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Glossary of PPP Terms

Page updated 13 Oct 2015

This glossary provides definitions of terms used throughout the PPP guidance documents prepared by the Treasury PPP Team.

Abatement
A reduction in the unitary charge for performance below the standard required by the project agreement.
Affordability threshold
The maximum price (expressed in net present cost terms) that the procuring entity is prepared to pay for delivery of the project. Any proposal with a net present cost in excess of the affordability threshold will be considered non-compliant.
Base case financial model
The financial model agreed (and finalised at financial close) for the purpose of, amongst other things, calculating the unitary charge.
Better Business Case framework (BBC)
A systematic business case methodology based on the UK five-case model. It assists stakeholders to think and plan together, and to gather fit-for-purpose analysis. The aim is to prepare business cases that give decision-makers the information they require to justify investment. http://www.treasury.govt.nz/statesector/investmentmanagement/plan/bbc.
Business case
A management tool that supports decision-making for an investment. A robust business case can provide an explicit and systematic basis for decision-making, transparency and accountability, assurance that the proposed investment optimises value for money, and a plan for realising the expected benefits, and for managing costs and risks.
Cabinet Office Circular
Cabinet Office circulars complement the Cabinet Manual and CabGuide, providing detailed guidance on central government processes. Cabinet Office Circular CO 15(5) sets out Cabinet's expectations regarding investment management and asset performance in the state services, including expectations relating to consideration and implementation of PPP procurement.
Commercial and financial advisor
Provider of commercial and financial advice (to the procuring entity, or consortium members), including development or review of commercial terms, the performance regime and financial modelling.
Consortium
A group of private sector parties who work together to bid and, if successful, deliver the project. The bundled services included in the scope of the project will require consortium members with specialisation in design, construction, asset management, facilities maintenance, operational expertise (if applicable), and debt and equity financing.
Contract period
The period from financial close to the expiry of the project agreement.
Contractor
The entity (a special purpose vehicle - typically a limited liability company, or limited partnership) with which the procuring entity contracts (through the project agreement) for the delivery of the project.
Contractual close
The date at which the finalised project agreement is signed by authorised representative(s) of the procuring entity and contractor.
Contractual terms
The terms of the project agreement.
Conventional procurement methods
Those procurement methods usually adopted by the procuring entity for major infrastructure projects. These procurement methods (such as design and construct contracts) are typified by greater input specifications and prescriptive requirements than outcomes focused contracts. In the context of setting the PSC, conventional procurement refers to the most likely, efficient and effective procurement method that would otherwise be used to procure the asset and services if the project were not procured as a PPP.
DBC
Refer: Detailed Business Case
DBFM
A form of PPP procurement that bundles the Design, Build, Finance and Maintenance components of the project (including associated risks) for delivery by the contractor. Responsibility for provision of operational services (and risk) is retained by the procuring entity.
DBFMO
A form of PPP procurement that bundles the Design, Build, Finance, Maintenance and Operational components of the project (including associated risks) for delivery by the contractor.
Debt provider
A consortium member that provides debt financing to the project.
Detailed Business Case (DBC)
The stage of the better business cases framework that requires further detailed analysis in order to recommend the investment and procurement option which optimises value for money. It seeks approval from decision-makers to finalise the arrangements for successful implementation. The detailed business case follows the indicative business case.
Economic Case
The business case component that identifies and assesses the main options available for delivering the required services against critical success factors, and recommends the preferred way forward, and how it may be achieved.
EOI
Refer: Expression of Interest
Equity provider
A consortium member that provides capital to the project through an ownership interest in the contractor.
Expression of Interest (EOI)
The stage of the procurement process in which the procuring entity conducts an open process to short list a predetermined number of respondents to participate in the request for proposals stage.
Facilities maintenance
Maintenance of the project facilities for the duration of the operating period.
Facilities maintenance contractor
A consortium member that provides facilities maintenance services during the operating period of the project.
Financial close
The time at which financing obligations (in particular, the final setting of interest rates, the base case financial model and unitary charge, and the process by which equity contributions will be made to the SPV) are set and agreed between the procuring entity and the contractor, in accordance with the financial close adjustment protocol.
Financial close adjustment protocol
The protocol to be followed at financial close to address a number of financing obligations and closing mechanics. Although the financial close adjustment protocol is implemented following contractual close, it must be agreed before the contract is signed.
Fitout
The fittings, furniture, equipment and other additions or alterations made or installed in the facility.
Government Rules of Sourcing
Standards of good practice for government procurement as published by the Ministry of Business, Innovation and Employment, many of which are mandatory. Rule 62 applies to agencies considering PPP procurement. http://www.business.govt.nz/procurement/for-agencies/key-guidance-for-agencies/the-new-government-rules-of-sourcing.
Handback
At the conclusion of the operating period, the asset must be handed back to the procuring agency in a pre-defined condition, at no additional cost.
IBC
Refer: Indicative Business Case
Indicative Business Case (IBC)
The stage of the better business cases framework that confirms the need for investment and recommends an indicative or preferred way forward for further development of the investment proposal, supported by a limited number of short listed options for further analysis. The indicative business case is followed by a detailed business case.
Input specification
A level of prescription or direction from the procuring entity as to how the asset ought to be designed or function, which may restrict the scope for innovation by RFP respondents and potentially result in greater risk being retained by the procuring entity.
Legal advisor
Provider of legal advice (to the procuring entity, or consortium members), including the provision of advice in relation to contractual, commercial, property, and resource management matters and review of the legal and commercial structure.
Lifecycle costs
The cost of replacing or refurbishing asset components during the contract period.
Market sounding
Engagement with potential private sector participants to highlight any innovative or unique elements of the project, gauge the level of market interest, and provide an avenue through which the private sector can provide feedback on the proposed structure and desired outcomes.
Operating period
The period from service commencement to the expiry of the project agreement.
Operational services
The front line public services delivered using the asset during the operating period (which can be contrasted with asset management or facilities maintenance services which keep the asset in the condition necessary to enable the operational services to be delivered).
Payment mechanism
The methodology for applying the performance regime to calculate the unitary payment for a period (and set out in a schedule to the project agreement). The payment mechanism and performance regime work together to determine the unitary payment for a period and therefore incentivise performance of the contractor's obligations under the project agreement and delivery of the project outcomes.
PBM
Refer: Proxy Bid Model
Performance regime
The performance standards expected of the contractor, including key performance indicators, and abatements to the unitary charge for performance below the standard required by the project agreement (and set out in a schedule to the project agreement). The payment mechanism and performance regime work together to determine the unitary payment for a period and therefore incentivise performance of the contractor's obligations under the project agreement and delivery of the project outcomes.
PPP contract
References to 'PPP contract' (or 'the contract') should be interpreted as references to the relevant project agreement.
Preferred Bidder
The respondent whose proposal best met the requirements of the project and has been selected to negotiate and execute the project agreement with the procuring entity.
Private finance
Equity and debt finance for the construction of the project provided by private sector investors and lenders. The use of private finance within the PPP structure place significant private sector capital at risk for non-delivery or non-performance of the project. Together with the performance regime and payment mechanism, the application of private finance incentivises delivery of the required service outcomes.
Procuring entity
The relevant public sector entity that is responsible for the procurement of the project and entering into the project agreement with the contractor under the project agreement.
Project (the)
The combination of assets and services required to be delivered by the contractor.
Project Agreement
The contract between the procuring entity and the contractor which sets out each party's rights and obligations in relation to delivery of the project.
Proposal
A consortium's submission in response to the request for proposals.
Proxy Bid Model (PBM)
The model used to calculate the estimated unitary charge that a contractor would require to finance and deliver the project to the level of performance specified in the project agreement. It is comprised of the costs of the risk adjusted reference project with private sector financing, tax and PPP specific costs added to it. It uses the same underlying capital, operating, risk management and tax assumptions as the PSC.
PSC
Refer: Public Sector Comparator
Public Private Partnership (PPP)
In the New Zealand context, a PPP is a long term contract for the delivery of a service, where provision of the service requires the construction of a new asset, or enhancement of an existing asset, that is financed from external (private) sources on a non-recourse basis, and full legal ownership of the asset is retained by the Crown.
Public Sector Comparator (PSC)
An estimate of the risk adjusted whole of life cost of a project if it were to be delivered by the procuring entity using conventional procurement methods, rather than PPP. The PSC is primarily used as a benchmark against which to assess the net present cost of procuring a project as a PPP.
Reference project
The whole of life asset and service delivery solution that would be procured using conventional methods if the project was not procured as a PPP. The reference project is primarily used as an input to the PSC and PBM. It should be designed, and its costs estimated, such that it is capable of achieving the same outcomes and performance standards that are expected of the private sector under the project agreement.
Request for Proposals (RFP)
The stage of the procurement process in which the short listed respondents develop proposals (in response to the request for proposals document) for delivering the project outcomes required by the procuring entity, through an interactive tender process. The procuring entity then evaluates the proposals with the objective of selecting one respondent as the preferred bidder.
Risk allocation
Risks are allocated (through the project agreement) to the party that is best able to manage and mitigate those risks, in order to drive delivery of the required service outcomes and value for money. All project risks are identified early in the procurement process, and the cost of those risk to the procuring entity determined. Risks will only be allocated to the private sector partner where they can manage those risks more effectively or efficiently than the procuring entity, and therefore provide a value for money solution.
Service commencement
The date from which the asset is available for use and unitary payments to the contractor begin.
Service outcomes
The services and outcomes required to be delivered to the public.
Special purpose vehicle (SPV)
The legal entity established for the sole purpose of entering into the project agreement with the procuring entity and sub-contracting with consortium members. The SPV will generally be a limited liability company or limited partnership.
SPV
Refer: Special Purpose Vehicle
Standard Form PPP Project Agreement
The model contract for PPP projects which forms the basis for PPP projects in New Zealand. It contains the core commercial principles and structure of the New Zealand PPP model. The base agreement, schedules, and contractual framework are available on the Treasury website.
The Treasury PPP Team
The Treasury PPP Team is the New Zealand Government’s PPP centre of expertise and is responsible for developing PPP policy and processes, assisting agencies with PPP procurement, the standard form PPP project agreement, engaging with potential private sector participants, and monitoring the implementation of PPP projects.
Unitary charge
The periodic (generally quarterly) amount due to the contractor in consideration for full performance of its obligations under the project agreement, as set out in the base case financial model. It is subject to adjustment in accordance with the performance regime and payment mechanism.
Unitary payment
The periodic (generally quarterly) amount that is payable to the contractor, as calculated in accordance with the payment mechanism.
Value for money
Value for money is achieved where PPP procurement delivers better outcomes from a project than conventional procurement methods for the same, or lower, net present cost.
Whole of life costs
The costs of the project over the duration of its useful life, including construction, operation, maintenance and lifecycle costs.

The definitions included in this glossary are to assist users of Treasury PPP guidance documents only. They are not intended to have any broader effect and in particular do not provide a guide to contractual interpretation.

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