Access 22bn in Public Private Partnership (P3) funds. Do you know how to structure for liquidity?
Approaching a project begins with conceptual planning. In a project life cycle five phases exist. The first phase is Initiation - a phase in which brainstorming, concepts of scope and feasibility of activities occur. The second phase is Planning - a phase where conceptual ideas come together to form concise scope with targeted milestones. The third phase is Execution - a phase where planning documents (such as project charter, quality control plan, Gannt chart, et cetera) implement your activities. The fourth phase is Monitoring & Control - a systematic phase that deals with assessing activities, observations of project schedule, quality measurement & cost controls. The final phase is Closing - a phase measured by scope achievement, activity measurement and objective completion.
What does each phase encounter as its constraint?
The answer to all phases constraint is very simple. All project phases have "money" as their constraint.
Each phase requires funds to allocate for time, human resources, opportunity cost and hard costs (such as materials, equipment, et cetera). The cost of each phase reflects scope of activities and resources required. Initiation and Planning are largely time, human resources and "potentially" opportunity cost. Execution largely consists of materials, labor and equipment as its cost.
All phases require money. Without proper capitalization projects stall, achieve results not originally planned (failed scope) or fail outright.
SOURCE OF MONEY
Our source of money comes from a robust infrastructure that models out the following impressive statistics:
As we review the statistics above we assess the accuracy of proper structuring. Not only does sound institutional support exist - it thrives.
These organizations are not a secret. The approach that accepts your P3 project consists of cohesive documentation with proper institutional advisement. Obtaining Registered Investment Advisors (RIA), Broker Dealers, Book Runners and other underwriting eligible institutions is required to be considered. Often these institutions consist of the same syndicate structures you are familiar with. These institutions range from World Bank, IMF, to IFC.
BASIC ITEMS NEEDED FOR CONSIDERATION
The framework of our establishment is robust. The structure that institutional P3 financing searches for exist in sound models. Sound models have the following:
1) A Sound Project Charter.
2) A 3rd Party Financial Valuation (AFA or CFA Certified).
3) A Cohesive Project Scope - Detailed in a Statement of Work (SOW).
4) A Completed Application to Register a Corporation's private debt security to an internationally recognized exchange.
5) A Foreign Corporation formally registered in the domicile that the P3 looks to occupy.
6) A Letter of Support from the sponsoring authority.
7) A Formal Tender Request or Request For Proposal (RFP).
These items are the basic requirements to consider a P3 project "tangible". The sources we solicit are institutionally sponsored institutions that earmark funds through established programs.
ADDRESSING THE RISK & WHAT DISQUALIFIES YOUR PROJECT
Large institutions are concerned with the following risk models:
1. No insurable interest
2. No financial solvency
3. No accountability or third party review
4. No financial commitment in planning stages
5. No professional warranting material under Error's & Omission Insurance
These risk models are overlooked by inexperienced professionals. These risk models are not addressed in the beginning stages of first time project principals. Let's analyze these few items in detail.
UNDERSTANDING YOUR DISQUALIFYING FACTORS IN DEPTH
No Insurable Interest. No Insurable Interest means the project principal is not able to be insured against death, incapacity, incompetence, or negligence. These policies are known as Directors & Officers Insurance (D&O) Policies and Key Man Insurance Policies. If you are going to act as an officer or board member, you’re going to have a fiduciary duty to your investors. This means they can hold you liable if they feel you breached that duty. D&O insurance can be a critical protection even if you don’t have investors. Your stakeholders can make allegations such as unfair trade practices, tortious interference or fraud allegations that aren’t covered by a general liability policy. Over a quarter of all private companies experienced a D&O-type loss according to a Chubb report. The average total cost for companies without D&O insurance is $394,000 following these types of losses. The highest reported loss clocked in at over $17,000,000.
Failing to address D&O is the way of disqualifying yourself on an initial underwrite from 99.9% of all project funding options available in the market.
No Financial Solvency. No Financial Solvency means your corporation lacks the liquidity to have 5-8% of your project budget. Governments entrust projects to those organizations that do not solely depend on "Other People's Money" (OPM). Often entrepreneurship promotes capitalization from other sources. This can be achievable; however, it must be done under a "Shareholder Structure" that is organized before approaching a P3 financing source. More importantly the entity approaching the financier must be organized as a Corporation. A Corporation is seen as a separate legal entity; whereas, a Limited Liability Company (LLC) is an incorporated partnership. Each member of an LLC has an equitable claim to its stake in the company. Very seldom will a person contribute all the capital to a Limited Liability Company only to have majority of its capital contribution be claimed by another. Accounting will reveal lack of claim, control and vesting. More importantly Limited Liability Companies are typically ineligible to receive large funding due to their weak corporate veils.
Failing to address Financial Solvency is another way of disqualifying yourself on an initial underwrite from 99.9% of all project funding options available in the market.
No Accountability or 3rd Party Review. Failure to have attorneys, project managers (carrying E&O and certified), and accountants is recipe for failure. Project principals who have these titles fail to meet the standards due to conflict and bias. Fiduciaries that are employed by your organization have ethics that supersede a project principal's desire to get a deal done. Having accountability balances the risk to reduce the likelihood of fraud.
Failing to address fraud concerns and proper financial reporting is another way of disqualifying yourself on an initial underwrite from 99.9% of all project funding options available in the market.
No Financial Commitment in Planning Stages. Financial commitment is assessed by a project principal's willingness to retain competent professionals. Sweat equity is valued only so far as time, leadership and ability to conceptualize. Third party involvement showcases seriousness and commitment to process. Without any stake in a success or failure it is difficult to instill confidence in third party money. The adage of "What skin in the game do you have?" is a relevant factor in today's climate. Lack of financial commitment on your side equals lack of financial commitment on funding.
No professional warranting material under E&O. Due Diligence cost runs high for projects who cannot provide third party verification. Human resources, background checks, and time allocations are high. The failure to discover potential pitfalls falls on the responsibility of the financier. E&O coverage provides an insurance policy against: fraud, misrepresentation and false warranties. Prudent project principals take time to compile information, and obtain third parties to promote their information with safeguards. Protecting your presentation with a third party E&O certificate provides confidence that material presented is true & accurate.
Failing to address fraud concerns and safeguarding potential financiers against misstatements or errors is another way to disqualify yourself on an initial underwrite.
PROPER FORMAT PROPER FUNDING
Proper format and structure is the key to unlocking your liquidity. Project Principals should take care to assess requirements of funding prior to undertaking a project. Knight Advisory & Planning takes careful time to advise you through the structuring of your P3 Project. Take the time to have a free consultation so you can better understand your options. Regardless of your project condition or phase allow us to offer a free case study. Get started today by submitting your application or contacting us!
Knight Advisory & Planning (KAP) is the only company to primarily focus on Public Private Partnerships (P3) since 2006. KAP operations are spread across countries of the world to serve this need. KAP Network consists of core partners surrounded by interlocking networks of consultants and affiliates in key trading countries and disciplines. We maintain Master Project Manager (MPM) who are American Academy of Project Management (AAPM) certified and are experienced in the following industries: construction, development, finance, technology, FinTech, biotechnology, production, R&D, and manufacturing. With over twenty (20) years of experience let us guide you through the P3 process.