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Public Private Partnerships
This project was added to the agenda because federal agencies have increasingly turned to public-private partnerships (P3s) to accomplish goals. Budget pressures are likely to further increase the use of P3s. Making the full costs of such partnerships transparent would be the overall objective of the project. Active work on this project would begin in FY2013 with final standards or guidance expected following a two to three year effort..
Specific objectives could include:
- Defining terms (e.g., service concession arrangements, P3s)
- Providing guidance for the recognition and measurement of:
- assets and liabilities
- revenues and expenses
- establishing disclosure requirements
- Considering guidance for other arrangements related to P3s (sale-leaseback or other long-term arrangements)
Why is a project on Public-Private Partnerships needed?
What questions / issues does the Public-Private Partnerships Project plan to address?
|Request(s) for Comment||Comment Letters||Final Pronouncement|
|Public-Private Partnerships: Disclosure Requirements (PDF) – Exposure Draft||Comment Letters||N/A – Currently Under Due Process|
HISTORY OF BOARD DELIBERATIONS (reverse chronology)
October 22-23, 2014 Board Meeting
P3 Phase 1 – Disclosures
The Board requests comments on the Public-Private Partnerships: Disclosure Requirements exposure draft, including the alternative view, by January 2, 2015 and encourages respondents to provide the reasons for their positions. The exposure draft in PDF format and the specific questions for respondents in Word format are available on the FASAB website at http://www.fasab.gov/board-activities/documents-for-comment/exposure-drafts-and-documentsforcomment/
In the press release dated October 1, 2014, the Board Chairman, Mr. Tom Allen notes that “federal entities are increasingly turning to the private sector to help finance and deliver infrastructure, facilities, goods, and services. The resulting arrangements involve risk sharing, are financially complex, and may impose long-term commitments. The information provided as a result of this proposed standard will help users answer questions concerning budgetary resources obtained and used, the costs of providing specific programs and activities, and the associated long-term risks.”
From the outset of the public-private partnerships project members agreed on the objectives of disclosing risks and in particular remote risks, noting the importance of establishing clear and appropriate principles related to risk disclosures while minimizing disclosure overload. Most members believe the proposed standards meet these objectives. However, one member supports an alternative view and proposes three changes to the proposed standards. The member supports (1) narrowing the definition of P3s, (2) limiting disclosure of remote contingencies and more clearly defining the disclosure threshold, and (3) excluding disclosure of business risks.
Mr. Allen says that “this exposure draft represents an important step in meeting the federal reporting objectives because the federal government is directly accountable to citizens for the proper administration of its resources to include the disclosure of long-term risks related to its programs and activities.”
Lastly, respondent comment letters can found at this link: http://www.fasab.gov/board-activities/documents-for-comment/exposure-drafts-and-documents-for-comment/public-private-partnerships-disclosure-requirements/
We wish to thank all Task Force participants and their sponsoring entities for providing the expertise and advice in developing the exposure draft.
P3 Phase 2 – Measurement and Recognition
At the October 22nd Board meeting, members considered three options for inclusion in its three-year plan concerning the P3 project’s second phase addressing measurement and recognition. The first option was to proceed at a regular pace finalizing guidance in 2016, a second was to temporarily defer and finalize guidance in 2019, and the third was to proceed, but with a lengthened timeline and finalize guidance in 2018. The staff recommendation was to include the third option in the three-year plan.
The Board’s discussion included the benefits as well as drawbacks of each option. Initially, no consensus existed as evidenced by each option receiving a fair amount of support among members. However, as discussions ensued, support for the deferral option gained momentum primarily due to its benefit of (1) allowing time to get results from the disclosure phase of the project and (2) knowing more about the lease standards and seeing results of the reporting entity standards. During the deferral, staff time can be assigned to other priorities. In a formal vote, the majority of members agreed to present the P3 project under the deferral option in the three-year plan. One member disagreed and voted for the third option and another member abstained.
The Board is actively seeking stakeholder input on the merits of its plan to defer this phase. The three-year plan will be released in mid-November and we encourage your input on this decision and other aspects of the plan.
August 27-28, 2014 Board Meeting
The Board briefly discussed and approved the final edits to its Exposure Draft (ED) entitled, Public-Private Partnerships: Disclosure Requirements. Mr. Dacey noted that he would be offering an alternative view expressing concerns about (1) the disclosure of remote risks, (2) the scope of the definition being overly broad, and (3) risks not being limited to contractual risks.
Staff began collecting ballots and advised members that they will see another version of the ED. It will include the alternative view and staff will share their view on whether any additional discussion in the Basis for Conclusions is necessary. Members will have an opportunity to retract their ballots pending the alternative view process.
During the Board’s review of its Annual Report and 3-Year Plan, members reviewed and discussed options for the P3 project’s next phase scheduled to address recognition and measurement issues. The central question was whether to defer the project’s second phase after issuance of the standard on disclosures. Some members noted that deferring the next phase allows the Board to follow and study implementation issues and resulting disclosures, thus providing additional insight into how best to proceed with the second phase; recognition and measurement. However, other members expressed a need to proceed directly to the recognition and measurement phase. These members noted that the prevalence of P3s and their apparent increase in use makes the next phase highly important. In addition, potential interaction with other projects such as leases and reporting entity, illustrates a need to proceed directly to the next phase.
To accommodate both views, some members suggested lengthening the P3 project’s time frame so that additional research and feedback initiatives can continue uninterrupted in the short-run, while any residual staff resources can be directed to other priorities. Staff was asked to consider such options and report back to the Board in October.
June 25-26, 2014 Board Meeting
Staff sought the Board’s input on the draft Exposure Draft (ED) with the objective of resolving any remaining technical issues. Members discussed four concerns: (1) whether materiality factors should be present in the document, (2) making it clearer that the guidance applies only to contractual arrangements, (3) that the draft guidance assessing remote risks is extremely broad, and (4) whether disclosures about remote risks would be understandable to users.
Specific to disclosures, it was generally agreed to add disclosures concerning financial statement amounts recognized related to the P3 arrangement/transaction and any contingent losses. Members also agreed to combine the most salient points of certain disclosures and to clarify that the amounts to be received or paid in the future would be for the next five years and in aggregate, thereafter. Members instructed staff to incorporate revisions as appropriate.
Members spent considerable time discussing issues related to materiality noting that the Board has historically provided flexibility by avoiding proscriptive guidance. Members seemed satisfied with the existing draft language around materiality and were not convinced that significant changes were needed. Staff noted a clear distinction between disclosing losses versus disclosing risks of losses and that the Board previously opined that different materiality thresholds could exist regarding each. There was general agreement to ask respondents whether they agree with the ED’s general premise of disclosing significant risks of losses which may be deemed remote and whether such a requirement would result in agency disclosure.
Members generally agreed to revise the draft ED’s response date to be after November 15 to ease administrative burdens due to the fiscal year-end close and to move the document into the pre-balloting phase.
April 23-24, 2014 Board Meeting
The Board reviewed a revised draft Exposure Draft (ED) on P3 disclosure requirements that reflects changes from the draft reviewed in March as well as changes subsequent to TAB G’s mailing. In reviewing the revised draft ED, members began with a review of the P3 definition that resulted in a change to indicate that the government may also share financing with the private sector.
The Board then discussed the language in paragraph 8 about the association of the guidance in SFFAS 5, Accounting for Liabilities of the Federal Government (contingencies) regarding recognition and disclosure thresholds and disclosures related to remote risks of loss. Members generally agreed to re-phrase the guidance in a manner to better facilitate application and to clarify the relationship between this proposed statement and SFFAS 5. The Board was clear that preparers should not dismiss disclosing risks that are deemed to be remote and asked staff to make this clear in the next revision.
In an attempt to narrow and focus the scope of this proposed statement, staff suggested the inclusion of two conditions in paragraph 17 which would in essence pre-screen arrangements prior to applying the risk-based characteristics. The Board discussed paragraph 17 and noted the overlap between the first condition (long-lived asset) and the fist conclusive characteristic. The Board agreed to take out the entire paragraph and to ask respondents about whether they believe a need exists for some type of front-end filter and to suggest some possible filters. Staff was asked to address this in the Questions for Respondents section of the ED.
A Board member was concerned that the ED did not sufficiently explain how probability and materiality are related or how to evaluate the materiality of a disclosure. Staff noted that historically, the Board has taken the position that because materiality is best left to the preparer and auditor, a standard-setter should not be seen as interfering in such judgments. Addressing this sensitivity, members discussed that a potential solution is to use the word “significant” and indicate what features are associated with significance. Furthermore, members discussed how materiality could differ in a disclosures-only standard compared to a measurement and recognition standard. Staff was asked to make the concept of materiality more operational in the proposed standards.
As a final topic, the proposed disclosures were discussed, and there was general agreement to require additional details about the payments expected to be paid or incurred over the life of the agreement. Various other edits were suggested, most notably the elimination of the illustrations in Appendix B. Staff was asked to begin preparing for the next step which is to draft a pre-ballot Exposure Draft.
If you or someone you know would like to join the P3 Task Force or if you have any questions, please contact Dom Savini.
March 5-6, 2014 Board Meeting
The objective of the P3 session was to review a draft Exposure Draft (ED) document entitled, Public-Private Partnerships: Disclosure Requirements. Some Board members were concerned that the P3 definition (par. 17 on page 16) was so broad and the conclusive characteristics so easy to meet that many contracts the Board would not want included in the scope, such as contracts for the acquisition of almost any large capital asset, would be included. Staff was requested to draft language that would exclude more contracts and/or adding a question to respondents about the breadth of the scope.
The Board considered the Conclusive and Suggestive characteristics beginning at paragraph 19 on page 16. Staff noted that the requirements are written such that if an arrangement first meets the definition of a P3 and has any one of the four Conclusive characteristics, disclosures are required. However, if none of the four Conclusive characteristics are met, then the Suggestive characteristics are applied and if an arrangement has one or more of these, there is discretion as to whether disclosure would be presented.
A Board member was concerned with how probability is considered in conjunction with the Conclusive characteristics suggesting that disclosures should not be required for P3s for which the risks of loss are remote. However, others expressed the view that considering the materiality of the risk would address that concern. Others questioned whether there was a sufficiently clear boundary around the population of risks that should be disclosed. Staff noted that circumstances in which the risk of loss is remote would fail to meet the definition of P3s, which discusses the sharing of presumably significant or material risks. Staff was advised that the language that filters-out remote risks should be improved if possible.
The Board then discussed the proposed disclosures at paragraph 23 on page 22. Although members seemed generally satisfied with the proposed disclosures, some Board members questioned the need for the disclosure (i.e., 23d.) of amounts expected to be paid and received over the life of the P3 and whether that helps explain the risks of the P3. However, others believed that this was needed because (1) some P3 arrangements are not required to be reported as liabilities and (2) commitments, as represented by payments are fixed.
Lastly a Board member questioned whether early exit (e.g., termination) costs were required to be disclosed as part of any of the proposed disclosures. Staff was requested to consider alternatives for this item.
December 18-19, 2012 Board Meeting
At the December meeting staff briefed the Board concerning four matters: (1) an updated draft P3 definition, (2) inclusion of an introduction to precede the draft P3 definition, (3) suggested revisions to the P3-Centric reporting characteristics, and (4) developing and harmonizing P3-Centric Disclosures in accordance with the Risk Disclosure Framework as presented at TAB B.
There was some discussion about whether the definition should refer to arrangements or transactions in which the government provides the financing as well as what constitutes multi-sector skills and expertise. Primarily because the definition is intended to be broad, without a formal vote, the Board agreed to proceed with the proposed definition as-is and the concept of including an introduction.
The Board then considered the example of an introductory section preceding the definition (as shown on pages 9 through 11 of TAB C) and discussed whether it is appropriate to refer to the concept of a legal liability as opposed to a concept referring to the acceptance of a responsibility that entities might not otherwise accept.
The Board also considered the content for the introduction; proposed to include the scope, general purpose, and general nature of P3s, as well as risks associated with them and the use of quantitative and qualitative disclosures. The discussion focused on how to determine when information should be disclosed based upon its qualitative aspects and whether auditors can attest to that information, such as the rationale for entering in to the P3. Staff reviewed two examples of potential qualitative disclosures and some members noted concern with how auditors might be perceived as needing to evaluate management’s decisions.
The final area of discussion was the proposal to develop disclosures considering the views of the task force and with the application of the risk disclosure framework. There was a general discussion about the unique aspects of certain P3s, what risks are present, and what disclosures might be made about them. All Board members agreed to the proposal to develop and harmonize disclosure requirements in accordance with the framework presented at TAB B.
Staff will meet with the P3 Task Force to discuss these matters and to further develop and refine P3-Centric disclosures and characteristics, respectively. Should you be interested in joining the P3 Task Force, please contact Mr. Domenic N. Savini at 202-512-6841 or via email at firstname.lastname@example.org.
October 23-24, 2013 Board Meeting
Pursuant to the Board’s August meeting advice, staff presented a (1) revised draft P3 definition along with an alternative definition for discussion and (2) revised presentation of the conclusive and suggestive characteristics to include language identifying the risk involved in each. In addition, a flowchart (i.e., waterfall or cascade approach) depicting how any forthcoming P3 guidance would relate to existing standards, including the exposed federal reporting entity standards, was provided as an attachment.
Preceding the Board’s discussion, several task force members joined with staff to discuss the project and answer member questions. Task force member comments include:
- The importance of protecting the best interests of the taxpayer
- P3s are a very good way of delivering public value that would otherwise not be achieved
- P3s must not be done in darkness and we need to foster accountability and sound accounting
- Ill-advised and inconsistent guidance is being provided from outside sources
- Materiality needs to be considered from a qualitative view because what might be immaterial from a quantitative view may not always be immaterial qualitatively
- No prudent private sector participant in a P3 would fail to take each of the nine recommended task force disclosures into consideration and as such, government agencies should be on equal footing by also considering and communicating these nine disclosures
After a robust discussion concerning what a federal P3 definition should accomplish relative to financial reporting, the Board decided that a broad P3 definition accompanied by risk-based characteristics should be pursued. Overall, members agreed to continue to work with the revised draft definition they worked on in August. However, the Board asked that the task force continue refining the proposed characteristics.
As a result of the discussion and decisions made, the Board will proceed with a definition that captures a wide universe of arrangements or transactions which will then be pared down.
If you are interested in joining the P3 Task Force or know of someone who might be interested in its work, please consider contacting Mr. Domenic N. Savini at 202-512-6841 or email him at email@example.com.
August 28-29, 2013 Board Meeting
Pursuant to the Board’s June meeting advice, Staff presented 3 major topics for discussion: (1) a Suggested Draft P3 Definition/Description, (2) revised and newly categorized Potential P3-Centric Reporting Characteristics, and (3) potential disclosures related to fiscal exposure (risk). This phase of the project is intended to identify P3s for which general disclosures regarding the arrangements and associated risk are needed.
Suggested Draft P3 definition/description developed by the P3 Task Force
Some members had a concern that many of the terms used were too vague to be used in any forthcoming guidance. For example, terms such as “traditional” and “risk-transfer” seemed to require greater explanation and suffered from being relative to conditions at a point in time. That is, what is “traditional” may change of time. Other members noted that concepts of unusual risks and ownership relationships might need to be worked into the definition whereas others wanted to pare down to definition to just reflect the P3s that would be within the scope of the potential standard. Staff reminded members that (1) the draft definition/description is intended to be universal in nature capturing all types of P3 activities and different classes of assets and, (2) the draft definition/description is intended to be malleable and changes can be made as we progress through the project.
Revised and newly categorized Potential P3-Centric Reporting Characteristics
The intention of the characteristics is to basically eliminate from reporting those P3 arrangements/transactions that pose no (1) financial asset/liability recognition or de-recognition concerns, and (2) other fiscal exposure/risk that could lead to a liability. For example, an arrangement or transaction would have to first meet the definition or description of a P3. Then, if the arrangement or transaction met (1) a singular conclusive risk characteristic or (2) using managerial judgment, one or some of the suggestive characteristics, disclosure would be required.
An overly simplistic graphical flow diagram of the Task Force’s initial reporting process follows:
Member feedback on the revised, newly categorized (conclusive and suggestive) characteristics was sought and staff was asked to write the characteristics as statements and not questions, and to add language identifying the risk involved.
Potential disclosures related to fiscal exposure (risk).
The Board discussed the overall objectives of the P3 disclosures including the relevance to reporting objectives, nature and magnitude of the risks and rewards, and the complexity of P3 relationships in general.
There was concern about the volume of disclosures this proposal could produce and questions as to whether the financial statements are the appropriate forum for all of this information. Generally, the Board seemed more concerned with the risks to which the government is exposed in contrast to what could be considered operational or performance oriented disclosures.
In conclusion, staff was asked to share this information with the Task Force and to continue making progress towards the next phase dealing with measurement and reporting.
If you are interested in joining the P3 Task Force or know of someone who might be interested in its work, please consider contacting the point of contact listed below.
June 19, 2013 Board Meeting
The Public-Private-Partnership (P3) project is in its early stages and the June Board meeting broadly focused on several issues affecting both scope and approach to the project.
Staff noted that for those P3s that are in essence long-term leases, the Board could address such arrangements/transactions through a technical bulletin when the leases project is substantially finalized. However, in those cases where long-term leases are part of a broader set of agreements, P3 risk could create fiscal exposure and such matters would be best addressed through an overarching standard that emphasizes substance over form.
As a result, staff recommended that the Board look at the risks and rewards of P3s (i.e., a P3s’ underlying business model) and first consider fiscal exposures before addressing what assets and liabilities may need to be reported.
Board members and staff then discussed 2 areas of concern (1) the relationship of the P3 project to the Risk Assumed project and (2) the financial component of P3s. In addressing these areas of concern, staff and members discussed the P3 touch-points among active projects by reviewing a chart entitled P3 Project in Relation to the Other Active FASAB Projects and the 17 Major P3 Accounting Practice Issues on pages 26 and 29 of the staff briefing paper, respectively.
The Board then reviewed the preliminary Potential P3-Centric Reporting Characteristics/Criteria shown on page 49 of the staff briefing paper. Each of these preliminary characteristics/criteria have been organized under very general P3 life-cycle stages and would be used by preparers to distinguish those P3s that should be considered for reporting through disclosures in connection with entity-specific materiality tolerances. The intention of the criteria is to eliminate from this reporting those P3 arrangements/transactions that pose no (1) financial asset/liability recognition or de-recognition concerns, or (2) other fiscal exposure/risk that could lead to a liability. Members agreed to await further development of the characteristics/criteria and asked staff to simplify their presentation so that the potential for increased fiscal exposure/risk can be more readily apparent.
Staff noted that the next steps of the project include finalizing the potential P3-centric reporting characteristics/criteria and further evaluation of the 17 major P3 accounting practice issues. The project was tentatively scheduled to issue guidance on additional disclosures about fiscal exposure/risks in fiscal year 2015 with final standards or technical bulletin(s) following in fiscal year 2017. Some members were concerned that recognition matters were not being addressed before guidance on additional disclosures about fiscal exposure/risks. Staff reassured members that recognition matters were intended to be worked concurrently with other aspects of the project.
During the meeting Mr. Allen stated that a significant value he sees arising from this project is in assisting and guiding preparers to the applicable accounting literature when reporting on P3 arrangements/transactions.
In conclusion, although the Board generally supported the direction of the project of identifying and disclosing P3 risks (fiscal exposure), it deferred specific decisions on other aspects of the project, including pursuing guidance to address the identified 17 major accounting practice issues, pursuing technical bulletins to address P3s that are in essence long-term leases, and determining whether the characteristics/criteria to identify reportable P3s are appropriate.
April 24-25, 2013 Board Meeting
The P3 Project was not discussed at the April Board meeting. In consultation with the P3 Task Force, Staff is continuing research and conducting agency and industry fact-finding meetings. If you are interested in serving on the P3 Task Force or would like to discuss any aspects of the project, please contact Mr. Savini.
February 27-28, 2013 Board Meeting
The inaugural meeting of the P3 Task Force was held on February 13th at the GAO Building, Washington, DC. The meeting was well attended with a good mix of federal agency, commercial sector, and citizen-centric points of view. Participants came from diverse disciplines such as accounting, auditing, facilities management, financial reporting, housing, information technology (IT), commercial and investment banking, procurement, and program management.
The majority of participants agreed that there is significant interest in P3’s across the diverse disciplines represented. It was noted that conditions such as current budget constraints and capacity (i.e., contingency) planning are driving some agencies to look at various types of P3 models to accomplish mission.
Interestingly, both federal and private participants agreed that there is a strong counter-pressure against the use of P3’s noting that this probably arises from the “off-balance sheet” or “off-budget spending” stigma associated with these arrangements.
A citizen viewpoint that was raised stated that absent empirical evidence supporting the notion that P3’s in fact work, a citizen’s concern is that the government is assuming more risk than it would otherwise and in light of the fact that many private companies are flush with cash, while agency budgets are tight, seems to suggest that this be an area of careful consideration.
Participants discussed the pros and cons of (1) developing a federal-wide P3 definition, (2) surveying agencies to ascertain nature and type of P3’s that exist to help with refining P3 project scope, and (3) P3 accounting asymmetry (opposite-view accounting). Participants also offered suggestions as to the types of issues that the federal accounting community might wish to consider as it moves forward with the project.
Our next meeting is scheduled for April 11th and if you would like to join the P3 Task Force or attend any of its meetings, please contact Dom at the contact information shown below. We always welcome additional members and their viewpoints.
December 19, 2012 Board Meeting
Due to scheduling changes the P3 session was moved to the last session of the day and significantly abbreviated. Mr. Allen began the meeting by asking members to take a few minutes each to not debate matters but rather limit comments to tentative feedback to staff’s proposal. Staff indicated that the most important question in TAB C was the one dealing with scope. Staff is proposing that if the Board wants to address public-private partnerships in the Federal space, we have to go broader than both GASB and the IPSASB standards; both of which limit coverage to Service Concession Arrangements (SCAs).
Although members did not object to expanding the project scope beyond service concession arrangements they noted that (1) the complexities involved may necessitate us to later re-focus to a more narrow scope, (2) we should look to establish uniform principles-based guidance to enhance comparability among agencies, (3) gaps in existing guidance should be highlighted, and (4) we should avoid duplicating guidance and standards-overload.
The Board briefly discussed the matter of whether to issue technical guidance as a form of educating preparers and users or a separate set of P3 standards. Much will depend upon whether there are significant gaps in our current guidance. Regardless of the form that the final deliverable may take, the Board was clear that forthcoming guidance must be consistently applied and grounded or covered by an overarching principle(s).
We are seeking volunteers at this time and if you or someone you know would like to join our task force, please notify the staff person identified below.
August 30, 2012 Board Meeting
Two major issues were addressed by the Board at this meeting; (1) whether to defer the
P3 project and (2) consider issuance of a Technical Bulletin in lieu of a Standard.
Deferring the P3 Project - Staff detailed initial concerns earlier in the year which led to
asking the Board whether the project should be deferred until additional progress was
made on the following two related projects:
- Federal Entity – Staff noted that in light of progress the P3 project is in a much
better position to proceed.
- Leases – due to the transactional complexity of many P3 arrangements that
currently exist, if operating leases are retained and in some manner changed, P3
reporting could be affected.
Staff noted continued concern with the uncertainty of the Leases project.
Members did not see a compelling reason to delay the project and were in general
agreement that staff should continue its efforts coordinating with both the Federal Entity
and Leases initiative.
Technical Bulletin - The Board reviewed staff’s recommendation to issue a Technical
Bulletin instead of a Statement. Staff noted that it would like to avoid duplication with
existing FASAB GAAP which is fairly robust in providing guidance to help preparers
account and report for P3’s. Staff indicated that a Technical Bulletin or “How to” guide
would be beneficial to preparers.
Members generally noted that P3’s are complex and would require significant study
before such a conclusion could be reached noting that staff might in fact find gaps in
existing guidance. As a result, the Board reserved judgment in this regard.
The next step will be revising a detailed project plan. Staff invites volunteers who would
like to either sit on a Task Force or serve as “go-to” subject matter experts.
April 26, 2012 Board Meeting
As part of FASAB’s technical agenda-setting process, this project was added to April’s agenda because federal agencies have increasingly turned to public-private partnerships to accomplish goals and are facing budget pressures that are likely to further increase the use of public-private partnerships.
Staff recommended deferring this effort until more progress has been made on the reporting entity and leases projects because many of the public-private partnership issues will be addressed through those standards now under consideration. Staff further noted that as a minimum, standards for public-private partnership should be consistent with standards developed in these related areas. To assist the Board in deciding whether to defer this project, members asked staff to provide illustrations highlighting some of the more important issues arising from the use public-private partnerships.