Canada FederalP3 - UserGuide - Highlit

Identifying P3 Potential
A Guide for Federal Departments & Agencies

About PPP Canada
PPP Canada is a federal Crown Corporation mandated to improve the delivery

of public infrastructure by achieving better value, timeliness and accountability to
taxpayers, through P3s. The Corporation was created to deliver more P3s by
leveraging incentives, demonstrating success, providing expertise; and
promoting best-practices and capacity-building.
PPP Canada is the federal lead on P3 matters with a mandate to assess federal
public-private partnership opportunities; advise on the execution of federal
public-private partnership projects; and, more generally, serve as a source of
expertise and advice on public-private partnership matters.
PPP Canada’s mandate also includes delivery of the P3 Canada Fund, which
supports the use of the P3s in the provincial, territorial, municipal, and First
Nations contexts.
If you have any P3-related questions, feel free to contact us. We are here to
help.
p3canada.ca
i Identifying P3 Potential
TABLE OF CONTENTS
Table of Contents............................................................................................................................................. ii
Introduction ..................................................................................................................................................... 1
Purpose ...................................................................................................................................................... 1
Document Overview ................................................................................................................................... 1
P3 Primer ........................................................................................................................................................ 3
P3: A Definition for the Federal Context ..................................................................................................... 3
What Is Not A P3 ........................................................................................................................................ 3
What Does a P3 Look Like? ....................................................................................................................... 3
P3 Myths..................................................................................................................................................... 4
How P3s Generate Value For Canadians ................................................................................................... 7
P3 Delivery Models & Their Benefits .......................................................................................................... 8
Costs of P3s ............................................................................................................................................... 9
Identifying P3 Potential: When & How .......................................................................................................... 11
The Screening Matrix ............................................................................................................................... 12
How to Approach the Screening Matrix .................................................................................................... 12
Application of the Screening Criteria ........................................................................................................ 12
Criterion #1: Project Size ..................................................................................................................... 12
Criterion #2: Private Sector Expertise .................................................................................................. 13
Criterion #3: Market Precedents........................................................................................................... 14
Criterion #4: Type of Infrastructure site ............................................................................................... 14
Criterion #5: Scope for Private Sector Innovation Gains ...................................................................... 15
Criterion #6: Security Requirements .................................................................................................... 16
Criterion #7: Potential for Contract Integration ..................................................................................... 16
Criterion #8: Asset Life ......................................................................................................................... 17
Criterion #9: Asset Complexity ............................................................................................................. 17
Criterion #10: Output and Performance Specifications ........................................................................ 18
Criterion #11: Operational & Maintenance Requirements .................................................................... 18
Criterion #12: Performance Specifications & Indicators ....................................................................... 19
Criterion #13: Life-Cycle Costs............................................................................................................. 20
Criterion #14: Revenue Generation...................................................................................................... 20
Interpreting the Results............................................................................................................................. 21
Conclusion & Next Steps .............................................................................................................................. 22
Identifying P3 Potential ii
INTRODUCTION
Public-private partnerships (P3s) have demonstrated their ability to produce value for taxpayers in the
delivery of public infrastructure. By partnering with the private sector to manage many of the risks
associated with the construction, financing and operation of infrastructure projects, governments can build
public infrastructure faster and at a lower cost to taxpayers.
In Budget 2011, the Government of Canada announced that federal departments are now required to
evaluate the potential for using a P3 for large federal capital projects. All infrastructure projects creating an
asset with a lifespan of at least 20 years, and having capital costs of $100 million or more, will be subjected
to a P3 screen to determine whether the P3 approach may be a suitable delivery option. Should the
assessment conclude that there is P3 potential; the procuring department will be required to develop a P3
proposal among possible procurement options.
In addition to these specific thresholds, the Government encouraged departments to explore the potential of
P3 approaches for other types of projects and procurements of services.
Purpose
This document is meant to assist federal organizations in complying with this new P3 screening requirement
by providing a consistent and systematic approach for assessing the P3 suitability of capital projects. An
equally important objective of this document is to support the efficient use of analytical resources by
ensuring that projects with limited P3 suitability do not undergo P3 analysis.
PPP Canada is the focal point for P3 expertise within the Government of Canada. PPP Canada’s in-house
expertise and access to external partners can directly supplement the capacity of federal departments and
agencies as they consider the P3 suitability of specific projects or all projects contained in a departmental
investment plan. For these reasons, departments are required to consult PPP Canada when undertaking
screening activities.
PPP Canada is also open to responding to any general P3 related questions. Contact us anytime; we are
looking forward to working with you.
Document Overview
Assessing any capital project’s P3 suitability presupposes an understanding of P3s in general and more
specifically, P3s in the context of the Government of Canada. As such this guide begins with a section
dedicated to providing to some foundational knowledge on the P3 approach to infrastructure delivery,
including:
o a definition of what constitutes a P3 in the federal context;

o core P3 concepts;
o benefits, costs, and myths associated with P3s;
o P3 decision-support tools; and
o P3 resources for federal organizations.
1 Identifying P3 Potential
In the next section, the focus shifts to the actual P3 suitability assessment process. Here, we begin with an
overview of the entire procurement options analysis process in order to provide the reader with a sense of
where one would apply this suitability assessment tool as well as what the tool’s output means with respect
to the rest of the procurement options analysis process. In this section, we will address common questions
such as whether a positive P3 suitability finding means a project will be required to be pursued as a P3.
From there, we will discuss the specific criteria that will be used to conduct the suitability assessment,
examples of which include:
o project size;
o private sector capacity and the potential for competition;
o market precedence; and
o project complexity.
We will also discuss how this suitability assessment tool calculates its output and provide guidance on how
to put that output into context before advising on next steps once the assessment is complete.
The P3 screening tool has been designed to be useable by all federal departments and agencies, even
those with limited P3 experience and expertise. However, screening outcomes can be expected to be more
accurate when greater P3 expertise is brought to bear. As such, departments and agencies are required to
contact PPP Canada for direct support and advice as they undertake the screening of their capital projects.
PPP Canada is available to support federal organizations in assessing the P3 suitability of specific projects
or all projects contained in a departmental investment plan.
Identifying P3 Potential 2
P3 PRIMER
Before we can begin to determine whether a given project has the potential to be a successful P3, we must
first understand what constitutes a P3 and get a sense of how P3s generate value for citizens. The following
section does all of this while providing the reader with a basic understanding of some core P3 concepts.
P3: A Definition for the Federal Context

There are many definitions of what constitutes a P3 and nearly as many alternative terms used to refer to
the P3 concept. For the purposes of the Government of Canada, a P3 is defined as a long-term contractual
relationship between a public authority and the private sector that involves:
o the provision of capital assets and associated services to meet a defined output specification (i.e.,
define what is required rather than how it is to be done);
o the integration of multiple project phases (e.g., design, build, finance, operate and maintain);
o a transfer of risk to the private sector anchored with private sector capital at risk; and
o a performance-based payment mechanism.
Outside of the federal government, there is a broad spectrum of definitions used by organizations. At one
end of the spectrum is the Canadian Council for Public Private Partnerships’ definition, which encompasses
traditional outsourcing arrangements. At the other end of the spectrum is the more exclusionary view that
only the most advanced of the P3 models that will be discussed below, the DBFOM (Design-Build-Finance-
Operate-Maintain), is a true P3. In other contexts, the term P3 has come to be associated with the
privatization of public services. While these different views can be attributed to a number of factors, in our
federal context, we will focus on those facets of P3s that are critical to generating value for Canadians.
What Is Not A P3
Given this definition, the following types of contractual arrangements ARE NOT examples of P3
arrangements:
o privatization;
o joint ventures with the private sector;
o co-ownership with another public sector body;
o arrangements for the divestiture of federal assets where the private partner will become the new
owner;
o service only arrangements;
o design-build contracts;
o sale-lease-back contracts; and
o lease-purchase contracts.
What Does a P3 Look Like?

In general, P3s involve a purpose-built corporate legal and economic entity (e.g., a special purpose vehicle)
often referred to as Project Company (Project Co.) created for a specific project. Project Co. is comprised
of a consortium of firms with specific expertise relevant to the project, typically a constructor, an operator,
or maintenance provider and an equity provider. Project Co. would have agreements with lenders that
govern its financing and with the Public Authority sponsoring the project. These relationships are depicted
in the figure below.
Typical P3 Structure
Lenders Direct Agreement Owner Financial, Legal &

(Government) Technical
Advisors
Owner’s Team
Lender
Project Agreement
Project Co. Equity

Financial, Legal &
Technical
Advisors
Operating Period
Management
Design & Construct Contract O&M Contract
Construction Sub-
Design Sub-Contracts O&M Sub-Contracts
Contracts
While Project Co. is comprised of a number of firms, the public sector would have only one agreement with
Project Co. This contract is known as the Project Agreement and will be discussed later.
P3 Myths
Given the broad range of how P3s have been interpreted and applied around the globe, it is not surprising
that some P3 myths have emerged. Below, we address some of the big ones and how they relate to the
federal context.
Public Private Partnerships mean privatization of public infrastructure
Privatization implies full or partial private ownership of an asset; however, in the Canadian context, P3s use
a project agreement structure where ownership of the infrastructure remains with the government and the
operations and maintenance of the infrastructure asset reverts to the government at the term of the contract.
The government retains full control of the outcomes of the project.
P3s Cost More
The cost of private sector financing will normally mean that the cost of the P3 option will exceed the cost of
delivering the project in the traditional manner. However, a fair comparison of P3 costs vs. traditional costs
also requires consideration of the risk transfers that are anchored by that private sector financing. This risk-
adjusted comparison (where the costs are adjusted to reflect the value of the risks associated with the
project/asset) is a more accurate and appropriate basis for comparing the two options. When this is done for
projects that are well suited to P3 delivery, the positive value of the risk transfers normally exceeds the
negative financing costs. Not all projects are well suited to P3 delivery.
P3s Make Taxpayers Accountable for Private Sector Mistakes
As noted above, the public sector’s payment obligations in a P3 are predicated on the private sector’s
performance relative to the performance specifications in the project agreement. Furthermore, P3s provide
the public sector with cost certainty. As such, P3s have the effect of insulating the public sector from any
errors made by the private sector.
P3s Just Mean Bigger Profits for the Private Sector
The private sector is involved in all public infrastructure projects and in all delivery modes; their participation
is predicated on the potential to earn profit, regardless of whether the project is being delivered as a P3.
Similarly, the public sector’s motivator in constructing public infrastructure is to realize the benefits
associated with that infrastructure. The choice of delivery approach for a given piece of infrastructure is
based on maximizing value for Canadians.
Project Agreements are designed to take into account the potential profits of the private sector partner
based on an expected performance of the asset. With regard to projects where the private sector’s returns
might be greater than forecasted on the strength of tolls or user fees, modern P3s are designed to ensure a
sharing of these windfalls between the private and public sectors.
Higher Consumer/End-user Costs
In a P3 arrangement the full lifecycle costs of the asset are transparent to the consumer/end-user as the
costs are factored into the project costs, unlike in the situation of a traditional procurement where the full
costs of the asset over its lifecycle are often unknown or unavailable. It is ultimately the user, the tax paying
public that funds the unanticipated costs of the traditional process. By contrast, P3s can provide cost
certainty over the long-term while guaranteeing a level of service.
Costs vs. Benefits: The Concept of Value for
Money
Intuitively, as individual consumers who make decisions about what to do with

our personal income on a daily basis, we all understand what is meant by the
words “value for money”. In the context of P3s, the meaning of the term carries
the same overall meaning, but rather than considering the asset being built, it is
focused on the delivery approach. Essentially, the value for money question
focuses on determining which delivery approach is mostly likely to produce the
desired asset at lowest cost when all factors, including asset life, risk, and the
time value of capital, are considered.
Answering this question in the P3 context is done through a Value for Money
(VFM) Analysis, which amounts to developing robust estimates of the risk-
adjusted, net present value of competing delivery options on a like-for-like
basis.
A critical component of the any VFM analysis is the identification and valuation
of risk. As we have discussed, P3s involve significant risk transfer from the
public sector to the private sector. Different procurement approaches will imply
or enable different risk transfer profiles. Therefore, comparing these delivery
approaches requires the identification and valuation of the risks associated with
the project.
These risk valuations of each procurement approach for design, construction

and long-term operations and maintenance, when combined with the differing
risk transfer profiles of the transaction costs and financing costs, will change the
relative costs of each option. Lastly, to account for the timing of expenditures,
the comparison of options is done on a net present value basis.
The details and assumptions underlying a VFM analysis are very important.
While there are several approaches to conducting the analysis, they tend to
produce very similar results. In order to assist federal organizations in carrying-
out VFM analysis in a standardized and consistent manner that will in turn
facilitate decision-making, PPP Canada is developing a VFM methodology that
responds to the needs of federal decision-makers.
How P3s Generate Value For Canadians
The focus on output specifications and performance-based requirements, rather than on the input
(prescriptive) methods to be used, is central to the P3 model and the foundation on which the other facets of
the definition are built. Unlike more traditional approaches that tend to rely on prescriptive specifications that
detail how the asset is to be designed and constructed, output specifications and performance specifications
allow the public sector to measure whether the asset is performing as required, not simply whether it was
built according to the input based specifications.
The integration of project phases into one contract is important because it aligns the incentives of the private
sector to the benefit of the public sector. For example, the integration of design, build, and private financing
ensures that the outputs of the design phase are practical and “buildable” while the scrutiny of lenders and
financing costs drive on-time delivery. Private sector responsibility for an asset during the project lifecycle
incorporates greater efficiencies into the design and building of the asset, and further into the operations
and maintenance phases of the project.
A reliance on output and performance-based specifications/requirements, along with the integration of

project stages, form the foundation upon which project-related risks can be transferred from the public
sector to the private sector. The optimal allocation of risk between the public and private partners is based
on which partner is best suited to manage and/or mitigate each risk as well as on the particulars of the
project/asset in question.
In general, the risks associated with design, build, and the securing of financing are the most common and
straight forward risks to transfer to the private sector. Such risks, including material cost escalation and
design/integration errors, once transferred, directly affect the private partner’s cash flows. Risks associated
with operations and long-term maintenance, while often being straight forward to transfer, sometime require
more consideration by the public sector. Such risks include a failure to do required maintenance or
unanticipated maintenance costs. In a traditional delivery approach there is no optimal allocation of risks – it
is the public sector which assumes the risks of the project and their associated costs, often resulting in a
high public sector cost for the asset. Risks which could be more effectively mitigated by the private sector
are not transferred. P3s generate value for Canadians through the optimal allocation of risks between
public and private parties; through increased innovation and efficiency, and by stipulating performance
requirements during the lifecycle of an asset.
Performance-based payments and private capital are the final components that make this risk transfer real.
The due diligence of the Lender assists in keeping the private partner on track. The private partner, having
borrowed the funds to construct the asset, must now make debt repayments over the life the agreement.
The cash flow from which the private partner makes these payments, as well as extracts its income, is the
stream of payments it receives from the public sector, which normally begins only when the asset is
complete and ready for use. Unlike traditional approaches, payment is a function of the private partner’s
performance in relation to the output and performance specifications. If the private partner fails to meet the
specified performance standards, its payments will be reduced in accordance with the penalty provisions set
out in the Project Agreement. As such, the private partner has a very strong incentive to ensure that it
performs according to these standards.
Motivation for the private-sector partner
Given these advantages for the public sector, one might wonder why the private sector would want to
participate in P3s. The answer is that P3s provide a long-term investment opportunity with a stable
governmental partner that also provides the possibility of a reliable long-term revenue stream over the life of
the contract, assuming proper performance.
P3 Delivery Models & Their Benefits

While the federal definition of a P3 is decidedly more precise than some others, it remains sufficiently broad
to encompass a number of P3 models or structures that vary by the degree of private sector involvement
and associated risk transfer. In all of the models below, the discussion assumes public ownership of the
asset throughout the duration of the project agreement. Our discussion begins with the model that has the
lowest level of private sector involvement:
Design-Build-Finance (DBF):
In this model, the private partner has responsibility for designing and building the asset to comply with the
specifications of the public sector. The private sector is also responsible for arranging its own financing
during the construction period as it will not normally receive any payments from the public sector until the
asset is complete and ready to operate. The duration of these agreements normally span the construction
period the project and a warranty period following delivery.
The main benefits of this model are cost and time certainty for the public sector as well as the transfer of
design and construction risks. The limitations of this model is that it can provide the private sector with an
incentive to limits its costs in the design and construction phases on the basis that the public sector will be
responsible for the asset over the longer term.
Design-Build-Finance-Maintain (DBFM):
The DBFM model builds on the DBF by making the private sector responsible for maintaining the asset in
accordance with the performance specifications over the long term, normally 20 to 35 years. Maintenance
can include daily facilities maintenance, annual maintenance, and life-cycle maintenance, which includes
major upgrades or replacements of major components.
Unlike the DBF, the disciplines brought by private sector finance and performance-based payments are
brought to bear over the entire life of the asset, which has the effect of providing the public sector with a
long-term warranty on the performance of the asset. The benefits of cost and time certainty continue to
apply during construction as well as through major life-cycle expenditures, which are now to be undertaken
by the private partner.
Within the DBFM model, there is room for variation with respect to the amount of maintenance
responsibility/risk that is transferred to the private partner and with respect to the duration of private
financing. Obviously, these variants present different risk (and cost) profiles for the public sector.
The long-term nature of the DBFM requires that the public sector also specify the desired condition of the
asset at the end of the project agreement. The project agreement will normally contain provisions designed
to ensure that the private sector has the appropriate financial incentives to meet these hand-back
expectations.
Design-Build-Finance-Operate-Maintain (DBFOM):
The DBFOM maximizes risk transfer to the private sector with the transfer of the associated responsibility
and for the operations and maintenance of the asset. Operations are normally differentiated from
maintenance in the following way: Maintenance is focused on maintaining the asset where an operation
relates to delivery of the services associated with the asset. In the simple example of a public library,
maintenance would relate to the building envelope, the building’s heating/cooling/ventilation systems, etc.
Operations would relate to the staffing of librarian staff, maintaining the collection, serving clients, etc. In
addition to the benefits of the DBFM, the DBFOM model links operational effectiveness to all phases of the
asset lifecycle and further sets operational performance requirements which reinforce that effectiveness.
This imposes yet another layer of accountability and discipline associated with project payments on the
private partner.
The DBFOM is also subject to variations in the duration of private financing and the extent of the private
sector responsibility for O and M. These variations tend to be expressed in much the same way, with similar
changes in the risk profiles for the public sector.
As with the DBFM, DBFOM project agreements will normally contain provisions aimed at ensuring the asset
is in the desired condition at the end of the agreement.
Costs of P3s
In the sections above, we discussed the mechanisms through which P3s generate value for Canadians as
well as the benefits presented by the major P3 models in use in Canada. While these benefits are important,
they do come with costs, including higher financing costs, higher transaction costs, and greater upfront
planning demands.
Higher Financing Costs
One of the common criticisms of P3s is that their reliance on private financing automatically makes them
more expensive for the public sector since the private partner’s borrowings will always cost more than the
government’s risk-free borrowing rate.
While this criticism is entirely valid, the increased cost of private financing must also be weighed against the
value of the risk transfers that are anchored by that private financing, the value of the private sector
innovation that can be brought to the project, and the overall performance of the asset.
Also, experience has shown a downward trend in the gap between the private partner’s cost of borrowing
and the public sector’s cost of capital. While this gap will likely always exist, its impact is decreasing.
Higher Transaction Costs
Earlier, we covered how the private partner in a P3 is normally a corporate entity composed of a number of
other firms and noted how the government does not back the lending in respect of the project.
This multitude of players, while driving a higher degree of discipline on the process, also implies higher
transaction costs as each participant incurs costs in the form of advisors and analysis as it undertakes its
own due diligence. These costs are necessarily reflected in bids and are therefore passed on to the public
sector. Experience has shown that as P3 markets mature, as contracts become more standardized and as
market participants become more familiar with those standards, costs tend to decrease. Nevertheless, P3
transaction costs will most often exceed traditional transaction costs, but must be weighed against the value
of the risk transfers enabled by the P3 model.
Greater Upfront Planning Demands
P3s, by virtue of their long-term nature, require a significant investment in upfront planning and analysis and
the engagement of advisors with P3 expertise. This upfront planning serves as an assurance that needs are
well understood and articulated; that cost estimates are robust; that risks are understood and optimally
allocated; and that competitive bids will be received through the RFQ-RFP process. The benefits of the due
diligence implied by the P3 planning process can improve public sector projects that often involve the
expenditure of hundreds of millions in public funds.
Screening Projects for P3 Potential
P3s are currently operating across the country, mostly led by provinces – from
bridges and roads to hospitals to fire stations, schools and prisons – and users
and taxpayers are reaping the benefits with better service, lower costs and
faster delivery times. However, because the value of P3s is best leveraged in
large, complex projects where innovation can reduce lifetime costs and deliver
better infrastructure, the P3 market is not boundless. It is estimated that P3s
are the better procurement option in only up to 20 per cent of public
infrastructure procurements. As a result, P3s are only one tool of many that
governments can employ to optimize the value that is being delivered in public
infrastructure procurements.
Determining whether a project could have potential for P3 delivery is only a

first step in larger decision making process that concludes with a
recommendation regarding the optimal approach to procurement.
IDENTIFYING P3 POTENTIAL: WHEN &
HOW
This section will provide the reader with a high-level overview of the complete procurement options analysis
process and highlight the placement and role of the P3 screen within that process. From there, we’ll turn our
attention to the actual hands-on use of the P3 screen.
Identifying the optimal procurement approach for a given asset can be seen as an iterative approach that
applies progressively finer filters to the list of viable delivery options until one emerges as the optimum
choice.
In general, this process begins with the consideration of the asset in question to determine which of the
various delivery options available to government (e.g., leasing, traditional Crown construct) are likely to be
viable. This first step can be seen as the screening stage.
The initial list of options that emerges from the screening stage is then assessed against qualitative factors
such as the public sector’s program and policy objectives/constraints, stakeholder acceptability, and timing
imperatives, etc. This assessment further reduces the number of options for consideration and identifies the
extent to which the remaining options align with the identified qualitative factors. We’ll refer to this stage as
the qualitative assessment stage.
The options that emerge from the qualitative assessment stage are subjected to rigorous financial analysis
to determine each option’s financial implications for the public sector. This financial analysis, or quantitative
stage, supplements the qualitative assessment by making clear the costs associated with each delivery
option. For more information on the approach used for this quantitative analysis, please refer to the side bar
entitled Costs vs. Benefits: The Concept of Value for Money.
The final integration stage considers the output from both the qualitative assessment and the quantitative
assessment to identify the optimal delivery option. Depending on the importance of qualitative factors, this
optimal choice may not always be the lowest cost option.
Now that we have a sense of the overall analytical process, we can turn our attention to when to best apply
the P3 Screen. The purpose of the P3 Screen is to raise the level of awareness and consideration of P3s in
the federal investment planning process, thereby ensuring that where P3 potential exists, the P3 option is
given due consideration.
In this context, the optimal stage at which to apply the P3 screen is at the initial stage. As explained above,
it is at this stage that we define the initial list of delivery options for further consideration. Applying the P3
screen at this stage will ensure that the P3 option is included whenever P3 potential is identified.
It is also important to note the identification of P3 potential does not imply that the P3 approach will be the
final delivery approach. Rather, it means that the P3 option must be carried forward through the next stages
of the analytical process outlined above.
Now that we have an understanding of where P3 screening is undertaken as well as the implications of the
screening outcome, we can turn our attention to the components and logic underlying the P3 Screen.
The Screening Matrix

The P3 Suitability Screening Matrix for (screening matrix) is meant to assist departments as they assess
capital projects for P3 potential.
The screening matrix asks the user to consider 14 questions and enter a score for each question.
Considerable effort has been made to ensure the questions/criteria do not overlap with one another, that
they do not repeat, and that users are provided with objective indicators for each question.
While we have also attempted to craft the evaluation criteria so that the screening can be completed based
on readily available project information that would be developed through the conventional project planning
process, some of the criteria may require a more in-depth understanding of a wide spectrum of P3 delivery
models and an awareness of the P3 market in Canada. PPP Canada is readily available to provide this
additional context as well as discuss support federal departments and agencies as they undertake the
screening of their proposed capital projects.
How to Approach the Screening Matrix

For each of the 14 questions in the screening matrix, the user will be presented with a scale running from 1
to 5. Accompanying this scale will be indicators meant to assist the reader in choosing a rating.
The user should consider the question in the context of their project, then identify the indicator that best
aligns with their assessment, and finally enter the rating associated with that indicator in the rating cell.
Along with this rating, the user is asked to provide a brief rationale for their rating.
In the background, the user’s scores will be modified by a weighting factor that reflects the relative
importance of that criterion in determining P3 suitability. To maximize objectivity, the weighting factor is not
noted in the matrix, but the weightings are identified below in this guide. There is no one overwhelming
indicator of P3 suitability. These weighted ratings are then normalized to a score out of 100, which can
range from 1 to 100.
The screening matrix should be completed electronically to allow for automated scoring. The electronic file
is available on PPP Canada’s website for download at www.p3canada.ca.
Application of the Screening Criteria

Below is a detailed overview of each of the questions presented in the screening matrix along with an
indication of what the question is meant to measure, the indicators that should guide the rating, and
additional context to assist the user. Each of the 14 criteria will be addressed in turn.
CRITERION #1: PROJECT SIZE

What is Being Whether the project’s size in dollar terms is likely to be sufficiently large Weighting
Measured: to offset the higher transaction costs that accompany the P3 delivery
approach.
10%
Question Asked: What is the estimated capital cost of the project?
P3 projects need to be of sufficiently large size to offset the transaction costs associated with P3s and to
ensure the project has a critical mass to attract private financing. These transaction costs include the
additional effort involved in completing the extensive procurement and documents, including the advisory
services that are necessary to bring the procurement to a financial close. The threshold above which a P3
option is considered varies across Canada. In most jurisdictions the threshold is above $40 million in capital
cost; however, this threshold fluctuates depending on the nature of asset being procured.
Capital costs are the focus of this question as capital costs tend to be the focus of early analysis. However,
projects that have low initial capital costs but high operating and maintenance costs can often be viable P3s.
If you have a sense of operating and maintenance costs, try to estimate their aggregate value over the life of
the asset when answering this question.
Lastly, it should be noted that projects of less capital costs (<$50 million) could be considered as potential
P3 candidates if they exhibit complex implementation or operations for which the public authority has limited
internal capabilities. The capital costs considered may be for a standalone project or for a bundle of projects
that will be procured as a single project.
Response Indicators
5 4 3 2 1
Capital costs are less Capital costs are less
than $100M, but than $50M, but
operating & $50M or more, but less operating &
$100M or more Less than $50M
maintenance costs will than $100M maintenance costs will
be 2-3 times larger be 3-4 times larger
than capital costs than capital costs
CRITERION #2: PRIVATE SECTOR EXPERTISE

What is Being Whether there is sufficient private sector capacity to deliver the project Weighting
Measured: and to create a competitive bidding environment 10%
Question Asked: How many private sector firms have the capacity to deliver this project?
The availability of private sector expertise is critical for two reasons: (1) ensuring a competitive bidding
environment; and (2) ensuring that there is private sector capacity to perform the functions and manage the
risks envisioned in the project.
The success of a P3 is dependent upon the team that the private sector partner assembles to fulfill its
obligations to the public authority. There needs to be an adequate pool of private-sector participants who
would be interested in and capable of pursuing the opportunity. Currently private sector expertise exists in
virtually all areas of public infrastructure, with P3 activity in most sectors including transportation, waste
water and correctional facilities. If there are only a limited number of private sector companies that could
deliver the project, then there could be challenges related to a competitive bidding process, regardless of
delivery approach.
Response Indicators
5 4 3 2 1
There are more than 5 There are fewer than 3
There are more than 5 There are 3 to 5 private
private sector firms There are 3-5 private private sector firms
private sector firms sector firms capable of
capable of forming sector firms capable of capable of forming
capable of design, forming teams with the
teams with the design, construct and teams with the
construct and maintain expertise to design,
expertise to design, maintain phases. expertise to design,
phases. Operations construct and
construct and Operations capability is construct and
capability is not yet maintain/operate this
maintain/operate this not yet determined. maintain/operate this
determined. type of asset
type of asset type of asset
CRITERION #3: MARKET PRECEDENTS

What is Being Whether the P3 market has experience with projects of a similar nature in Weighting
Measured: all phases of the model. 5%
Question Asked: Have projects with similar requirements and of similar size and scale been delivered
through the P3 model?
The existence of P3s for similar assets is a strong indicator of the P3 viability of any project.
P3s are delivered in a multitude of sectors, across Canada including bridges and roads, schools, hospitals
and prisons. British Columbia, Ontario, Alberta and Quebec have undertaken the vast majority of P3
procurements in Canada representing a diverse portfolio of infrastructure. Also, P3 projects across various
infrastructure asset classes such as transit, waste management and broadband have been procured across
Canada and internationally.
Information related to P3 projects is available on the website of the provincial and international procurement
agencies. A list of resources providing information on the Canadian and international P3 organizations can
be found in the PPP Canada website – p3canada.ca.
Response Indicators
5 4 3 2 1
Smaller projects of Smaller projects of
Projects of similar size similar scope or, Projects of similar size similar scope or, Projects of similar size
and scope have been projects of similar size and scope have been projects of similar size and scope have not
procured as P3s in but smaller scope have procured as P3s but smaller scope have been previously
Canada been procured as P3s internationally been procured as P3s procured as P3s
in Canada. internationally.
CRITERION #4: TYPE OF INFRASTRUCTURE SITE

What is Being Whether the nature of the project lends itself to the effective transfer of Weighting
Measured: risk owing to the nature infrastructure site. 5%
Question Asked: How much of this project involves new construction on a previously undeveloped site?
In general, projects involving all new construction on sites not previously developed (greenfield
developments) lend themselves to maximizing risk transfer to the private sector. However, projects that
involve existing assets are also suitable when they involve reconstruction or very extensive renovations.
Refurbishment, renovation, and facility expansion projects (brownfield developments) offer less potential for
risk transfer because it may not be possible to distinguish the defects in new construction from pre-existing
or latent defects in the infrastructure. Also, the private sector may be less averse in taking on risks related to
existing assets over the long-term of a new P3 contract. Nevertheless, these types of projects may still
make viable P3s, albeit with a less comprehensive model (e.g., DBF vs. DBFOM).
Response Indicators
5 4 3 2 1
Asset procurement is
mainly for
Project involves at least
Project involves refurbishment,
Asset is new Asset is new 50% new construction
expansion and/or modernization, minor
construction on an construction on an and also significant
refurbishment of an renovation, or involves
undeveloped site. already developed site renovations to the
existing asset integration of new
existing asset.
facilities with existing
facilities
CRITERION #5: SCOPE FOR PRIVATE SECTOR INNOVATION GAINS

What is Being Whether the public sector’s needs or expectations are compatible with Weighting
Measured: realizing gains from private sector innovation 10%
Question Asked: To what extent the output-based performance contracts will specify deliverables?
The scope for private sector innovation is inversely related to the public sector's need to be prescriptive.
Output-based performance contracts specify deliverables in terms of outcomes (safety, amount of lighting)
rather than prescribing the inputs or materials to be used in delivering the outputs. The specifications need
to reflect the final requirements of the end-user. These innovative types of contracts encourage innovation
by giving the private sector discretion over how it will deliver the required outcomes. Performance-based
contracts are viable when the outputs are easily measurable and verifiable using accepted standard
measures. Provisions in an output-based contract are not unique to P3s and are already used in some
conventional contracts such as operation and maintenance services.
With this in mind, the public sector must consider the extent to which it must express its requirements in
terms of inputs.
Illustrative Example: Expressing a requirement in output-based terms could include a statement that high
speed internet access should be available 24/7 for all 1000 people in the facility. This would leave the
private partner to determine how to best meet that need. By contrast, an input-based approach would
involve prescribing type of cable to be used, where it should be laid out, etc. Not only does the input-based
approach curtail the opportunities to realize innovation efficiencies, but it also fails to recognize that the
specified technologies and approaches may be rendered obsolete by technological advances.
Response Indicators
5 4 3 2 1
There are very few The project The public sector
The public sector is The project’s design
areas where the public requirements will be a believes it must make
prepared to use output and construction will be
sector feels it must be mix of input-based and specific input
specifications for all based on input
prescriptive/use input- output-based requirements for the
phases of the project. specifications.
based specifications. requirements majority of the asset.
CRITERION #6: SECURITY REQUIREMENTS

What is Being Whether security requirements are likely to pose an impediment to P3 Weighting
Measured: delivery. 5%
Question Asked: Are there considerable and complex security requirements associated with
functioning of the asset?
All federal projects will have security requirements. In some cases, these may be limited to facility access. In
others, these may relate to the security of highly sensitive information and systems.
In most cases federal organizations must address security requirements adequately when preparing project
documents. Specifically, organizations may need to provide assurances in the documents that they have
conducted a threat and risk assessment and identified and dealt appropriately with all security issues. Also,
security (e.g. physical security measures and IT security software and hardware) can be very costly,
especially if dealt with retroactively.
This question asks the assessor to consider the extent to which the project’s security profile exceeds the
federal norm and whether that is likely to pose significant challenges.
Response Indicators
5 4 3 2 1
The security of the
asset is consistent with
majority of federal The security
The security of the The security of the assets, however there Access to the site is requirements of the
asset is consistent with asset is higher than the are some special limited to secret pass asset exceed the
majority of federal majority of federal requirements and/or holders and contractors federal norm, include
assets; access to site assets, i.e. some there is potential for and their organizations information technology,
requires security pass access is restricted to contractor exposure to are required to be or include the
or escort. secret pass holders. secure areas and secret cleared. protection of Top
information assets, Secret information
including Secret
information
CRITERION #7: POTENTIAL FOR CONTRACT INTEGRATION

What is Being The extent to which project phases (i.e., design, build, finance, maintain, Weighting
Measured: operate) can be integrated into one contract. 10%
Question Asked: Which phases (i.e., design, build, finance, maintain, operate) can be integrated into
one contract?
One of the important mechanisms through which P3s generate value is the integration of various project
phases (design, build, financing, and operations/maintenance). The greater the potential for integration, the
more likely a P3 will generate value.
The argument for integrating the phases of a project is that it creates incentives for the private sector to
minimize the total capital and facilities maintenance costs over the economic useful life of the asset. This is
a challenging task that requires bringing together different disciplines (architects, builders, facilities
managers, and financial experts) to decide which approaches are likely to improve financial performance
and which are not.
Response Indicators
5 4 3 2 1
All P3 project phases Design-build-finance-
Design-build-finance At least design, build, Only two phases of the
design-build-finance- maintenance and some
and some maintenance finance will be project can be
maintain-operate could operations could be
could be integrated into integrated into one integrated into one
be integrated into one integrated into one
one contract contract contract
contract contract
CRITERION #8: ASSET LIFE

What is Being The expected useful life of the asset. Weighting
Measured: 5%
Question Asked: What is the anticipated useful life of this asset?
The duration of P3 contracts tend to correspond to the useful life of the asset and, in general, longer-lived
assets tend to be better suited to P3 delivery. A lengthy contracting period allows the public authority to
benefit from efficiencies, innovations, and cost certainty, while the private sector partner can rely on a long-
term source of revenue that is reasonably secure and sufficient to recover its investments.
Response Indicators
5 4 3 2 1
Asset life is greater Asset life is 20-24 Asset life is 15 – 19 Asset life is 10 – 14 Asset life is less than
than 25 years years years years 10 years
CRITERION #9: ASSET COMPLEXITY

What is Being Project complexity through the delivery of multiple asset classes in one Weighting
Measured: project 10%
Question Asked: Is there the potential to combine the delivery of different asset classes into one
project?
The complexity of a project that combines different asset classes, or assets of a unique nature, into a single
procurement (e.g., a bridge and supporting roadways) is greater than a project that involves only one type of
asset. The P3 approach is better suited to deliver complex projects that may encompass different program
requirements.
Response Indicators
5 4 3 2 1
Combines two assets
Project by its nature is
Combines three or Combines two classes of low complexity i.e.
very complex i.e.
more classes of asset of asset of medium road and toll booths, or
bridge and involving Single asset class
i.e. building + road + complexity i.e. rail line one asset of higher
two or more assets, or
outbuildings. and station. complexity, water
significant technology
treatment plant.
CRITERION #10: OUTPUT AND PERFORMANCE SPECIFICATIONS

What is Being The availability/accessibility of output and performance specifications for Weighting
Measured: the construction of the asset. 5%
Question Asked: What is the current status of the output specifications for the construction of the
asset?
P3s are characterized by the public sector setting their desired outcomes or outputs in the form of
measurable technical output/service/performance specifications that provide the basis for performance
based contracts.
Output specifications will include performance specifications for the entire concession period, becoming a
fundamental part of the project agreement between the public authority and the selected private proponent.
The development of output specifications for the lifecycle of an asset requires a shift in mindset from the
development traditional input specification for a single project phase. Output specifications will allow a
supplier maximum flexibility to achieve innovation and efficiency in design of the asset and service delivery,
by providing a description of how the asset is to perform in each phase of the lifecycle and the condition of
the asset at the end of the concession period. This requires a clear definition of the specifications/standards
to be met by the private sector during not only the construction phase but in the longer term operating and
maintenance phases. Inaccurate or incomplete output specifications can have lasting negative impact on
the performance of an asset and how it is maintained.
Response Indicators
5 4 3 2 1
Existing conventional
Existing conventional
Output specifications specifications can be
Output specifications specifications can be New technical outputs
for same type of converted into output or
for similar asset are converted into output or and specifications will
asset(s) exist and are performance
available. performance have to be developed
available. specifications with
specifications easily.
some difficulty.
CRITERION #11: OPERATIONAL & MAINTENANCE REQUIREMENTS

What is Being Stability and predictability of the operational and maintenance Weighting
Measured: requirements for the asset. 5%
Question Asked: Are the long term operational and maintenance needs relatively stable and
predictable?
Being able to forecast the maintenance and operational requirements for an asset over the long-term time is
desirable in the context of long-term contracts. Most of infrastructure assets such buildings and roads have
stable and predictable operations and maintenance requirements over their life spans. However, certain
types of assets may be more unpredictable in nature due external factors such as regulatory standards.
Risks which are challenging to quantify, tend to command risk premiums associated with the risk transfer
and result in increased overall project costs.
The relationship between contract duration, asset life-cycling, and the timing of potential external drivers will
influence the scoring of this criterion.
Illustrative Example: Assuming the operating permit for a wastewater treatment facility is renewed every
10 years using the standards in force at the time of the renewal, a contract with duration of 10 years or less
should score 5. By contrast, if the anticipated contract is longer than 10 years, then the score would be
lower in recognition of the uncertainty related to future standards.
Response Indicators
5 4 3 2 1
Operation and Operations Operations Operations and
Operations and maintenance requirements are requirements are not maintenance
maintenance requirements are unstable, but stable and requirements cannot be
requirements are predictable, but have maintenance maintenance predicted and are
predictable and stable some instability based requirements are requirements are unstable throughout the
on known factors. predictable somewhat predictable. project life
CRITERION #12: PERFORMANCE SPECIFICATIONS & INDICATORS

What is Being The availability of performance specifications and indicators for the Weighting
Measured: operations and maintenance of the asset. 5%
Question Asked: Are operations- and maintenance-related performance specifications and indicators
available?
Establishing performance specifications and monitoring performance against them using key performance
indicators (KPIs) is critical to the management of any performance based contract, including P3s.
The public sector must be able to articulate its required minimum operating and maintenance standards to
be met in output or performance-based terms. Measurement against the minimum standards involves the
development and monitoring of key performance indicators. Monitoring performance over the life of the P3
agreement may also necessitate change management initiatives as the public authority moves away from
an input-based approach to managing performance.
Response Indicators
5 4 3 2 1
Performance outputs Performance outputs
Performance outputs Performance outputs
and indicators for and indicators for Performance outputs
and indicators exist, but and indicators for
operations and comparable assets and indicators will have
are not readily comparable assets
maintenance activities exist and are not to be developed
available exist and are available
are available readily available
CRITERION #13: LIFE-CYCLE COSTS
What is Being Whether the public sector has sufficient information to develop a profile Weighting
Measured: of the life-cycle costs associated with the asset. 10%
Question Asked: Can most of the costs, mainly related to construction and long-term operations
including maintenance be quantified upfront with reasonable assumptions and/or
availability of historic data?
Life-cycle costs are very important factor in success of a P3. The public authority will pay for maintenance
and/or operation over the life of the project agreement with the expectation that the asset will be maintained
in accordance with the performance specifications.
The estimation of life-cycle costs begins with the identification of what has to be analyzed and the time
period for the project life study along with the appropriate financial criteria. Giving potential bidders as much
information as possible will result in more comprehensive bids and ultimately benefit the public authority. A
whole-life approach to the procurement of public infrastructure assets generates potential efficiency gains,
especially where maintenance and operation of the asset become the responsibility of the private sector.
Decisions relating to life-cycle costs are a major consideration for the private sector in preparing a complete
and competitive proposal. The cost profile should reflect most activities occurring in technical and non-
technical disciplines.
Illustrative Example: If major costs such as design, construction, energy and water, and replacement of
mechanical and electrical systems can be documented fairly accurately, then the score should be 5. If costs
such as design, construction can be calculated and energy and equipment replacement costs cannot be
easily established due to poor quality of historic data or unpredictable operating conditions over a long term,
then a score of 3 could be given.
Response Indicators
5 4 3 2 1
Project life-cycle costs There is limited
Project life-cycle costs Project life-cycle costs Project life-cycle costs
are understood but understanding of life-
are well understood are well understood, are not well understood
estimates, while cycle costs but costs
and accurate estimates and can somewhat be and cannot be
accurate are cannot be accurately
can be developed by accurately estimated by estimated by the public
incomplete to some estimated by the public
the public authority the public authority authority
extent. authority.
CRITERION #14: REVENUE GENERATION

What is Being Whether the project could potentially generate revenues and lessen its Weighting
Measured: impact on tax payers. 5%
Question Asked: Does the project have inherent scope to generate any revenue?
Revenue generation is not a requirement for a successful P3. However, where an asset could potentially
generate revenue and reduce the burden on public funds, the P3 model is ideally suited to leveraging that
potential, particularly where there is scope to transfer the risks associated with that revenue generation to
the private partner.
While the proportion of federal projects with revenue generation potential is likely to be small, in some
contexts, adjustments to project scope such as a move from a single-use building to a multi-use building can
sometimes create revenue opportunities.
Response Indicators
5 4 3 2 1
Project will generate Project could generate Project could generate Project could generate
revenues and the revenues and private revenue and the private minimal revenue and It is unlikely that the
private sector may be sector may be willing to sector's willingness to the private is unlikely to project will generate
willing to assume share revenue risk accept revenue risk is accept any revenue any revenues
associated revenue risk unknown risk.
The screening matrix should be completed electronically to allow for automated scoring. The electronic file
is available on PPP Canada’s website for download at www.p3canada.ca.
Interpreting the Results

The matrix indicates an appropriate level of P3 suitability of each project being considered and produces a
final numerical output that should be assessed against the following:
Decision Range for Evaluating Projects for P3 Viability

1 50 The P3 option should not be retained for further analysis.
The Project presents a mix of favorable and unfavorable indicators for
51 75 P3 delivery. Please consult PPP Canada for assistance in screening
your project.
P3 option should be included in the Procurement Option Analysis or
76 100
Business Case to be developed for the project.
The accuracy of these results is a function of the degree of project definition and the current state of project
planning – clearer definition and greater understanding of the project will provide better screening results.
As such, it is important to note that while it is reasonable to undertake iterative screenings as understanding
of a project increases, the last screening, the one upon which the decision to include or discard the P3
option is based, should be undertaken when project parameters are sufficiently well defined to defensibly
support a decision to include/exclude the P3 option.
Of particular interest are projects that score in the yellow range. Given the mix of positive and negative
indicators that such projects present, a sound screening decision will require an in-depth understanding of
P3s and the P3 market. As such, we strongly encourage departments and agencies to contact PPP
Canada before finalizing their screening decision in respect of such projects.
CONCLUSION & NEXT STEPS
It should be reiterated that even the most positive screening result does not constitute a decision to proceed
with P3 delivery. Rather, a green result simply triggers the requirement to include P3 delivery in the
procurement options analysis process.
If you have completed this screening process without the guidance of PPP Canada, please contact us so
that we can discuss your ratings and screening results to ensure the soundness and defensibility of the
outcome. PPP Canada is available to assist departments and agencies interpret available data, identify
information gaps and complete their federal screen.
To complete the screening process, departments may wish to prepare a screening report document that
summarizes the details of the project, the findings from the screening matrix and any other details that
influenced the outcome. A brief summary of these screening report documents could also be included in
departmental investment plans when they are submitted for central agency and Ministerial consideration.
At this point, you might be wondering about the next steps to follow should you and PPP Canada conclude
that your project does in fact have P3 potential. While the precise next steps will very much depend on your
project’s state of definition and development, the overall process and requirements are really no different
from that you would follow for any other capital project, from both an analytical and procedural point of view.
In fact, the next steps in the analytical process were outlined above in the section entitled, Identifying P3
Potential: When & How. This process, often referred to as a procurement options analysis, is relevant to
any project, regardless of the P3 screening outcome as it facilitates the process of needs identification,
promotes clearer project definition, and creates a robust framework for assessing trade-offs, all of which will
support maximize value for the public sector through a more effective and efficient procurement process.
The procurement options analysis process will be described in greater detail in a forthcoming PPP Canada
publication. PPP Canada is able to assist departments in completing this critical analytical step.

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Identifying P3 Potential

A Guide for Federal Departments & Agencies

PPP Canada is a federal Crown Corporation mandated to improve the delivery

o a definition of what constitutes a P3 in the federal context;

P3: A Definition for the Federal Context

What Does a P3 Look Like?

Lenders Direct Agreement Owner Financial, Legal &

Project Co. Equity

Design & Construct Contract O&M Contract

Public Private Partnerships mean privatization of public infrastructure

P3s Make Taxpayers Accountable for Private Sector Mistakes

P3s Just Mean Bigger Profits for the Private Sector

Higher Consumer/End-user Costs

Intuitively, as individual consumers who make decisions about what to do with

These risk valuations of each procurement approach for design, construction

A reliance on output and performance-based specifications/requirements, along with the integration of

P3 Delivery Models & Their Benefits

Higher Financing Costs

Higher Transaction Costs

Greater Upfront Planning Demands

Screening Projects for P3 Potential

Determining whether a project could have potential for P3 delivery is only a

The Screening Matrix

How to Approach the Screening Matrix

Application of the Screening Criteria

CRITERION #1: PROJECT SIZE

CRITERION #2: PRIVATE SECTOR EXPERTISE

CRITERION #3: MARKET PRECEDENTS

CRITERION #4: TYPE OF INFRASTRUCTURE SITE

CRITERION #5: SCOPE FOR PRIVATE SECTOR INNOVATION GAINS

CRITERION #6: SECURITY REQUIREMENTS

CRITERION #7: POTENTIAL FOR CONTRACT INTEGRATION

CRITERION #8: ASSET LIFE

CRITERION #9: ASSET COMPLEXITY

CRITERION #10: OUTPUT AND PERFORMANCE SPECIFICATIONS

CRITERION #11: OPERATIONAL & MAINTENANCE REQUIREMENTS

CRITERION #12: PERFORMANCE SPECIFICATIONS & INDICATORS

CRITERION #14: REVENUE GENERATION

Interpreting the Results

Decision Range for Evaluating Projects for P3 Viability

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