees, advisory groups with subject

matter experts

Controls to maintain confidentiality Rooting out conflicts of interest


Selection Official o Oversees the evaluations and announces shortlist

Evaluation Committee o Qualitatively scores the SOQs and makes shortlist

recommendation

Legal / Admin Team o Conducts responsiveness and pass / fail reviews

o Converts qualitative ratings to numerical scores

Technical Team o Reviews SOQs and provides written consensus findings to

the Evaluation Committee

References Team o Contacts proposers’ references

Subject Matter Teams o Provide subject matter assistance to the Evaluation Committee,

Legal / Admin Team, and Technical Team

Observers o Observe the evaluation and selection process to

ensure that the documented processes are followed

SOQ Evaluation & Selection

Selection Official

Legal / Administrative Team Technical Team

Evaluation Committee

References Team

Subject Matter Teams Subject Matter Teams

Observers


Evaluation of the SOQs. Flow chart of SOQ evaluation process * Given as a sign of the process; similar, slightly more complex projects attend the RFP


Shortlisting: How many are ideal? No. % chance

to win Pros Cons

5 20% Most competitors; large cushion against withdrawals

High risk of withdrawal; lowest probably investment in proposal; highest demand on procurement resources; longest procurement schedule; most challenging to handle, reconcile proposer comments/requests

4 25% Healthy number of competitors; good cushion against withdrawals; strong competitive pressure; fairly good participation by proposers

Moderate risk of withdrawal; at least one proposer is often non-responsive; fairly high demand on procurement resources; risk of extending procurement schedule; can be difficult to reconcile proposer comments/requests

3 33% Reasonable number of competitors; strong participation by all proposers; fairly low risk of withdrawal; manageable procurement schedule & resources

Risk to healthy competition if withdrawal occurs; less owner leverage deciding business issues

2 50% Most manageable procurement schedule & resources; fewest proposer comments/requests to resolve

Loss of competition, procurement cancellation upon a withdrawal; little owner leverage in deciding business issues


The Request for Proposals Industry review draft RFP

o Draft documents* (U.S., not Can.) o Vetting process with shortlisted proposers

Official (or “Final”) RFP o Purpose

Obtain detailed technical, price and financial proposals

Set forth complete terms of contract documents Facilitate intensive pre-proposal interaction

o Forward-looking o Content

Instructions to proposers – project description, schedule, rules, proposal requirements, alternative concepts process, evaluation process and criteria

Public funding amounts, sources, availability

Contract terms and conditions

Technical requirements, including project scope


Instructions to Proposers (ITP) o Project description, schedule, rules, proposal

requirements, alternative technical concept (ATC) process, evaluation and selection process and criteria, etc.

P3 Agreement o Contract terms and conditions

Technical Provisions o Project-specific scope and technical requirements

(performance-based specifications)

Other available documents (not part of contract documents) o Reference documents (or Reference Information

Documents (RIDs)) – design drawings, reports, etc., made available to all proposers for information only

The RFP Documents


Pause: Developing the Technical Provisions Critical part of the RFP and a “contract document”

versus a RID Time well spent to have your lawyers review Performance Based (outcomes) vs Prescriptive

(means and methods) Role of the Standard

Specs Avoid the passive voice Approve v.

review and comment


“Competitive hard bid” proposal requirements - technical

o Schematic designs o Technical approach narrative o Design/construction

management approach o Quality management

approach/preliminary plan o Preliminary project schedule o Quality management

approach/preliminary plan o Maintenance management

approach/preliminary plan o Operations management

approach/preliminary plan o Environmental management

approach/preliminary plan

“Competitive hard bid” proposal requirements - financial (if “F” P3)

o Proposal security

o Base case financial model and modeling data

o Detailed pricing documents

o Detailed project financing plan

o Committed pricing and financing

o Lender and underwriter commitments

o Equity commitments

o Benchmark interest rates approved by owner

Confidentiality!

The RFI, RFQ and RFP Processes


The RFI, RFQ and RFP Processes

“Competitive hard bid” proposal requirements – legal/organizational o Firm offer – proposal letter

o Team organization and governance documents

o Licenses to do business

o “Bad acts” certificates

o Update financial statements

o Updated safety records

o Conflicts of interest certification

o Insurance letter


One-on-One Meetings Interactive procurement processes = “one-on-one’s” Separate meetings with each proposer during course of procurement Meetings can be general or topical (e.g., alternative technical concepts) “same for everyone” (duration, randomized assignments); same

disclosures Structure to assure frank, confidential discussion of issues, and

competitive fairness o Give proposers same meeting durations o Treat each proposer the same in disclosing project information o Keep confidential specific proposer concepts and ideas o Require signed confidentiality agreement to attend o Discussions and statements in meetings not binding

Avoid coaching! Confidential Discussions/Q&A (sign NDAs) NOT binding


Alternative Concepts (usually ATCs) Prior to proposal due date, bidders propose modifications to

technical requirements to improve quality and reduce project costs o Preliminary ATCs o Fully-developed ATCs

Owner has option to: o Allow integration into technical proposal and bid pricing o Allow subject to conditions and limitations o Reject and modify technical requirements to allow concept o Reject

Confidential, unless concept already developed by owner ATCs must be “equal to or better than” original requirements, not

merely scope reduction Post mortem analyses show ATC process saves anywhere from

5% to 40% off engineer’s estimates without scope changes or a quality reduction

AFCs? Lawyers’ role!


ATC Review Panel o Evaluates ATCs and makes approval / rejection determination

Technical Support o Includes individuals with technical expertise who may be called

upon by the ATC Review Panel to provide assistance in evaluating ATCs

Observers o Observe the evaluation and selection process to ensure that the

documented processes are followed

ATC Evaluations

ATC Review Panel

Observers

Technical Support


ATC Process

Formal ATC Submittal Received

Formal ATC Submittal Is Logged In

ATC Review Panel (Panel) evaluates the

ATC

Owner Representative notifies the Proposer

of the deficiency / information request

The Proposer submits the requested

information

Any clarifications or information

needed ?

Is ATC Submittal complete?

The Owner Representative issues a written response to the

Proposer

Owner Representative notifies the Proposer

of the deficiency / information request

The Proposer submits the requested

information

No

Yes

Yes

No

ATC Review Panel approves/rejects ATC and notifies the

designated Owner Representative


Post-Final RFP Q&A Interactive procurement processes Proposers comment/post questions, and owner responds…to all

o During industry review period

o During official RFP period

o Confidential vs. non-confidential comments/questions and responses

o Limits on amount

o Prioritizing comments/questions

o Form of response

o Effect on contract documents Only official addenda to the RFP

documents can modify them (to include the draft contract documents)


Proposal Evaluations Thinks SOQ Evaluations as a start. Cardinal rule: Isolate technical evaluators from pricing information

until technical scoring completed, to eliminate potential for bias o Separate committees, advisory groups o Separate sealed packaging of pricing information o Delay opening pricing information until technical evaluation done

Evaluations o Constitutional duty of due process o Proper use of requests for clarifications o Responsiveness o Pass-fail (legal/organizational, financing plan) o Scoring (technical) – identify evaluation criteria; identify relative weighting o Fair and neutral application of evaluation criteria o Adjectival ratings; use of examples to calibrate o Documentation of process

Specific cases (e.g., DBO, DBOM – equalization of elements + lifecycle)


Stipends; Payments for Work Product Fundamentally: consideration for intellectual property

(see ATCs) Demonstrates the Agency’s commitment to the

procurement Payments to responsive, unsuccessful proposers to

partially recoup costs of preparing proposals o and if the Agency cancels the procurement

Promote competition and improved proposal quality Promote better pricing by funding more design

development, allowing more accurate costing and reduced pricing contingencies

Authorized by FHWA design-build rule and most P3 statutes o Size “based on your analysis of the estimated proposal

development costs and the anticipated degree of competition during the procurement process”

o Eligible for federal aid under Title 23 Not in every State/jurisdiction…, and if it is, be

authorized before issuing final RFP!


More on Stipends Costs to respond to P3 RFPs range from $4 - $10 million Stipends generally range from 25% to 50% of estimated proposal costs

Partial stipends upon procurement cancellation Pre-proposal stipend agreements Exchange for work product, intellectual property rights, waiver of protest

o If a federal-aid project, proposer must have right to accept or decline

Pre-proposal stipend agreements Payment only after contract award

Stipend Data (2012)

Project Cost (in $M)

Stipend as % of Contract Blended Average

National Average $100-$250 0.48% Average stipend amount hovers around 0.25%

National Average $250-$500 0.44% National Average $500-$1,000 0.23% National Average $1,000+ 0.15%


Another Procurement Strategy Best development and finance plan procurement

o Call for projects or pre-development agreement (PDA) P3 procurements

o RFP requires: Conceptual plans to develop,

manage, finance project not yet fully defined Qualifications to achieve project success Degree of sweat equity and capital commitment

to pre-feasibility phase o Award based on best concepts, qualifications and cost-sharing o RFP may set forth initial form of PDA o PDA will grant developer a first right of negotiation of

subsequent implementation agreement o Implementation agreement may be any kind of project delivery,

from DB to DBFOM


Best Development/Finance Procurement, cont’d Results in sole source negotiation of implementation

agreement Price and terms

o Likely less favorable to owner if same project were competitively procured

o If Title 23 project, price reasonableness must be established. Open book cost exercise.

o Project that emerges from pre-development process likely is a different project than one conceived solely by owner

PDA experience is that owner does not cease negotiations and revert to competitive procurement o Momentum o Investment in relationship o Loss of time o Re-procurement costs


Negotiating the P3 Agreement

“You have your way. I have my way. As for the right way, the correct way, and the only way, it does not exist.” ~ Friedrich Neitzsche


All About Achieving Best Value (reprised: “what owners, concessionaires care about”)

• In a P3, the parties negotiate to get best value for both • Focus on performance • Priceable risks, allocated to the party best positioned to manage them • Reliable payment stream • Reduced political volatility • Financial incentives (but not at the expense of performance)

Public Agency Owner is used to: • Focus on quality • No risk • Specificity (prescriptive specifications) • Low bid

Private Sector wants: • Payment certainty, “good faith and credit” • Capped risks • Transparency • Public buy-in, political front-end approval


Pause: the big picture end of negotiation A session (conference?) unto itself. Be Flexible—Focus on goals/outcomes Give bidders the opportunity to highlight their strengths Encourage innovation in financing structures Lenders (and Uncle Sam) occupy the third (and fourth?) seats at the

table. The market may be the fifth


Negotiating the P3 Agreement Precedent matters. Particularly if financed. Mechanisms to ensure private sector properly incentivized to

consider proper O&M, lifecycle costs over lifetime o “noncompliance” regime o Independent engineer o Incremental cure rights; lender rights (DBFOM) o Painshare/gainshare (energy, insurance)

What to do about bankruptcies Key differences between (robust) P3 agreements and other traditional

contracts o Payment for default o “Relief Event” and “Force Majeure” Event (and other compensable (?) events) o Handback o Financing/refinancing; lenders as “parties”; financial model; payment mechanism o (again) Performance specification o Disputes in P3 marriages


Negotiating the P3 Agreement

Scope of post-selection negotiations is limited o Identifying and incorporating proposal commitments o Incorporating design and other concepts from unsuccessful

proposers (such as ATCs) and pricing impacts Use / disclosure of concepts from unsuccessful proposers may

preclude negotiations with lower ranked proposers (violation of transference principle)

o Adjustments in favor of owner for any errors or gaps in base case financial model

o Pricing adjustments due to intervening causes (such as movement in benchmark interest rates)

o Other matters at owner’s election

Post-selection negotiation period may be limited


Getting to Execution (“competitive hard bid”) RFP sets forth detailed contract documents RFP should create proposer’s duty to negotiate diligently and in

good faith Post-selection negotiations limited to:

o Identifying and incorporating proposal commitments (over and above contract requirements)

o Incorporating design and other concepts from unsuccessful proposers, including pricing impacts

o Adjustments in favor of owner for any errors or gaps in base case financial model o Pricing adjustments due to intervening causes, e.g., movement in benchmark

interest rates o Other matters at owner’s election

Use/disclosure of concepts from unsuccessful proposers may preclude negotiations with lower ranked proposers. Would violate transference principle.

Negotiating period may be limited by duration that offer is irrevocable and related proposal security

Pause: Contract Administration (the closing is just the beginning)

35 year+ relationship It’s not your contractor, it’s not your schedule Where did everyone go? Complexity of contract administration—claims, CO’s, signoff on milestone payments/availability payments Noncompliance points


Contract Administration (General) Points Fine line between “how to P3” and “how to do this

P3” and “how to administer contracts” Follow the Contract! Watch for course of dealing,

reciprocal habits (DBB, now “how it’s done”) Single point of contact = SPV Trackers, ticklers keep track of the value you’ve

captured o Developer/Concessionaire manages work they have been hired

them to do (e.g., QA and QC) o Owner manages third party-facing obligations delegated,

ensures financial reporting (federal, bonds, etc.) o Use “freed up” time to track trends (NCPs, QARs) o Manage noncompliances o Resist the urge to direct. Think in terms of

outcomes/performance (Spearin)


Top Takeaways: Front-loaded effort =

long term value-capture Think performance P3s are not free money The market matters;

“lenders” matter Risks shared P3 is a marriage Partnership Can’t “toss the keys”