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Comments on Virginia P3 Risk Management Guidelines

ARTBA offers support for Virginia P3 Risk Management Guidelines, urges broader discussion of risk-based issues.

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Comments on Virginia P3 Risk Management Guidelines

  1. 1. April 30, 2015 Ms. Alexandra Lauzon Office of Transportation Public Private Partnerships 600 E. Main Street Suite 2120 Richmond, VA 23219 Re: P3 Risk Management Guidelines The American Road & Transportation Builders Association (ARTBA) offers these initial comments on the Virginia Office of Public Private Partnerships’ (VAP3) draft update to the Public Private Partnerships (P3) Risk Management Guidelines (Draft Update). Founded in 1902, ARTBA’s membership includes private and public sector members that are involved in the planning, designing, construction and maintenance of the nation’s roadways, bridges, ports, airports and transit systems. Our industry generates more than $380 billion annually in U.S. economic activity and sustains more than 3.3 million American jobs. ARTBA maintains ongoing and thorough involvement in federal legislative, policy, regulatory and legal developments relating to transportation infrastructure development and investment. This includes P3s in transportation, with which ARTBA has a long history. Our P3 Division dates back more than 25 years and includes prominent concessionaires, planning and design firms, contractors, law firms, financial entities and other experienced parties in the P3 field. Through the reauthorization processes which have produced a series of federal surface transportation bills in recent decades, ARTBA has advocated for provisions that have helped make P3s a viable option for the financing and delivery of transportation improvement projects in appropriate circumstances around the country. ARTBA appreciates Virginia’s longtime leadership in P3 project delivery. Last year, ARTBA was pleased to offer comments on the updates to VAP3’s P3 implementation manual. ARTBA is similarly encouraged that VAP3 has continued to strive for meaningful public involvement by continuing to solicit input for the Draft Update. Given that P3-related developments in Virginia can carry national implications, ARTBA – an association national in scope – carefully follows these activities and engages in the commonwealth’s policy discussion on occasion. In fact, ARTBA helped to defend Virginia’s P3 enabling legislation in court by submitting an amicus brief in the Elizabeth River Crossings OPCO, LLC v. Meeks litigation. We are pleased to participate in the current comment process as well. Overall, ARTBA supports the proposed Draft Update and appreciates VAP3’s proactive approach to risk decisions. We offer the following comments in hopes of improving further on what has been proposed.
  2. 2. 2 In general, we find this document to be well thought out and an excellent framework for risk- related decision making on P3 projects. National implementation of processes like this would go a long way towards ensuring that the risk profile of major projects are carefully balanced to provide owners with the most efficient risk allocation. Also on a general level, we believe the Draft Update should more fully detail as much as possible the range of individuals making up the risk assessment team. We believe it is the intent of the VAP3 office to include extensive engagement in the risk assessment process by key individuals involved in all phases of the transportation project as well as representatives from all of the different divisions of the Virginia Department of Transportation (VDOT), including right-of way, planning, permitting, utilities, operations & maintenance, etc. The Draft Update could be clarified in this regard. We did note that in the Draft Update, the “Agency designated project manager” did not appear to be engaged in the pre-procurement and/or procurement stages of the risk assessment[s]. Specifically, Page 23 of the Draft Update reads: The VAP3 project manager is responsible for ensuring that the Risk Register is up to date and is suitable for use by the implementation team. It is recommended that the implementation team appoint a risk manager before commercial close in order to provide this person with an opportunity to work with the procurement team on the handover of the Risk Register and Risk Management Plan. As it is written, we are led to believe that this individual is simply given the results of the risk analysis for them to consider when implementing the project. We strongly believe that this person should be engaged throughout project development and delivery. Consideration of design and construction risks and other related implementation issues very likely are key project delivery drivers and this input from knowledgeable individuals is critical in the pre- implementation phases to ensure project success. With this in mind, though, it is also important to concentrate authority for advancement amongst a select group of knowledgeable individuals. A complete and thorough discussion of risk should not become a handicap to project advancement by bogging the process down due to “risk anxiety” by individual project team members. Additional parties to the process should not dilute the decision-making process. Further, advisors to the process should be involved prior to the procurement phase, such as legal, technical and procurement advisors. Advisors who are brought in should have significant prior experience with P3 projects. This will help to make the discussion as complete as possible. In discussing risk, it is also important that all key risks are identified, including those that are outside the control of the VAP3 or the agency. While some of these may not be easily quantifiable, every effort should be made to at least increase awareness of these sorts of risks in order to factor them into an overall risk assessment. Examples of such risks could include, but are not limited to, possible changes in state administrations, events which could influence public opinion towards a project, and/or possible opportunities for litigation by outside groups opposed to a project.
  3. 3. 3 ARTBA also offers comments on the following sections of the Draft Update: Section 1.5 Capture and Feedback Lessons Learned It is very important when making project decisions that these decisions are based, as much as possible, on substantive historical details that provide fair and accurate comparisons. Programmatic and corridor-specific construction and asset management cost and performance data are key elements in assessing the true risks of any related venture. ARTBA recommends this section include language describing the need to track all reasonable costs for work performed by each affected agency that can be the basis for these comparisons. Table 2.3 Typical Risk Allocations for a Highway Project ARTBA asks that this table be viewed as a “starting point,” and therefore noted as such, as opposed to a definitive guide to risk allocation by delivery model. In looking at risk allocation, attention clearly should be paid to project specifics, not a generic table. For example, the table lists construction as allocated to the private sector under all delivery models. Construction risk in each of these procurement alternatives is, in reality, shared by both the public and private sectors. What differentiates each from the other in this regard is the shifting of the risk profile from more of a public apportionment in the design-bid-build method to a substantially more private one in the P3 scenario. Section 4.1.3 Outputs This section deals with the Risk Register. In the last part of the section, it is stated that the Risk Register can be used for “consideration of risks and potential allocations as input for forums and meetings.” ARTBA suggests more detail regarding the need for critical private sector involvement in this section. Specifically, the section should detail that the risk assessment and allocation process needs to be a very collaborative process involving pre-procurement interaction with the private sector. Further, there should also be ongoing confidential interaction with proponents during procurement. The VAP3/Agency Risk Register should then reflect the input and decisions as a result of this collaborative process. On a more general note, ARTBA urges VAP3 to consider being more descriptive of how the environmental processes (e.g. the National Environmental Policy Act (NEPA)) are included in the risk assessment procedures. It should be clearly stated that risk analysis during development of an environmental impact statement (EIS) or other environmental study process is a critical consideration. Equally as important are decisions during any phase of project development where decisions are necessary outside the control of VAP3/VDOT. Additionally, efforts should be made to reduce duplicative efforts and ensure consistency through the project development process as it relates to risk analysis. Analysis done multiple times during different processes serves no benefit. Instead, where appropriate, the results of risk analysis should be shared amongst the different processes, allowing for a reduction of delay without any sacrificing of valid information.
  4. 4. 4 Finally, ARTBA asks VAP3 to consider some form of formal risk management training once the Draft Update is complete. Formal training would allow all parties to familiarize themselves with new risk management guidelines and ensure they are implemented in a uniform manner. As a unique national federation that includes public and private sector entities in its active membership, ARTBA would be pleased to help coordinate or otherwise contribute to any such activities. Again, these comments constitute initial feedback upon review of VAP3’s current Draft Update, and in many ways suggest areas for further discussion rather than definitive opinions on the many details of that draft. We appreciate VAP3’s considering these initial views and the request for more interaction as the agency further refines the Draft Update to the existing Risk Management Guidelines. As noted previously, ARTBA and its P3 Division remain available to work with VAP3through the remainder of this process, as well as any other activities relating to Virginia’s P3 policy. Please contact ARTBA’s Vice President for Regulatory Affairs and Assistant General Counsel Nick Goldstein at any time. He can be reached at 202-289-4434 or ngoldstein@artba.org. Thank you for your consideration of these views and your leadership in P3 policy. Sincerely, T. Peter Ruane President & C.E.O.