Autorizado por la Comisión Estatal de Elecciones: CEE-C-12-065

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Autorizado por la Comisión Estatal de Elecciones: CEE-C-12-065
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General Disclosure
This Desirability and Convenience Study (the “Study”) has been prepared pursuant to the requirements of
the Puerto Rico Public-Private Partnerships Act (the “Act”). This Study seeks to determine whether the
establishment of the proposed Public-Private Partnership (“PPP”) described herein is advisable.
The Study was formulated according to the Desirability and Convenience Study General Guidelines of the
Public-Private Partnerships Authority (the “Authority”). It was commissioned to CPM (“Caribbean
Project Management”) (the “Advisor”) as part of a financial and procurement advisory engagement
among the Advisor, the Authority and the Juvenile Institutions Administration (the “JIA”), which is the
Partnering Government Entity in the proposed PPP. Advantage Business Consulting was subcontracted
to assist in the Study. The Authority and the JIA collaborated in the preparation of this Study. The
compensation of the Advisor was not conditioned in any way on the outcome of this Study.
This Study is based on information provided by the JIA, market information obtained from sources
believed to be reliable, and estimates and assumptions made by the Advisor. Actual results may vary
from those anticipated in this Study. Changes in the correctional industry, local state and federal laws, the
federal civil case involving the Puerto Rico juvenile correctional system (discussed herein), or shifts in
the overall economic conditions may occur that can alter the assumptions and conclusions presented in
this Study.
The Government of Puerto Rico has the obligation to comply with the stipulations entered under a
consent decree that settled the case USA v. Commonwealth of Puerto Rico, Administración de
Instituciones Juveniles, Et. Al, 94-cv-2080 (the “Civil Case”). The plaintiffs in the Civil Case alleged
violations of their constitutional rights due to institutional conditions and deficiencies in services provided
therein at the time. The federal court appointed a monitor (the “Monitor”) to ascertain compliance with
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the stipulations of the Civil Case. The Authority requested the Monitor to provide comments regarding
the potential impact of the proposed Project on the compliance with the Civil Case stipulations1.
The Authority has received and has given due consideration to the feedback presented by the Monitor at
this stage of the project, and will continue to take into account the Monitor’s comments in future stages of
the Project as they come due and the Authority deems it appropriate.
The Authority makes no representation or warranty whatsoever, including representations and warranties
as to the accuracy or completeness of the information contained in this Study, including estimates,
forecasts or extrapolations. The Authority expressly disclaims any liability for any representations or
warranties, expressed or implied, contained herein, for any omissions from this Study or for any other
matter related to this Study.
The Act and the Authority’s regulations, as well as all applicable Puerto Rico and federal laws and
regulations, will govern the dissemination of this Study.
1
In general terms, the Monitor pointed potential compliance risks in the following areas: (1) Settlement Agreement
Paragraph 29 regarding compliance with the American Correctional Association (ACA) standards, (2) Settlement
Agreement Paragraph 52 regarding classification of youth in custody and detention, (3) Settlement Agreement
Paragraph 48 regarding staff to youth ratio, (4) funding for compliance, and (5) maintenance. Finally, the Monitor
reiterated that the United States, as a party to the Civil Case, should be consulted as the Project progresses.
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TABLE OF CONTENTS
Executive Summary ........................................................................................................................ 1
Part A: Planning Future Service Delivery .................................................................................. 2
Part B: Service Delivery Options Analysis ................................................................................. 4
Part C: Procurement Decision..................................................................................................... 5
Part D: Affordability Analysis .................................................................................................... 7
Part E: Economic Impact Analysis ............................................................................................. 9
Recommendation ........................................................................................................................ 9
Introduction ................................................................................................................................... 10
Part A: Planning Future Service Delivery .................................................................................... 13
A.1
Project Description ......................................................................................................... 13
A.2
Key Drivers of Service Needs ........................................................................................ 15
A.3
Overview of the Juvenile Institutions Administration ................................................... 24
PART B: Service Delivery Options Analysis ............................................................................... 27
B.1
Service Delivery Options ............................................................................................... 27
B.2
Risk Assessment and Procurement Method ................................................................... 28
B.3
Optimal Risk Transfer Option ........................................................................................ 31
B.4
Results of Market Soundings ......................................................................................... 34
B.5
Benchmark Against Other Jurisdictions......................................................................... 35
PART C: Procurement Decision ................................................................................................... 38
PART D: Affordability Analysis .................................................................................................. 41
PART E: Economic Impact Analysis ........................................................................................... 44
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EXECUTIVE SUMMARY
This Study seeks to determine whether it is advisable to establish a new juvenile detention and treatment
facility for Puerto Rico through a public-private partnership (“PPP”) procurement method. The Juvenile
Institutions Administration (the “JIA”) is interested in constructing a new juvenile detention and social
treatment campus complex with a capacity for 600-beds (the “Project”). The Project has the following
objectives: i) offer enhanced infrastructure with a robust maintenance program based on performancemetrics; ii) offer best-practices and high-standards in accommodations and space programming and
design; iii) achieve full compliance with all federal and local laws, especially with any federal civil case
applicable to the juvenile correctional system in Puerto Rico; and iv) generate savings by addressing the
issue of system fragmentation and achieving efficiencies.
The Study is composed of four sections:

Planning Future Service Delivery: describes the actual service needs for the juvenile population
and JIA.

Service Delivery Options: includes an analysis that determines the preferred procurement option
for the Project.

Procurement Decision: evaluates whether the preferred procurement option results in savings or
value for money to taxpayers.

Affordability Analysis: analyzes if the Project is affordable.
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PART A: PLANNING FUTURE SERVICE DELIVERY
The JIA is the entity of the Government of Puerto Rico responsible for providing detention and
rehabilitation services to young offenders in Puerto Rico. Presently, JIA operates six juvenile facilities
with an average population of 528, out of a total capacity of 798 beds.
JIA is confronting several factors that are driving change and will have a significant impact in the juvenile
system:

The combination of demographic trends, declines in the number of young offenders, and lower
non-homicide crimes, are already provoking an excess capacity in the juvenile system. Total
juvenile offender population in Puerto Rico has declined consistently over the past 10 years.2
Presently, the average capacity rate in the juvenile system is 66%. The combination of these
factors will continue to pressure the cost-effectiveness of having six juvenile facilities.

There is a clear need to reach full compliance with the federal civil case in the juvenile system.
Civil Case No. 94-2080 (the “Civil Case”) has been outstanding since 1994. JIA is interested in
taking steps that will facilitate greater effectiveness in meeting all the stipulations of the Civil
Case and allow it to remain in full compliance well into the future.

The present system of six juvenile facilities is a fragmented network which has a real financial
impact on JIA’s budget. JIA considers there would be opportunities to generate savings, which in
turn would strengthen the rehabilitation efforts of young offenders by establishing a new campus
complex with shared services.
2
Juvenile Institutions Administration statistics on the juvenile offender population and system capacity, Fiscal Years
1999 – 2011.
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The general goals for the Project can be summarized as follows:
JIA Goals for the Project
 Develop a new facility with a robust long-term maintenance program based on performance metrics.
 Provide best-practices and high standard accommodations that will strengthen rehabilitation services.
Improve other services, such as those for special education and health.
 Advance compliance with the Civil Case. Fully meet stipulations of the Civil Case related to the
construction and maintenance of new juvenile detention and social treatment campus complex.
 Address the fragmentation of facilities in the juvenile system and achieve savings.
The establishment of the Project is consistent with the goals and needs of the JIA and the overall public
policy objective of placing an emphasis on and enhancing rehabilitation services.
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PART B: SERVICE DELIVERY OPTIONS ANALYSIS
The Study evaluates two alternative options to deliver the Project: Design-Build-Finance-MaintainOperate (“DBFMO”) and Design-Build-Finance-Maintain (“DBFM”).
While DBFMO achieves
maximum transfer of risk, it represents a major shift in the provision of correctional services in Puerto
Rico. As such, it would naturally face greater implementation and execution risks than DBFM, and will
lead to a higher risk profile for the Project.
Based on the Effectiveness of Risk Transfer and the objectives of the Government of Puerto Rico outlined
in Part A of the Study, the best option for delivering the Project is a DBFM structure. The DBFM not
only meets the objective of the Government, but also reduces the risk of completion and attracts higher
private sector competition. However, it is important that the JIA establish a formal mechanism for
contract monitoring in order to reap all the benefits from the DBFM structure.
Service Delivery Options
and Configurations
DBFM
Private
O
Public
DBFMO
Private
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Assessment
Comments
Desirable
Most common model worldwide.
Achieves life-cycle savings in the
physical facility.
The public sector
retains operational risk. Maximizes the
probability that the Project is brought to
completion.
Enhances competitive tension.
Desirable but
Higher Project
Risk Profile
Represents the delivery option model
with the highest transfer of risks to the
private partner. Capable of reducing lifecycle costs due to full integration of
Project phases. But presents execution
challenges due to shift in the provision of
correctional services in Puerto Rico that
will result in a higher risk profile for the
Project.
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PART C: PROCUREMENT DECISION
The evaluation of the procurement option for this Project determined in Part B is mainly concerned with
identifying the method of delivering the Project that will result in the greatest Value for Money (“VFM”)
on both a financial (quantitative) and social (qualitative) basis. The DBFM model is recommended.
As literature suggests, maintenance costs provided under the PPP option is expected to be lower than
those achieved under the Public Sector Comparator (“PSC”). These savings could range from 10% to
40%. Contract management, including monitoring performance, is critical for the success of any PPP
project and such costs by the JIA are an integral part of the cost of pursuing a PPP.
In addition to transferring the risks of maintenance, a DBFM will shift the risks of equipment replacement
costs to the private sector. Therefore, it will incentivize the private sector to provide better quality
construction and equipment. The public sector may forego proper maintenance, reducing cash outlays in
the short term but incurring large costs in terms of the facility’s deterioration, earlier than anticipated
replacement cost, and the resulting lack of performance during equipment or facility breakdown periods.
The private sector partner is bound by contract to provide appropriate maintenance.
Private direct financing cost is probably higher for the PPP option. It was estimated that the private sector
could finance the Project at a rate of 7%, while the public sector could do so at a rate of 6%. The higher
private cost is compensated by the benefits of eliminating the need to utilize a portion of the
Commonwealth’s bonding capacity to finance the Project.
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The VFM results are presented in the following table:
Value for Money
100%
80%
60%
40%
20%
0%
PSC
Capital Cost
Shadow Bid
Maintenance Cost
Retained Risk
The VFM results show potential net savings between the PSC and the Shadow Bid of 6.0%. Therefore,
the recommended procurement option would be a PPP delivery of the Project with a DBFM structure.
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PART D: AFFORDABILITY ANALYSIS
Although Part C suggests that the Project should be delivered through a PPP model, its affordability must
be considered in terms of the public sector budget and/or funding constraints.
In order to illustrate affordability, a potential shared services plan of a juvenile detention and treatment
campus was modeled. The new facility would represent operational savings over smaller facilities.
However, the proposed 600-bed campus style complex would entail a significantly higher capital cost
than current facilities, as well as transition costs.
The Study estimated that, on present value terms, the value of savings would be approximately $4.1
million per year. Additionally, the Project advances the social goals of enhancing the services provided to
juvenile offenders.
$100
Savings Estimates ($ million)
$80
$60
$40
$20
$0
1-5 yrs.
6-10 yrs.
Additional Cost
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11-15 yrs.
Savings
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The Study estimated savings to be around $3 million for the first year the new complex is in operation.
First Year Savings Estimate ($ million)
$3 Savings
{
Transitional Cost
Capital Cost
Costs
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Savings
Savings
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PART E: ECONOMIC IMPACT ANALYSIS
Based on preliminary estimates, the Project should generate more than 1,100 direct jobs during the
construction phase with salaries totaling over $18 million.
RECOMMENDATION
 Build a 600-bed juvenile detention and treatment complex with shared services through a DBFM
procurement option within the guidelines recommended in this Study.
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INTRODUCTION
This Desirability and Convenience Study (the “Study”) was prepared pursuant to the requirements of the
Public-Private Partnerships Act, Act No. 29, approved on June 8, 2009 (the “PPP Act”), and is prepared
on behalf of the Juvenile Institutions Administration (the “JIA”) and the Public-Private Partnerships
Authority (the “Authority”), to determine whether establishing a new juvenile detention and treatment
complex for Puerto Rico through a PPP method is advisable. The Study addresses the matters required by
Section 7(b) of the Act.
In determining whether the proposed PPP is advisable, the Study presents an analysis of the following
subjects: i) the service needs of the JIA, ii) the procurement options available for delivering the Project,
iii) a determination of the most efficient procurement option for the Project, iv) whether the proposed
procurement option presents a positive value for money (“VFM”) for the taxpayers, and v) whether the
proposed Project is affordable.
The PPP Act states that the public policy of the Government of Puerto Rico is to favor and promote the
establishment of PPPs for the development of Priority Projects, as defined in the Act. The PPPs would,
among other things, develop and maintain infrastructure facilities, share the risks involved between
Puerto Rico’s public sector and the private sector, improve the services to the public, encourage job
creation and promote the Island’s socio-economic development and competitiveness. The delivery of a
new juvenile detention and social treatment complex is a permissible Priority Project under Article 3 of
the PPP Act.
A PPP is a form of procurement that uses, among others, long-term performance based contracts to
deliver a project with the participation of a private sector partner. A central feature of the PPP approach
is risk transfer, which is achieved by making the private partner responsible for functions that would
otherwise be provided by the public sector (or not provided at all). These risks include, but are not
limited to: construction, schedule, design, financing, long-term performance, capital and budget costs,
maintenance and facility conservation, among others.
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Section 7(b) of the PPP Act provides the guidelines for the preparation of this Study. More specifically,
this Study will address the following elements in Section 7(b):
i.
A definition of the essential characteristics of the Function, Facility or Service (each as defined in
the Act);
ii.
A history, projections or both of the demand on use, the economic and social impact of the
Function, Facility or Service in its area of influence, and the profitability of the PPPs;
iii.
As to new projects, their technical and functional feasibility and an assessment of the existing
data and reports referring to territorial or urban planning;
iv.
Social feasibility, including an analysis on the cost/benefit to the Commonwealth and the social
impact of the proposed project;
v.
A justification of the PPPs modality expected to be used for carrying out priority projects, as
established in Section 3 of the Act, indicating the main benefits of the selected modality;
vi.
The cost of the investment to be made and the economic and financial feasibility of the project or
operation;
vii.
An evaluation of the cost/benefit and the convenience of using public or private financing to
render the Service, discharge the Function or develop or build the Facility with a justification of
the origin of such investment or financing;
viii.
A comparative analysis of the cost/benefit represented in allowing the Partnering Government
Entity to assume the responsibility for carrying out or continuing operations or for carrying out
the building, repair or improvement, as opposed to channeling the operation, building, repair or
improvement through a PPP, including its effect on public finances;
ix.
Feasibility for businesses with local capital, nonprofit entities and cooperative unions to
participate in the procedures of forging a PPP intended for building, operating or maintaining a
Facility or Service under the PPP.
This Study is divided into four main components:
Part A - Planning Future Service Delivery
This part of the Study describes the service needs that support the development of the Project. Among the
factors considered in this section are:

Analysis of objectives and service needs;

Trends and factors driving change in service offerings;

A business case analysis for the service under conventional, un-risk adjusted delivery, including:
o
Financial factors such as life-cycle costs;
o
Non-financial factors such as job creation or other socio-economic elements; and
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o
Associated public interest issues such as access, security and safety.
Part B - Service Delivery Options Analysis
In Part B, the preferred Service delivery option is identified, along with the procurement options for
public and PPP delivery. Part B also includes identification of key project risks and potential mitigation
options. This chapter includes a basic risk matrix table for this Project, which summarizes the possible
allocation of risks between the public and private sectors.
Part C - Procurement Decision
Part C outlines the VFM analysis conducted to identify the preferred procurement option. The VFM
analysis conducted for this Study is a quantitative analysis that compares the cost to JIA of delivering the
Project under a traditional Government delivery option compared to a PPP delivery option defined in Part
B. More specifically, two models were developed to calculate the costs of public sector delivery and PPP
delivery. Traditionally, these models are referred to as the public sector comparator (“PSC”) and the
Shadow Bid.
The PSC and Shadow Bid for this Project were formulated to provide a comparison between the public
sector and PPP approach, respectively. The results of this comparison yield the VFM analysis. A
positive VFM indicates that the Government can achieve savings by establishing a PPP. The Study
undertook a range of assumptions related to project cost estimates and financing costs in order to conduct
the VFM analysis.
Part D –Affordability Analysis
Part D presents an affordability analysis that seeks to determine whether the proposed Project is
affordable. Specifically, the affordability analysis evaluates the budget effect of the preferred service
delivery option for the Project.
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PART A: PLANNING FUTURE SERVICE DELIVERY
A.1
PROJECT DESCRIPTION
The JIA is an entity of the Government of Puerto Rico charged with the responsibility of providing
detention and rehabilitation services to young offenders in Puerto Rico. The JIA is an affiliate of the
Department of Corrections and Rehabilitation. Its main goal is to provide the necessary rehabilitation to
allow young offenders to successfully re-integrate into society and have a productive life.
The JIA was created pursuant to the Act No. 154 of August 5, 1988 (the “JIA Act”). The JIA Act
establishes that every young offender has the right to receive individualized services and treatment that
not only serve their specific needs but also help them achieve full rehabilitation. Services to young
offenders are provided within a framework of respect for their dignity and civil rights. JIA’s vision is to
be recognized as a leading institution in the provision of rehabilitation services that integrates innovative
treatments, proven social approaches and technology.
The JIA is interested in delivering a new juvenile detention and treatment complex with a capacity of
600-beds that will integrate high-standards and best-practices in terms of accommodations in a way that
are centered on enhanced conditions for the young offenders and facilitates full rehabilitation (the
“Project”).
More specifically, the goals for the Project can best be described as follows:
JIA Goals for the Project
 Develop a new campus complex with a robust long-term maintenance program based on performance
metrics.
 Provide best-practices and high standard accommodations that will strengthen rehabilitation services.
Improve other services, such as those for special education and health.
 Advance compliance with the Civil Case. Fully meet stipulations of the Civil Case related to the
construction and maintenance of new juvenile detention and social treatment campus complex.
 Address the fragmentation of facilities in the juvenile system and achieve savings.
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The new campus complex would involve 600 beds and entail the implementation of a shared services plan
of existing juvenile detention and treatment facilities. The new complex would generate savings by
addressing the issue of system fragmentation. The new complex will have a campus-like design with
various modules including shared services. Presently, there are six juvenile detention facilities in Puerto
Rico, housing an estimated 528 juveniles. On average, the JIA facilities operate at 66% capacity.
The high cost of offering juvenile detention services in different facilities, such as transportation expenses
and duplicate health and educational facilities in several sites, is having a significant impact on JIA’s
finances and capability to offer comprehensive rehabilitation services.
Therefore, the Project will
facilitate operational savings and effectiveness of rehabilitation.
Since a key objective of the Project is advancing compliance with the Civil Case, the JIA proposes to
review its classification system for, among other things, determining whether it should include in the
Project building a halfway house at the site of the new campus complex, but outside the security
perimeter. JIA also plans to evaluate whether to establish two other halfway houses elsewhere at sites to
be determined.
The bed capacity of these halfway houses will be determined through the system
classification review.
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A.2
KEY DRIVERS OF SERVICE NEEDS
The JIA and the Government of Puerto Rico consider the Project a turning point measure in the continued
improvement of detention accommodations and rehabilitation services to young offenders and their
eventual success in life. There are a series of key drivers and service needs that make the Project
necessary, namely:
1) Need to enhance infrastructure conditions and establish long-term systematic maintenance;
2) Need to promote best-practice and high standards detention accommodations and rehabilitation
services;
3) Need to continue making progress towards full compliance with the Civil Case applicable to the
juvenile correctional system; and
4) Need to address facility fragmentation in the system.
Need to enhance infrastructure conditions and establish a long-term maintenance program
Currently, the JIA has six facilities island-wide. According to current JIA Fiscal Year 2011 data, there is
an average of 528 juveniles in the system.
The level of construction investment in JIA facilities reached a peak in fiscal years 1997 and 1998, when
the most recent facilities were built. For instance, JIA’s facility in the Municipality of Salinas was built
by a private contractor in the late 1990s and later sold to the JIA for $15 million.
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Meanwhile, some obsolete facilities have been closed “that had serious fire and life safety code violations
as well as non-compliance with [American Correctional Association] standards and [Americans with
Disabilities Act] regulations,” according to a recent Federal Monitor’s Report.3
Need to promote best-practice and high standard detention accommodations and rehabilitation services
JIA is continually seeking to provide updated accommodations and spaces that facilitate rehabilitation.
At the same time, JIA is interested in taking a significant step to achieve the highest standards in
detention and intake facilities care, space distribution, technology integration, social environment and
other accommodations that will make a dramatic difference in the rehabilitation of young offenders.
Thus, the JIA is not only interested in delivering a Project that complies with all federal regulations and
standards, but also integrates best practices of high-standards in terms of facility design, programming
and maintenance.
3
Federal Monitor’s Compliance Ratings Report, Second Quarter 2011, April-June, pg.3.
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Need to continue making progress towards full compliance with civil cases applicable to the juvenile
correctional system
JIA is committed to continue making progress towards full compliance with civil cases applicable to the
juvenile correctional system. Specifically, JIA has the intention of achieving full compliance with the
stipulations of Civil Case No. 94-2080 (1994). This is a civil rights action brought by the U.S. Attorney
General, pursuant to the rights enumerated in the Institutionalized Persons Act, to enjoin the
Commonwealth of Puerto Rico from depriving youths confined in its residential detention and training
facilities of their constitutional rights, privileges, or immunities. This civil case entails a series of
stipulations that need to be met by JIA and any private provider related to: i) capital improvements of
existing facilities, ii) fire safety, iii) classification, iv) basic care, v) recreation, and vi) education; and
vocational and Special Education services, among others.
Need to address the facility fragmentation in the system and achieve recurring savings
The JIA facility system is fragmented and reveals signs of excessive operational costs. There are several
trends that led, and will continue to lead, to fragmentation in the facilities system. First, the occupancy
rate in the juvenile facilities seems low and reflects an increasing excess of unused capacity. According
to current JIA Fiscal Year 2011 data, there are an average 528 juveniles in the system, which has a total
capacity of 798 beds. This represents a 66% occupancy rate.
An analysis of JIA facilities found the system could operate with 600 beds at the new campus complex to
accommodate population peaks and operational efficiencies.
Moreover, trends in crime statistics and demographics could further aggravate the excess of facility
capacity in the future. Despite the Island’s high number of homicides, the number of crimes, both
classified as “violent” and “non-violent,” has been declining since the early 1990’s in Puerto Rico,
according to Police Department statistics.4
4
Source: “Policía de Puerto Rico Oficina de Información Criminal División de Estadísticas de la Criminalidad,
2011”. Police statistics classify violent crimes to include homicide, assault, rape, carjacking and armed robbery.
Non-violent crimes include property crimes such as robbing a home without someone present, and auto theft.
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Crime Statistics Trends: 1980=100
250
Total Crimes
Murders
200
150
100
50
1980
1985
1990
1995
2000
2005
2010
Source: Police Deparment
Along with a lower crime incidence, total inmate population, including the juvenile offender population,
also has declined consistently over the past 10 years, as illustrated in the following table. Since 2005,
total inmate population has declined by about 4.4% a year, while that of minimum security inmates has
declined by some 6.5% a year, according to DCR figures.5 Overall, both the juvenile offender and the
young adult population, defined as those between the ages of 18 and 20, have declined by some 70%
since the late 1990s.
Population Comparison of Young Adult in DCR vs
JIA Population: Fiscal Years (1999-2011)
2,000
JIA
DCR
Population reduction of 70% for
both populations
1,500
1,000
500
0
1999
2001
2003
2005
2007
2009
2011
Source: Young Transgresor Profile 2011 JIA, Annual Average Population DCR
5
The information available at the moment is for total convicted inmates and minimum security inmates. No
information is available providing historical data on medium and maximum security inmates, as well as pretrial
detainees.
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The trend already incorporates the changes made to the Penal Code in 2004, as amended (the “Code”).
One objective of the new Code was to modernize the system to the “conditions and needs of the new
century,” and rectify a system where inmates’ sentences were reduced by an average 41% due to time off
for good behavior, even for those convicted of violent crimes.6
Demographics are also influencing the trend in Puerto Rico’s juvenile offender population. Overall, 90%
of the total juvenile offender population is composed of adolescent males between the ages of 14 and 20
years old. The other 10% are female adolescents or young males ages 13 and younger. The average of
528 juveniles in the system does not include an estimated 18 offenders who are enlisted in communitybased programs, such as CREANDO, a joint program with the National Guard.7
The 2010 U.S. Census shows Puerto Rico’s younger population is declining, while the population 45
years or older is increasing. The 2010 Census figures show that those 18 years and younger now make up
24% of the Island’s population, compared to 49% in the 1950s.
Population Profile of Puerto Rico
Age
Distribution
0-14 Years
15-24 Years
25-34 Years
35-44 Years
45-59 Years
60-64 Years
65 + Years
Total
2000
Number
2010
Number
%
Difference
2010-2000
19.7%
14.6%
13.2%
13.0%
19.1%
5.9%
14.5%
-173,037
-69,518
-42,000
-32,135
59,495
57,513
116,861
3,808,610 100% 3,725,789 100%
-82,821
906,368
614,627
534,332
515,663
651,919
160,564
425,137
%
23.8%
16.1%
14.0%
13.5%
17.1%
4.2%
11.2%
733,331
545,109
492,332
483,528
711,414
218,077
541,998
Source: U.S. Census Bureau
6
As outlined in the Penal Code, Law 149 of 2004, Motives for the Law.
CREANDO is a program for low-risk offenders in Levels II and III that is similar to the “Teen Challenge” concept
in the U.S.
7
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The trend is expected to continue into the future, as an examination of the age cohorts from 0 to 19 shows
an ongoing decline. Even without taking into account migration and mortality, the population in the
cohort of 10 to 19 is estimated to decline by 16% over the following decade, as the cohort 0 to 9 gets
older and becomes the cohort 10 to 19.
Population Change by Age Cohorts: 2010
Age Cohorts
Population
Cohort Reduction
10-19
0-9
552,830
464,760
-16%
Source: U.S. Census Bureau
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According to information provided by JIA, the majority of juvenile offenders are males between 16 and
19 years old.
Most have been adjudicated for offenses related to property violations, controlled
substances and Weapons Law violations, with most receiving adjudication lengths of 1-2 years. Most
come from low-income households, live with their mothers, are victims of abuse, and are school dropouts
with an education level of 9th grade or less.8 Most offenders also exhibit high risk behaviors, including
drug use and sexual activity. One-third of offenders are reportedly drug dealers.
Juvenile Offenders (Age - Total Population)
Age
13 or less
14, 15
16, 17
18, 19
20
Total
2000
3%
11%
46%
36%
3%
100%
2004
1%
17%
45%
32%
6%
100%
2006
2%
24%
53%
20%
0%
100%
2011
0%
7%
36%
47%
10%
100%
Source: JIA surveys
Juvenile Offender (Offenses committed - Total Population)
Controlled Substances
Weapons Law
Simple Assault
Aggravated Assault
Aggravated Break-ins
Illegal Appropriation
Robbery
Breaking the Peace
Threats
Other
Total
2000
25%
11%
4%
4%
7%
8%
6%
9%
4%
22%
100%
2004
24%
8%
2%
11%
8%
8%
5%
5%
4%
25%
100%
2006
26%
9%
7%
7%
8%
5%
4%
3%
3%
27%
100%
2011
20%
17%
7%
6%
8%
3%
3%
4%
5%
27%
100%
Source: JIA surveys
8
JIA defines poverty level according to federal Health and Human Services guidelines. The 2010 HHS Poverty
Guideline for a family of four living in the 48 contiguous United States was a yearly income of $22,350 or less.
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In recent years, JIA statistics show that juvenile offenders have been receiving longer adjudication times.9
In 2000, a JIA survey found that 9% of cases received adjudication times of 2-3 years, 3% received 3-4
years and 1% received 4-5 years or 5-6 years. However, in a 2011 JIA survey, 20% of cases received
adjudication times of 2-3 years, 5% of cases received 3-4 years and 2% received 4-5 years. Cases
receiving adjudication times of 5-6 years remained unchanged.
Juvenile Offenders (Adjudication - Total Population)
Adjudication
1 year or less
1-2 years
2-3 years
3-4 years
2000
29%
57%
9%
3%
2006
37%
47%
13%
2%
2011
19%
52%
20%
5%
4-5 years
5-6 years
No information
Total
1%
1%
0%
100%
0%
0%
0%
100%
2%
1%
0%
100%
Source: JIA surveys
According to a University of Chicago study, criminal involvement in the United States rises sharply with
the onset of adolescence, peaking in the late teenage years before dropping steadily thereafter. An 18year old is five times more likely to be arrested for a property crime than a 35-year-old; for violent crimes
the corresponding ratio is 2 to 1. In 1997, teenagers between 15 to 19 years old comprised roughly 7% of
the overall population, but accounted for more than 20% of arrests for violent offenses and roughly onethird for property offenses.10
9
JIA juvenile offenders’ surveys: 2000, 2004, 2006 and 2011.
Steven D. Levitt, L. L. (2000). The Determinants of Juvenile Crime. University of Chicago.
10
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Other studies suggest that demographics have a direct impact in the crime rate. A study in the Journal of
Economic Literature found that in the U.S., the crime rate per 100 inhabitants was equal to 5.95 in 1980
and dropped to 5.09 in 1996. While this general trend has been observed for most categories of crime, the
most noticeable decline has been observed in property crimes, which account for more than 90% of all
crimes. The property crime rate per 100 inhabitants in the U.S. went down 17% from 5.60 in 1980 to
4.65 in 1996.11 Demographics may account for this decline, as in the U.S., the percentage of people
between the ages of 15 and 25 was 20.5% in 1980, but went down to 15.1% in 1996.
11
Ayse Imrohoroglu, A. M. (2001). What Accounts for the Decline in Crime? Journal of Economic Literature.
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A.3
OVERVIEW OF THE JUVENILE INSTITUTIONS ADMINISTRATION
The JIA Act established the legal framework for the creation of JIA. Reorganization Plan No. 3 of
December 9, 1993, created the Department of Corrections and Rehabilitation (“DCR”) and led to the
consolidation of all related agencies, under the DCR “umbrella.”12 Among the services JIA must provide
to juvenile offenders are: reasonably adequate housing, security, food, medical care, legal assistance,
education and other rehabilitation services.
The 1986 Juvenile Act of Puerto Rico, as amended in 2004 (the “Juvenile Act”), governs the Island’s
juvenile justice system. Like the United States and European countries, Puerto Rico believes juvenile
offenders should be treated differently than adults because of intellectual, emotional and physical
differences. The primary goal is rehabilitation so that juvenile offenders can become productive and lawabiding members of society.
The District Courts of Puerto Rico, and specifically the Juvenile Affairs Courts, have jurisdiction over
juveniles charged with offenses, defined as any conduct prohibited by law that would be a crime if
committed by an adult.
In Puerto Rico, there is no specified “youngest age” at which a juvenile can be adjudicated delinquent.
The Juvenile Court has jurisdiction over a minor charged with an offense before he/she turns 18. The
Juvenile Court can retain jurisdiction over an offending juvenile until he/she turns 21.
The JIA operates a network of six facilities that may have different service components in one site. These
include: four Detention Centers; one Evaluation Module; six Social Treatment Centers (encompassing
Security Levels II to V); and several Special Projects.13
12
DCR’s related agencies include: Administración de Corrección, Administración de Instituciones Juveniles, Junta
de Libertad Bajo Palabra, la Corporación de Empresas de Adiestramiento y Trabajo. The Oficina de Servicios con
Antelación al Juicio was assigned to the DCR by means of the Law Num. 177 of August 12, 1995, as amended.
13
JIA defines “facilities” as one site that may have different service components. Some facilities, for example
Bayamón, offer multiple detention, evaluation and treatment services, in one site.
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Facility
Description
Detention Centers
 Located in the municipalities of Bayamón and Ponce, they offer evaluation
and treatment to juvenile offenders who are in the process of being
classified and/or are waiting for legal custody to be transferred from their
parents to the State.
Evaluation Module
 Located in the Municipality of Bayamón, it conducts tests, exams and
social-legal analysis to determine the juvenile’s classification based on the
level of risk and other factors.
Social Treatment
Centers
 Located in the municipalities of Humacao, Villalba, Bayamón, Ponce and
Guayama. They encompass Security Levels II to V. These facilities
provide services and treatment for juveniles, including those in the process
of being transferred to adult correctional institutions.
Special Projects
 Special Projects provide various services to juveniles including swimming,
basketball and CREANDO, a joint program with the National Guard.
As defined by the JIA, juvenile offenders are classified into five security levels. Levels I and II are
Minimum Security; Level III is Medium Security; and Levels IV and V are Maximum security. The
facilities are segregated both by security levels and gender.
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The Civil Case
The ongoing JIA federal court case began in October 1991 when the U.S. Attorney General notified the
Commonwealth of Puerto Rico that allegations of “unconstitutional conditions” in JIA facilities would be
investigated. After its investigation, the U.S. Attorney General determined the “juveniles confined in the
facilities were being subjected to conditions that deprived them of rights, privileges and immunities
secured by the Constitution of the United States and by federal statutory law.”14
A settlement agreement was reached in 1997. Key remedial provisions focused on new construction,
staffing and training, classification, basic care, disciplinary system, mental health and substance abuse
care, and educational and vocational services, among others. The stipulations for new construction and
existing facilities include:

New construction: As part of a Capital Development Plan, each new facility shall be built in
accordance with American Correctional Association standards in effect at the time of
construction; the Americans Disabilities Act of 1990 and Puerto Rico fire codes and regulations.

Existing facilities: Existing facilities shall conform to applicable federal, state and/or local
building codes. Sleeping areas shall be 35 square feet per one occupant. Toilets shall be
provided at a minimum ratio of one for every 12 juveniles in male facilities and one for every
eight in female facilities.
Detained juveniles shall not be housed with those pending classification and evaluation.
The proposed Project will allow JIA to provide enhanced infrastructure and services and bestpractice/high-standard accommodations, which will support the continued progress towards full
compliance with the Civil Case settlement agreement.
In connection with the Project, the JIA intends to review its classification system and plans to assess
whether to establish a system of halfway houses.
14
The United States versus the Commonwealth of Puerto Rico, Civil No. 94-2080, 1997 Settlement Agreement.
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PART B: SERVICE DELIVERY OPTIONS ANALYSIS
B.1
SERVICE DELIVERY OPTIONS
One of the main objectives of this Study is to determine the best option for the Government to deliver or
procure the Project. This section will examine available Service Delivery Options, including traditional
public procurement and financing, as well as various PPP models. In addition, it will analyze potential
risk transfer options from the public to the private sector.
The following table presents the objectives or service needs relative to the delivery or procurement option
of the Project.
Key Objectives for the Project
Service Delivery Options
Develop and finance a new campus complex with a robust long-term
maintenance program based on performance metrics.
Traditional procurement
Provide best-practices and high standard accommodations that will
strengthen rehabilitation services.
Advance compliance with the Civil Case. Fully meet stipulations of the
Civil Case related to the construction of new juvenile correctional
facilities.
vs.
Alternative or innovative
procurement: PPP modality
(DB, DBF, DBFM, or DBFMO)
Address the fragmentation of facilities in the juvenile system and
achieve savings.
The next section discusses in greater detail the best delivery or procurement option for the Project.
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B.2
RISK ASSESSMENT AND PROCUREMENT METHOD
This section presents an analysis of each of the Service Delivery options and provides a risk analysis for
the proposed Project.
Please note that risk analysis is performed throughout the Study and is iterative in nature. Although not
exclusive to Part B, a large amount of risk analysis is performed at this stage in order to identify what
service option best allows for a clear and effective risk allocation between the public and private sector.
This analysis leads to recommendations as to Service Delivery options or procurement method. A VFM
analysis to validate the financial benefits of the recommended Service Delivery Option and procurement
method is included in Section C of this Study.
PPPs vary in the extent of risk transfer. The range of private sector partnership procurement options that
are generally accepted as PPP structures include the alternatives outlined in the table below.
Alternative Procurement Options: Effectiveness of Risk Transfer
Alternative
Procurement
Option
Risk Transfer Description
 When building a facility, one option is Design-Build (DB), whereby there is one procurement for
the design and construction. This option transfers to the private sector the design risk and
construction risk of the project, as well as the interface between these two. A second option is the
traditional procurement of Design-Bid-Build (DBB). This involves two separate procurements,
first for the design and second for the construction of that design. In this option, the designer
retains all design risk and the constructor retains construction risk.
Design Build
(DB)
Design Build
Finance (DBF)
 The DB option transfers some level of risk while the public sector retains risks associated with the
maintenance and operation of the complex. The public sector will also retain the risk of
performance and any risk of financing the project. Moreover, appropriate life-cycle risk requires
a structure such as a DBM, DBO or DBMO, where the private partner is responsible for the
maintenance (M), operation (O) or both (MO) of the asset for some time after the completion of
construction, and bears risk since the design has an impact on operational and maintenance costs.
The DB procurement option achieves limited or non-risk transfer and is therefore not in JIA’s best
interests.
 In addition to the risks transferred under DB, financial risks are transferred under Design-BuildFinance (DBF). Generally, private sector financing carries a higher interest rate than straight
government debt. Thus, financing through the private partner of the Project should be pursued
only if the risk adjusted public financing cost is higher than risk adjusted private financing.
 According to a 2007 report, “Assessing Value for Money” by Infrastructure Ontario: “Total
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financing costs under AFP [Alternative Financing and Procurement] are typically higher than
public sector financing costs because the private sector borrows at a higher rate than the Province.
This is a common criticism of the AFP model, but it is important to consider the overall VFM
[Value for Money] analysis when evaluating which is the appropriate procurement model of
choice. Higher financing costs are offset by the risk transfer to the private sector and mitigation
of public sector risks under AFP.”15
 The Design-Build-Finance-Maintain (DBFM) procurement option refers to a delivery method in
which the risks of maintenance and life-cycle repair and replacement are also transferred to the
private partner. In addition, it will shift the risks of equipment replacement costs to the private
sector. Therefore, a DBFM will incentivize the private sector to provide better quality
construction and equipment.
Design Build
Finance
Maintain
(DBFM)
 This procurement method looks to foster the interaction between the design and maintenance of
the complex to encourage technical innovation and optimize Project performance. A DBFM will
also give the public sector the ability to enforce the provisions of a performance-based
maintenance contract to ensure the expected level of service. In comparison, under a DB contract,
the public sector would self-monitor compliance with the level of services required for the
maintenance of the proposed complex.
 The DBFM model for PPP correctional facilities, with the operation being conducted by the
public sector, is the most common approach worldwide. Therefore, DBFM procurement should
maximize competitive tension among potential proponents for this type of project as it will
broaden the pool of potential suppliers and proponents.
 This option also minimizes execution risk since it reduces uncertainty regarding the introduction
of a new paradigm in Puerto Rico concerning correctional facility operations and allows for
continuity in operations.
 In this Service Delivery option, the public sector maintains the full operation of the complex,
including major elements of compliance with Civil Case No. 94-2080.
 This is the model that achieves the best balance between JIA’s objectives and the execution risk
profile of the Project.
Design Build
Finance
Maintain
Operate
(DBFMO)
 The Design-Build-Finance-Maintain-Operate (DBFMO) model would achieve maximum transfer
of risk since the private partner would take all the functions of a DBFM model, plus be in charge
of the operations (security) of the new complex. Design of the Project would balance
construction costs with the resulting operational costs since all the functions would be borne by
the same bidding consortium.
 The model also transfers the risk of complying with the Civil Case. However, it must be noted
that the Government is still ultimately accountable, legally and politically, for privately operated
prisons if the concession fails to meet those requirements. The Government could be indemnified
by the private operator, but the courts in all likelihood would hold the Government accountable.
 Moreover, the DBFMO approach represents a major paradigm shift in the provision of
correctional services in Puerto Rico. As such, it would naturally increase the execution risk
profile for the Project.
15
Pg. 10 of the report, “Assessing Value for Money: A Guide to Infrastructure Ontario’s Methodology.”
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Based on the discussion summarized in the previous table, the procurement method decision can be
synthesized as follows:
Service Delivery Options
and Configurations
DBFM
Private
O
Public
DBFMO
Private
Assessment
Comments
Desirable
Most common model worldwide.
Achieves maintenance and life-cycle
savings in the physical facility.
Although the public sector retains
operational risk, it maximizes the
probability that the Project is brought to
completion. Also achieves significant
risk transfer to the private sector.
Enhances competitive tension for the
Project.
Desirable but
Higher Project
Risk Profile
Represents the delivery option model
with the highest transfer of risks to the
private partner. Capable of reducing lifecycle costs due to full integration of
Project phases. But presents execution
challenges and risk due to the existence
of the Civil Case and the paradigm shift
in the provision of correctional services
in Puerto Rico that will result in a higher
risk profile for the Project.
Contract oversight is a critical element for the success of the Project. A formal mechanism for contract
monitoring and ensuring performance must be established.
Participation by the Public-Private
Partnerships Authority in the monitoring effort is advised.
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B.3
OPTIMAL RISK TRANSFER OPTION
Based on the analysis made in previous sections, this Study concludes that Based on the Effectiveness of
Risk Transfer and the objectives of the Government of Puerto Rico outlined in Part A of the Study, the
best option for delivering the Project is a DBFM structure within the guidelines recommended in this
Study.
The selection of a DBFM delivery or procurement structure allows for a significant risk transfer to a
potential private consortium which will more than offset the costs of private sector financing, thereby
enhancing Value for Money (see Part C below). The risk matrix below is a condensed summary of basic
risk allocation between the public and private sectors if the Project is delivered by way of a DBFM
model.
Type of Project Risks
Permits Approval Risk
Transfer to Private
Consortium
Shared between
Private
Consortium and
Government
Retained by
Government


Environmental Risk

Land acquisition
Non-exclusive license rights of use

and Site access
Site condition (including
geotechnical, ground water and other

site conditions)
General due diligence risk

Equipment procurement, delivery and

installation
Design Risk
Construction Risk (including
construction schedule, delays and cost
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overruns)
Maintenance Risk (including
preventive and corrective
maintenance and repair and life-cycle

replacement and refurbishment)
Civil Case Compliance

Demographic Risk

Force Majeure, Relief Events and

Change in Law
Access to Finance Risk and Interest
Rate risk following financial close


Inflation Risk
Insurance Risk (except for
uninsurable risk)


Project Interface Risk
Expiry transition (hand-back
requirements)


Permits approval risk: The government is responsible for ensuring that the site is zoned for use
as a juvenile facility. The risk of obtaining other permits, such as construction permits, is
transferred to the private partner.

Site/Environmental risk: Responsibility for the management and remediation of pre-existing
contamination on the site is allocated to the government unless such contamination was described
in, inferable or readily apparent or discoverable from data supplied by the government or could
have been discovered as a result of normal course industry-standard investigations or due
diligence. Environmental contamination caused by the private sector parties during the term of
the concession is the responsibility of the private partner.

Design risk: The risk that design development activities cannot be completed on time and/or
budget, and the design does not allow the delivery of services to specifications, is transferred to
the private partner. Coordination of design documents and construction activities is also
transferred to the private sector.
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
Construction risk: The risk that construction activities cannot be completed on time and/or
budget is transferred to the private partner. All risk of design or construction defects is borne by
the private partner.

Maintenance risk: The private partner retains the risk that maintenance activities (including lifecycle) may not be delivered at the required levels or at budgeted costs.

Operational risk: The government retains the risk that operational activities may not be
delivered at the required levels or at budgeted costs.

Change in law or policy risk: The risk of general changes in law (including tax law) is retained
by the private sector.

Civil Case No. 94-2080 settlement agreement: The government retains the risk of compliance
with the Civil Case stipulations.

Demographic risk: Changes in demographics could impact the juvenile system during long
periods of time and the government would retain this risk. The government would be obligated to
pay availability and performance payments to the private partner based on service performance
regardless of juvenile occupancy rates.

Force majeure: The risk that “Force majeure,” “Relief Event” or other specified unforeseen
circumstances (supervening events) may interfere with the private partner’s ability to perform its
obligations will be shared between the government and the private sector. Neither party will be
entitled to terminate the project agreement in these circumstances unless the event continues for a
lengthy period of time. However, except in specifically enumerated circumstances, the private
partner will not be entitled to compensation during any period in which it is unable to perform its
contractual obligations.

Access to finance risk: To the extent that private finance is used, the risk of access to capital
markets is transferred. With such transfer, there is also a transfer of the risk of movements in
interest rates after financial close. The government will bear the risk (or benefits) of benchmark
interest rate changes between the bid submission date and financial close and, subject to specified
criteria, may consider sharing some risk of credit spread changes between bid submission and
financial close.

Project interface risk: The risk that there could be difficulties in the hand-offs from the
designer to the builder to the maintenance functions is transferred to the private sector. The handoff from the private builder to the public operator remains a shared risk.

Expiry transition risk: The private partner will be required to “hand-back” the complex in a
condition satisfactory to the government and satisfying specified remaining life conditions. All
capital works required to meet the “hand-back” requirements will be provided by the private
sector.
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B.4
RESULTS OF MARKET SOUNDINGS
A general market sounding was performed in order to identify any issues or concerns of that potential
market participants have with the preferred service delivery and procurement options under consideration.
A secondary objective was to confirm whether potential private sector bidders are interested in Puerto
Rico, have a track record of undertaking similar projects or activities as PPPs in other jurisdictions, and
have identified at least some of the key resources and expertise necessary to undertake the Project.
The questions asked of investors were divided into two categories:

questions relating to investor appetite;

questions relating to procurement matters.
General feedback:

There is market interest for a Correctional Project.

On the capital infrastructure component, there is broad support for a 25-30 year contract.

DBFM structure will tend to increase competitive tension compared to DBFMO.
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B.5
BENCHMARK AGAINST OTHER JURISDICTIONS
Puerto Rico is among the highest cost jurisdictions per juvenile offender. The average cost of housing
juvenile offenders in selected states was $240.99 a day per offender, according to 2008 figures. At the
time, Puerto Rico’s per diem cost for juvenile offenders was $291.15, or roughly 21% higher than the
U.S. average.
Juvenile Offender Population and Other Characteristics by Jurisdiction: 2008
State
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
Connecticut
Mississippi
Maine
Michigan
Louisiana
Pennsylvania
Arizona
Offenders in
Residential
Placement
Cost per
day per
youth
Total cost per day
based on total
population
Offenders Per
100,000 Under 18
Population
38.3
28.5
57.7
88.4
72.0
118.7
63.1
75.3
79.1
35.7
82.9
109.7
38.7
107.6
238.7
105.8
54.5
71.2
42.4
56.2
133.6
68.8
117.2
155.2
110.8
57.5
95.0
143.6
223.3
312
219
159
2,115
807
3,318
1,083
$726.00
$426.51
$412.05
$391.00
$387.12
$362.00
$314.00
$226,512
$93,406
$65,516
$827,451
$312,406
$1,201,116
$340,062
Puerto Rico*
680
$291.15
$197,984
Virginia
North Carolina
Wisconsin
Alaska
Maryland
West Virginia
South Dakota
Ohio
Georgia
Utah
New Jersey
Nebraska
Colorado
Oklahoma
Indiana
North Dakota
Alabama
Missouri
California
Rhode Island
Wyoming
1,455
804
1,092
198
525
417
474
2,898
1,398
606
870
252
1,617
624
1,866
222
1,251
825
8,955
330
288
$280.00
$262.00
$259.00
$252.00
$229.00
$227.00
$219.79
$216.00
$200.68
$195.00
$174.00
$173.00
$161.00
$158.96
$153.78
$146.64
$137.21
$133.00
$67.51
$58.95
$24.44
$407,400
$210,648
$282,828
$49,896
$120,299
$94,659
$104,180
$624,925
$280,551
$118,170
$151,380
$43,596
$260,337
$99,191
$286,953
$32,554
$171,650
$109,791
$604,552
$19,454
$7,039
Source: American Correctional Association estimates
*Cost information is for fiscal year 2008-2009, population information is for natural year 2010
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The high cost per juvenile offender in Puerto Rico contrasts with the ranking of Puerto Rico in terms of
the number of offenders and the number of offenders per 100,000 in the population aged 18 or under.
While Puerto Rico experiences per diem costs that are 21% higher than the U.S. average, its number of
offenders is 45% lower than the U.S. average and number of offenders per 100,000 in the population of
aged 18 or under is 18% below the U.S. average. The search for greater savings and efficiencies is an
important consideration for the proposed Project given that such savings can be directed to strengthening
the rehabilitation programs, improve facility conditions and continue to make progress towards full
compliance with the Civil Case.
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PPP Experience in other jurisdictions
Country
Description
 The U.S. PPP model typically includes the full range of DBFMO, including security. The most
common form includes outsourcing particular services, including: health/dental services, alcohol
and drug treatment, correctional facility construction, mental health services, prison operations,
laundry services, catering services, education and even some employment. A combination of
contracting out management and construction of new facilities may be awarded to a private
corporation.
 Analysis on the effectiveness of privately operated juvenile facilities remains scant. A sampling
of studies comparing public and privately operated juvenile correctional facilities found mixed
results:
United States
 A 1989 study by the Urban Institute compared two pairs of public and privately operated
facilities for violent youth in Massachusetts. The study found similar costs among the
facilities, with program costs all within 1% of each other. In terms of quality of care and
performance indicators, the study found that privately operated facilities scored slightly
higher than their public counterparts.
 A 2004 Yale University study on juvenile correctional facilities in Florida found that shortrun savings by “for-profit” over “nonprofit” management was negated in the long run by
increased recidivism rates.16 The study compared recidivism rates and costs in 110
correctional juvenile facilities, serving more than 5,000 offenders. Facilities were
categorized according to management types: public, county “boot camps,” private for-profit
and private nonprofit models.
 There is a dearth of literature on PPP models for juvenile correctional facilities in other countries.
Since the 1990s Australia has actively pursued PPPs in many sectors, including corrections,
transportation, education, water, and health. In general, the Australian PPP model for correctional
facilities follows a design-build-finance-maintain arrangement, with core operations, including
security, remaining in the public sector. The respective local governments also contract out
various community-based programs to the private sector. Other countries that follow similar
models include the United Kingdom and France. In the U.K., correctional PPP projects generally
include “construction plus all prison and support services.”17
Australia
 Victoria is the most dominant Australian jurisdiction in terms of number and net value of PPP
projects. In 2006, Victoria had six correctional PPP projects, valued at $1.37 billion. 18 Since
2001 the trend in the Victorian PPP correctional contracts has been to provide “core” services (i.e.
security) through civil servants. Ancillary services, such as maintenance, are usually provided by
the contractors.
 Victorian authorities learned from past instances regarding the need for more robust contract
monitoring and made improvements in later contracts, such as outlining clear, specific and
measurable requirements and quality standards, which were absent from previous contracts.
16
“The Effectiveness of Juvenile Correctional Facilities: Public versus Private Management,” by Patrick Bayer and
David E. Pozen, Yale University, Nov. 2004.
17
“Overview of Public Private Partnerships in the United Kingdom,” UNISON briefing paper, June 2005.
18
“Public Private Partnerships in Australia: An Overview of their Nature, Purpose, Incidence and Oversight,” by
Linda M. English, University of New South Wales Law Journal, Volume 29(3), 2006.
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PART C: PROCUREMENT DECISION
The assessment of the procurement option for this Project determined in Part B is mainly concerned with
identifying the method of delivering a project that will result in the greatest VFM on both a financial
(quantitative) and social (qualitative) basis. A Value for Money analysis consists of developing and
comparing the total costs of a project at the same point in time.
More specifically, the VFM analysis requires estimating the costs to the public sector of delivering an
infrastructure project using traditional procurement processes (the result of this estimation is known as the
Public Sector Comparator, or PSC), and estimating the costs to the public sector of delivering the same
project to the identical specifications using a PPP delivery model (the result of this estimation is called the
“Shadow Bid”). The difference between the PSC and the Shadow Bid is referred to as the Value for
Money. If the Shadow Bid is less than the PSC, then there is positive VFM. A positive VFM would
indicate that the Government and taxpayers will obtain a positive benefit from the infrastructure project
within the resources available to it by using the selected PPP procurement method.
Two valuations were prepared for the proposed Project in order to determine the relative VFM of public
sector delivery versus private sector (the PSC versus the Shadow Bid). Estimates were performed with
the best available data.
Public Sector Comparator (PSC)
In the short term, joining the “design and build” in one procurement facilitates coordination and
efficiencies between the two. In the medium term, the key risk factor includes the need to reliably
maintain the new campus complex in order to lengthen its useful life.
It is reasonable to conclude that the Shadow Bid for DB will bring efficiencies over DBB. A study
prepared for the U.S. Department of Commerce’s National Institute of Standards and Technology by the
Construction Industry Institute (CII) measured the impacts of the Delivery System on Project
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Performance; specifically between DB and DBB.19 CII estimated that DB costs were 6% less than those
of DBB.20
As literature suggests, it is expected that the maintenance costs provided under the PPP option would be
lower than those under the PSC. These savings could range from 10% to 40%, according to various
sources cited below.21 However, contract management and monitoring is critical for the success of any
PPP project and such costs by the JIA are an integral part of the cost of pursuing a PPP. The public sector
may forego proper maintenance, reducing cash outlays in the short term but incurring large costs in terms
of the facility’s deterioration. The private sector partner is bound by contract to provide appropriate
maintenance.
Project Assumptions for VFM Calculation:
1) Construction cost was estimated to be 6% less expensive than construction cost in the public
sector..22
2) The private sector finances the Project at a rate of 7%, and the public sector at a rate of 6%. The
“retained risk” represents the risk of access to credit and fewer government guarantees than in a
public sector bond. This is calculated as the difference in cost of funding under the PSC between
the rate of 7% and the same principal financed at a rate of 6%. Figures were brought to present
value using a discount rate of 6%, which is consistent with the rate at which the Government of
Puerto Rico borrows. This figure is used in the local courts as a result of judicial precedent
established by the Puerto Rico Supreme Court.23
3) The maintenance cost was calculated using estimates of costs from “Whitestone and Maintenance
Facility Repair Cost Reference.” The cost of a “Jail, County” facility type was used as a
19
Stephen R. Thomas, C. L. (2002). Measuring the Impacts of the Delivery System on Project Performance-DesignBuild and Design-Bid-Build. Austin: Construction Industry Institute.
20
A 6% difference in the cost of the design and build phase entails a reduction of 4 percentage points in the total
Project cost.
21
Kenneth W. Clarkson and Phillip E. Fixler, Jr., The Role of Privatization in Florida’s Growth (Miami, FL: Law
and Economics Center, University of Miami and Reason Foundation, 1986).
Geoffrey F. Segal, Adam B. Summers, Leonard C. Gilroy, AICP, and W. Erik Bruvold, Streamlining San Diego:
Achieving Taxpayer Savings and Government Reforms Through Managed Competition, San Diego Institute for
Policy Research and Reason Foundation, September 2007, pg. 40.
E.S. Savas, Privatization and Public-Private Partnerships in Phoenix, Report prepared for the National Council for
Public-Private Partnerships, 2000, pg. 150.
22
Stephen R. Thomas, C. L. (2002). Measuring the Impacts of the Delivery System on Project Performance-DesignBuild and Design-Bid-Build. Austin: Construction Industry Institute.
23
90 D.P.R. 368 (1964) Salo v. Abella Hernández.
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reference adjusted to the local index of San Juan, Puerto Rico, and building area estimates in
excess of a million square feet.
The Study assumed that during the first five years the new complex will entail only costs of
“Preventative Maintenance & Minor Repair” and “Unscheduled Maintenance.” After this date,
the cost of “Renewal & Replacement” must be added.
4) The new complex is assumed to begin operations by 2014. A 3% annual growth in maintenance
costs is assigned after operations have begun, both to the PSC and the Shadow Bid.
5) The annual cost incurred by JIA to ensure contract compliance by the private partner is also
included in the model.24 This cost is estimated to increase by 3% every year.
The VFM results are presented in the following table:
Value for Money
100%
80%
60%
40%
20%
0%
PSC
Capital Cost
Shadow Bid
Maintenance Cost
Retained Risk
The VFM results show a net savings between the PSC and the Shadow Bid of 6.0%. Therefore, the
recommended procurement option would be a PPP delivery of the Project with a DBFM structure.
24
(2010). Management of Prison Accommodation Using Public Private Partnerships. Victoria: Victorian
Government Printer.
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PART D: AFFORDABILITY ANALYSIS
Part C determined that the Project should be delivered through a PPP model and would generate savings
compared to the traditional procurement method. However, the potential budgetary impact of the Project
must also be analyzed. A plan for shared services in the new campus complex should be undertaken to
ensure affordability.
The present value of the plan for campus complex with shared services over a 30-year span would
generate significant savings compared to the present arrangement. As discussed in Section A of the
Study, the Project would result in a modern 600-bed detention and treatment facility campus that is Civil
Case compliant and more than paid-off by the operational savings achieved. The Project advances the
social objectives of rehabilitation and is a building block in the fight against crime.
The new complex would represent operational savings over multiple small facilities. A larger facility
would entail less overhead per juvenile offenders and other economies of scale as well as fewer
maintenance costs. Savings that can be directed towards better facility maintenance and rehabilitation
services.
To achieve more savings, the new campus complex will integrate the latest technology in energy efficient
construction standards and equipment. Health costs is another example in which significant savings can
also be achieved: instead of having staff 24-hours a day at each of the six institutions, managing a limited
population, a fraction of the resulting overall staff could provide the same services in a single campus.
Other areas in which savings could be achieved are transportation and food service costs.
On the other hand, the new facility would entail a significantly higher capital cost for the JIA than the
current facilities. Most of the present facilities no longer carry debt while the new one will entail
significant capital cost payments.
In order to illustrate affordability, a plan for shared services at the new campus facility was modeled. The
new 600-bed campus complex would have a daily census of some 528 juvenile offenders currently
detained at JIA’s six facilities.
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Financial Results of Potential Shared Services Plan
The shared services plan would generate savings of 20% in the first year that would cover all the new
capital expenditures and the transition costs. 25 The average net savings during the first five years are
estimated to approximate $3.7 million per year. After the fifth year there would be no transition outlays.
The main drivers for savings are two-fold: shared services in one campus complex eliminate duplicate
facilities and services, while use of technology, such as teleconference services, will generate additional
efficiencies.
The Study assumes that a transition period will take place once the Project begins operation. Therefore,
the Study estimated savings to be around $3 million for the first year the Project is in operation.
First Year Savings Estimate ($ million)
$3 Savings
{
Transitional Cost
Capital Cost
Costs
Savings
Savings
25
Transition costs are defined as additional JIA costs incurred from the time of the new facility’s opening until the
optimal staffing level is reached.
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The Study estimated, on present value terms, savings to approximate $4.1 million per year. Additionally,
the Project advances the social goals of rehabilitation by enhancing the services provided to juvenile
offenders.
Savings Estimates ($ million)
$100
$80
$60
$40
$20
$0
1-5 yrs.
6-10 yrs.
Additional Cost
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PART E: ECONOMIC IMPACT ANALYSIS
The Project would likely generate significant benefits and provide economic activity to the construction
sector in Puerto Rico. Initial estimates suggest that the investment required by the Project should
generate more than 1,100 direct jobs during the construction phase with salaries totaling $18 million.
Permanent jobs have been estimated to be approximately 1,000.
Economic Impact: Constuction Phase
Concept
Multiplier By:
1 Million*
New Construction
Investment
Employment (By Each Million in Investment):
Direct**
Direct and Indirect
Direct, Indirect and Induced
9.93
14.89
22.21
1,142
1,712
2,554
Jobs
Jobs
Jobs
$0.16
$0.28
$0.43
$18.40
$32.20
$49.50
Million
Million
Million
Salary (By Each Million in Investment):
Direct
Direct and Indirect
Direct, Indirect and Induced
Source: Puerto Rico Planning Board Input-Output Matrix 1991-1992; March 2002
* The multipliers used were those of new construction.
** Estimated by Advantage Business Consulting.
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Conclusion
The Study concludes that constructing a new 600-bed juvenile detention and rehabilitation campus
complex is consistent with JIA’s goals and needs. The Value for Money results shows net savings
between the PSC and the Shadow Bid of 6%. The Study also estimates that on present value terms
savings can be approximately $4.1 million per year. The recommended procurement option would be a
PPP delivery of the Project with the DBFM structure outlined in this Study.
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