A “Progressive” procurement strategy fosters collaboration between the owner and its contracting partner. Before entering a final fixed-price (Progressive P3s) or target price (Progressive Design-Build) contract, both sides work together to define the project requirements, design, pricing and risk through a Development Phase that commences following the selection of the partner via a competitive procurement process.
IO’s work on progressive procurement strategies is well informed by ongoing discussions with industry. A progressive procurement strategy may be paired with a variety of contracting models. It includes cost control measures such as affordability caps to establish a budget for which the development partner would produce a scope of work. Alternate, or separate, prices can be developed to permit decision making on the amount of scope and associated cost that is desired for a project. These additional measures present an opportunity to inform government decision-making earlier than with classical versions of P3 models. It also creates an opportunity for more collaborative project planning and consultation work.
Progressive Design-Build
A Progressive Design-Build applies a similar collaborative approach between the owner and its contracting partner during the early work of projects such as project requirements and design work in the Development Phase. Unlike the Progressive P3s, a Progressive Design-Build model can employ
a target-price rather than the fixed price enabled under a P3 model. The structure may also include a gain-share/pain-share mechanism where the pain-share for the contractor is capped at the profit and direct costs are paid to complete the project.
IO and Metrolinx are using this model on select transit projects.
Delivery model features and considerations
- Procurement timelines: The procurement timeline could be reduced with fewer design- and construction-related submittals during the RFP stage
- Collaboration: The owner(s) and Development Partners have an opportunity to work more collaboratively to develop design, reduce risk and finalize pricing before contracting for project implementation
- Efficient Risk Transfer: Working collaboratively during the design phase facilitates efficient risk transfer to the party best placed to manage that risk
- Pricing Regime: Where fixed pricing is not possible without significant premiums, a target price approach with gainshare/painshare mechanism offers a more flexible pricing regime, however, comes with less certainty over final pricing from an overall budget perspective
- Price Competition: Final pricing is developed iteratively over the development phase without the competitive tension of a tender process
- Transparency: The owner has access to costs and pricing on an open-book basis that requires an enhanced ability to determine the value proposition leveraging market benchmarks and other supporting information
Progressive DBF/M (Progressive P3s)
In addition to maintaining the key attributes of the typical P3 models currently employed by IO, the Progressive P3 strategy also incorporates a Development Phase between the procurement and construction phases, where the owner makes monthly payments and works with the Development Partner to a) collaboratively develop designs to advanced levels that allow for more efficient and accurate pricing and b) establish a committed fixed price to deliver the project based on transparent pricing and advanced designs. Upon confirmation of the fixed prices, the Development Partner is responsible for raising private financing (debt and equity, where applicable) during the latter stages of the Development Phase with Commercial and Financial Close expected to coincide with the end of the Development Phase. The P3 contract is executed at Financial Close.
IO and Ministry of Health are using this model on select hospital projects.
Delivery model features and considerations
- Procurement timelines: The procurement timeline could be reduced with fewer design- and construction-related submittals during the RFP stage.
- Collaboration: The owner(s) and Development Partners have an opportunity to work more collaboratively to develop design, reduce risk and finalize pricing before contracting for project implementation.
- Retains benefits of typical P3s: The value of private sector capital continues to be recognized, with opportunities for private sector debt participation and long-term equity (in the case of DBFM) and still available.
- Efficient Risk Transfer: Working collaboratively during the design phase facilitates efficient risk transfer to the party best placed to manage that risk
- Price Competition: Final pricing is developed iteratively over the development phase without the competitive tension of a tender process
- Transparency: The owner has access to costs and pricing on an open-book basis that requires an enhanced ability to determine the value proposition leveraging market benchmarks and other supporting information