Sunday, August 5, 2012

Public Private Partnerships and the Execution of the Nations First Responders Broadband Network for Public Safety

In highlighting the FCC’s recent announcement, dated July 31st, I would like to touch on the topic within Section 25 where it covers a solid foundation of funding sources to help justify the issuance of a STA. This is only the tip of the ice-berg. I would not advise trying to go it alone. The complexity of a multi-million/billion dollar program would be at stake. 
To help justify such a large and complex broadband solution, that will inherently be able to collect revenue, administer services and maintain long-term operations, it is important that each State understand its obligations of developing a solid framework of regulatory capabilities in administering its Public Private Partnership. This goes way beyond the governance model of executing a project timeline or instituting technical design standards. This regulatory solution is to construct a solid system of financial modeling observance that will help with mitigation and its administration of contractual alliances throughout the partnership framework. This is a highly complex topic to which I will not cover here in great detail, but to illustrate I have started with the basics of the contractual models to make this affective. 
  • Special Purpose Vehicle construct (Private third party entity, Project or Program profile)
  • Political support beyond pilot or trial stage
  • Procurement process and complexity of valuation
  • Risk transfer sublets to investors, service providers, etc..
  • Availability of appropriate funding
    • Short or long term
    • Equity position, shareholder agreements, non-recourse debt
  • Market focus and competition
  • Political will
To further illustrate I have illustrated below some common contractual frameworks that most are familiar with. The frameworks are nothing new and can be modified to fit the initiative, but they do provide some basic insight into the types of Public Private Partnership contracting frameworks. The most likely candidates for the Public Safety Broadband Network deployments will be the highlighted top two.  What’s most important , and I can not stress this enough, is the alignment of the business model and the requirements of the stakeholders as laid out in the contractual framework for execution. 
  • Build-Own-Operate (BOO): The private investment partners will provide financing and will construct, own and operate the broadband network as well as provisioned services in perpetuity. The public constraints are stated in the original agreement and through on-going regulatory obligations. Typically we could also see a design element here but most of the design characteristics would have already been completed by the FirstNet Board prior to a States rollout. 
  • Operating License: A private operator receives a license or rights to build and operate a public service, usually for a specified term. Similar to BBO arrangement. This has been the most widely used format within the telecommunications projects but mainly overseas. Success has been intermittent mainly due to its implementation through commercial carriers. What really lacks here is that the solution would utilize existing constructs of service provisioning and hardening requirements per the carriers business objectives, which means the State would risk outages due to catastrophic events. 
These are other variants of Public Private Partnership frameworks, but these would not be advised.
  • Provision (e.g., Specific customer services or operation & maintenance) contract: A private operator, under contract, operates a publicly-owned asset for a specified term. Ownership of the asset remains with the public entity. With this model the State, and FirstNet, would lose the revenue base of operations which would be needed for the “self funding” capability to administer long-term operations and maintenance. 
  • Management contract: A private entity contracts to management a Government owned entity and manages the marketing and provision of a service.  This format lacks complexity and would not be cost effective in how it collects revenue, shares risk, investor adherence, nor the introduction of approved and installed assets which may already exist.  
  • Lease and operate contract: A private operator contracts to lease and assume all management and operation of State owned facility and associated broadband services, and may invest further in developing the service and provide the commercial service for a fixed term. This model basically expands the commercial industry model and thus may not be able to fulfill requirements of staying “Public Safety” in its service approach. Such a format would open the door for commercialization of services which could be detrimental to the execution of public safety solutions. 
  • Design-Build-Finance-Operate (DBFO): The private sector designs, finances and constructs a new facility under a long-term lease, and operates the facility during the term of the lease. The private partner transfers the new facility to the public sector at the end of the lease term. The real obstruction to this format is the leasing arrangement and the fact of transfer to a government entity. This broadband solution is best placed and run from the P3 concept indefinitely. 
  • Build-Operate-Transfer (BOT): A private entity receives a franchise to finance, design, build and operate a facility (and to charge user fees) for a specified period, after which ownership is transferred back to the public sector. This has been used in telecommunications service contracts. Same as bullet above. The broadband solution will have long-term leasing arrangements that will preclude it from passing ownership back tot a government entity due to revenue collection model. This is not precluded form government takeover in the event of financial difficulties or failure of the business model. 
  • Buy-Build-Operate (BBO): Transfer of a public asset to a private or quasi-public entity usually under contract that the assets are to be upgraded and operated for a specified period of time. Public control is exercised through the contract at the time of transfer.
  • Finance Only: A private entity, usually a financial services company, funds a project directly or uses various mechanisms such as a long-term lease or bond issue.Design
  • Build (DB) or “Turnkey” contract: The private sector designs and builds infrastructure to meet public sector performance specifications, often for a fixed price, so the risk of cost overruns is transferred to the private sector. Once again transference is the issue. 
If you need some help just let me know.
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