On January 2nd, the West Coast Infrastructure Exchange (WCX) released the final version of “Infrastructure Project Certification –Principles and Framework". The principles and project standards are the first-ever attempt by multiple US states to jointly define the types of public infrastructure projects that would be most suitable for engaging private capital and to lay out a framework for how best to structure such investments to maximize public benefits while addressing the needs of investors.
Based on experience in other jurisdictions with extensive experience with private investment in public infrastructure, the standards highlight the importance of such factors as transparency, high quality analysis, political support, competitive bidding, community labor standards, appropriate risk allocation, and efficient transaction processes.
The next step will be to screen proposed projects in the WCX region against these standards and to certify those that meet them, to raise their profile and help investors identify well-conceived projects. WCX will begin accepting project proposals in January 2014 from public sector sponsors in the three west coast states.
The effort to develop these standards was initiated in early 2013 based on feedback from the market and expert studies that found the lack of standards and consistency was a problem that was inhibiting the growth of the US market for "investable infrastructure." The Standards Committee previously issued a draft version in September 2013 and comments were received from a diverse array of more than 20 different parties representing infrastructure fund managers, public sector procurement officials, pension funds, labor unions, NGOs, attorneys, advisors and other stakeholders.
During the consultation period, the comments received were varied and covered all aspects of the document. In general, feedback confirmed that creating such standards was important and helpful to building a market and that the proposed standards were on the right track.
Most of the specific suggestions fell into one of the following categories:
- Use of the term Public Private Partnership (P3) vs. Infrastructure Investment Partnership (IIP) and Performance-Based Infrastructure Solution (PBIS). Many parties commented on the introduction of new nomenclature for describing the types of financial and contract structures that WCX is seeking to facilitate. While it is true that the term P3 is already widely used, we believe it is also widely misunderstood and frequently misinterpreted and believe it is critical to define much more specifically the types of transactions that we are seeking to advance. Therefore we have chosen to stick with the terminology in the draft document.
- Treatment of unsolicited proposals received a lot of attention. The prior draft recommended against allowing them. In response to feedback and based on experience elsewhere, the revised draft acknowledges that unsolicited proposals may result in valuable, innovative solutions that would not otherwise get considered but states that such proposals must be subject to a competitive bidding process before any contracts are awarded.
- Modifying specific language related to the interests of different stakeholders (for example insurance companies suggested language addressing risk and labor unions suggested language addressing labor standards)
- Clarifying and underscoring the need for projects to be structured so as to maximize its public benefits as the key goal of governments in the process. “Balancing" risk and rewards to each party is important, but government’s goal should be to get the best possible value for taxpayers at the lowest cost that allows a return that is acceptable to investors.
- Recommendations for future actions or highlighting issues that the WCX should pay close attention to as specific projects move forward. Several experienced practitioners pointed out procedural or policy choices and challenges that will likely arise as deals are structured. The current document addresses principles rather than spelling out the details of a procurement process or how to conduct Value for Money analysis. The latter are vital elements of a successful public-private infrastructure project and will need to be addressed as we move forward.
- WCX certification of a project’s financial viability also was proposed. This was a conscious and deliberate decision for WCX to avoid any confusion as to whether or not WCX plans to certify the financial due diligence for a proposed project. This is an area where investors and their advisors will need to form their own judgments and not rely on WCX as the arbiter of the financial soundness of projects.
- The importance of design excellence and building projects that fit into the existing landscape of the community was raised and has been included.
- Broadening the definition of resilience beyond climate change to capture seismic and other risks was suggested and has been incorporated.
For more information, contact Chris Taylor, WCX Executive Director at firstname.lastname@example.org.
WCX would like to acknowledge the contributions of the WCX Business Standards Committee. The Committee members are responsible for developing the Project Principles and Standards and include representatives from the private and public sectors from multiple jurisdictions, including:
- Sarah Clark, President and CEO, Partnerships British Columbia (Chair, Business Standards Committee)
- John Williams, CEO, Impact Infrastructure, LLC
- Laurie Weir, Senior Portfolio Manager, and David Merwin, Investment Officer, Targeted Investment Programs, CalPERS
- Margaret Tobin, Executive Director, NY Works Task Force
- Lois Scott, CFO, City of Chicago and Chicago Infrastructure Trust
- Chris Taylor, Executive Director, West Coast Infrastructure Exchange
In addition, WCX would like to thank all of those who participated and offered feedback on the Proposed Project Principles and Standards. Feedback has been reflected in the final document where applicable, and we are very much looking forward to working with our stakeholders to see performance-based infrastructure development get underway across our region.
The comments received helped refine the final document which is available here: http://westcoastx.com/home/discussion-forum.html.