This is the third in a series of three posts of a questionnaire with Min Wei, CFO of Cubic Transportation Systems, following his bylined article in Mass Transit Magazine, “What are Some Tips for Successful Public-Private Partnerships?”
Budget shortfalls, shrinking traditional funding sources, aging and under-capacity infrastructure and other challenges are leading more transit operators to form Public Private Partnerships (PPP or P3) with the private sector to achieve sustainability and growth. Here is what you should expect in a P3 and some best practices, drawn from Cubic Transportation Systems’ more than 20 years of P3 experience working with leading financial advisors and banks to construct, deliver and service some of the largest projects in the automated fare collection (AFC) industry.
1. How do Key Performance Indicators (KPIs) contribute to the success of the P3?
The result of a well-structured concession agreement with effective KPIs is an efficiently operated project with the right of the public agency to replace the concessionaire for non-performance. KPIs serve as the basis for payments and ensure the concessionaire is keenly focused on achieving those performance metrics. The concessionaire is also entering into separate contractual arrangements with lenders/vendors to provide financing and operational support, and any deficiency or non-performance will subject the concessionaire to financial penalties which may be substantial.
2. What advice, or best practices do you recommend to other agencies considering P3?
It is key to have a concessionaire who has proven delivery and operational experience in the transit sector in order to mitigate risks and ensure the success of the project. The partner must also have the financial experience needed to provide the most attractive options. The concession agreement must contain well-defined obligations for both parties, and the risk allocations should be assigned to the parties most able to cost effectively manage those risks. It is also important that the public agency recognize the requirements necessary for achieving off balance/non-recourse financing by the concessionaire.
To view the first two posts Min answered questions for, see our “What are P3s and Where do They Belong in the Transit Fare Collection Sector?” blog post and our “What are the Pros and Cons of a P3?” post.