VINCI Concessions
A private partner for public
benefit
Moritz NELLES, March 2012
Critical Success
Factors of PPPs: What
are the drawbacks to
avoid and how to make
PPP’s a success story?
P3T3 Open Day Conference, Weimar 2012
Content
1. Defining success
2. Creating stakeholder value
3. Major stages in the procurement process
4. Fair contractual provisions
5. Conclusion
3
A success story for whom?
What are the public authority’s objectives?



Have well-functioning infrastructure
Keep safe public finance
Be re-elected
What are users’ objectives?


Use high quality infrastructure
Not spend much money
What are the private partner’s
objectives?


Conflicting
objectives
among project
stakeholders
Improve reputation and skills
Make financial profits
Real success converges the different stakeholder
interests and maximises stakeholder value
4
How to deal with diverging objectives?
The solution we have adopted is to seek for winwin-win arrangements, in order to make the
diverging objectives converge.
Several steps are incontrovertible:
1. Only projects with a high socio-economic utility
2. Major stages in the procurement process
3. Fair contractual provisions
5
The socio-economic utility (step 1)
We only pursue projects which are desirable from the
socio-economic point of view:
- projects that correspond to real demand and needs
How can this « socio-economic utility » be assessed?



Not only financial aspects are taken into account
But also indirect aspects that measure the effects for
the society: in terms of accessibility, reliability,
safety, time savings, environmental concerns,
attractivity of the area
The socio-economic Cost-Benefit Analysis enables to
translate socio-economic aspects into monetary terms
(which is different from classical feasibility studies)
6
The socio-economic utility (step 1)
Pirandello ® is a global urban model bringing
transportation models and urban models together [Piron]
Using an analysis of the urban
population based on income level
and job category, Pirandello ®
determines the logic of housing
localisation by income level.
Pirandello ® measures
the global socioeconomic efficiency of
projects or
regulations.
It can be
used to test
principles of
urban
planning,
toll policies
for zones or
infrastructur
e, and CO2
emissions.
7
The socio-economic utility (step 1)
By experience, we know that a high socio-economic utility
makes the payment of a toll by users / tax by taxpayers,
more politically acceptable [Piron, 2004].
On the contrary, «White Elephants »
low socioeconomic utility, leads to:
 A decrease in the credibility of the public sector
 Alteration of the private sector’s reputation
 Undue increase of the public debt


At the end of the day, a high socio-economic utility
confirms the link between sound infrastructure and
growth for all parties
and thereby forms the foundation for creating
stakeholder value
8
Major stages in the procurement process (step 2)
The goal of the award process: to make a competitive and
credible bid emerge
Decrease the level of uncertainty and balance information
asymmetry:


Advanced investigation and documentation by the procuring
authority on the state of the existing infrastructure (asset
& ground conditions, contamination and other constraints)
Information asymmetry in favour of the authority creates
contract inefficiency Hong & Shum [2002]
Pric
e
Conservative bid:
Risk allowances and
contingencies too
high
Aggressive bid: Risk
not priced renders the
bid undeliverable:
„The Winner‘s Curse“
Deliverability
Major stages in the procurement process (step 2)
To avoid most PPP drawbacks, and allow a win-winwin arrangement, 4 uncontrovertible stages in the
award process:




Market Sounding Initiative
ensure the
envisaged project scope, risk transfer and delivery
structure is accepted by the industry
Prequalification
select operators with
experience, technical skills related to the project
and financial robustness
Possibility of dialogue
to clarify the
objectives, avoid misunderstandings and to let
innovative solutions emerge
Weighted selection criteria
including
price, quality (organisation skills, sustainable
development, innovation), performance and
availability, respect of human and technical norms
Fair contractual provisions (step 3)
In all PPP contracts, some unavoidable contractual
provisions need to reflect industry practice and
must enable clear calculation mechanisms:
Termination and compensation
arrangements
Transferability of investments
Limitation of liability

Common
industry
(project
finance)
practice
needs/constrai
nts to be
reflected
Minimise ambiguities and offer a clear
mechanism for the calculation of commercial risk
exposure for all parties (decision not transferred
to an undefined time horizon)
11
Fair contractual provisions (step 3)
However, contracts cannot be complete: No one can
foresee all possible contingencies in such long-term
contracts
It is generally acknowledged by legal experts and
institutions that contract amendment/renegotiations
= zero-sum game
opportunism
In the end, fair contractual provisions allow a sound
trade-off between:


Enough rigidity
the contract terms are
enforced, the operator has incentives, the authority is
credible, low uncertainty
Enough flexibility
the contract can adapt to
evolving circumstances. In a cooperative way (no
opportunism) if there is a probability of contract
renewal.
12
Fair contractual provisions (step 3)
VINCI Autoroutes environmental
improvement programme ‘Paquet
Vert Autoroutier’
Additional investment of ca
€370 million as new
environmental regulations &
requirements were introduced
Protecting water
resources
Preserving
biodiversity
Cutting CO2
emissions
13
Conclusion
The private partner perspective alone cannot lead to any
recommendations for successful PPPs.



Only projects with a high socio-economic utility
- Projects that correspond to real demand and needs.
- Maximisation of stakeholder value
Major stages in the procurement process
- Market Sounding Initiative to ensure the project scope is
accepted
- Avoiding information asymmetry: all preliminary
investigations of high risk project parts required
- Multiple selection criteria aligned to Stakeholder Value
Fair contractual provisions
- Existing industry practice must be reflected
- Minimise ambiguities and offer a clear calculation
mechanisms
- Trade off between rigidity and flexibility for long term
deliverability
Thank you for
your attention