Finance and Administration Cabinet Presentation to the Interim Joint

Finance and Administration Cabinet Presentation to the Interim Joint Committee for Program Review Kentucky Communication Network Authority KentuckyWired September 13, 2018

Chief Purchasing Officer Pursuant to KRS 45A.030 (3), the Secretary of the Finance & Administration Cabinet (FAC) is designated as the Chief Purchasing Officer for the Commonwealth. 2

Kentucky Model Procurement Code KRS 45A.075 requires all state contracts be awarded by one of the following four methods except as otherwise authorized by law: Competitive sealed bidding 3 Request for Bid (RFB) Competitive negotiation Request for Proposal (RFP) Small purchase procedures Request for Quote (RFQ) Noncompetitive negotiation Competitive Exemption

Request for Proposal (RFP) Competitive Negotiation Used for complex procurements. Comprehensive performance requirements Proposals evaluated & ranked Negotiations begin Confidential process Contract awarded 4

KentuckyWired Process Overview 2. RFP 3. Responses 1. Consultant for RFI evaluated issued 4. Contract awarded to Macquarie Infrastructure Developments LLC 5. Ne goti atio ns wit h Ma cqu ari e wit h “ou t” cla use s if agr ee me nt not rea che d 5 Dec 2013 – May 2014 July 2014 – Sept 2014 Sept 2014 – Dec 2014 Dec 2014 Jan 2015 – Sept 2015

Environment Impacting the Project 1. Fill Service Gaps 2. Built in Funding Stream 3. FCC e-Rate Modernization Order (July 2014) 4. Time Constraints 6

Factors Impacting the Project FCC advised CoK – Need a separate competitive RFP – Need a separate entity to manage KentuckyWired Issues – Bonds issued – “Must win” e-Rate RFP – Former Finance Cabinet deputy secretary now with KCNA KIH4 RFP issued AT&T protest & KIH4 RFP cancelled RFP not reissued 7

Project Risks Obtain CLEC status Pole attachment agreements with utility providers Easements Unfunded Items such as – – – – Inside Plant – Site Preparation System Refresh at 10 & 20 years Commercial power to communications huts/nodes Road moves 8

Risk to the Commonwealth Contract awarded while still making the deal Erroneous assumption that e-Rate was competitively bid with the contract award to Macquarie Driving factors that allocated risk to CoK – Budget: 2.3M built in funding stream – Timeline: Nearing end of previous administration 9

Going Forward The P3 legislation P3 projects contracted through the RFP process Before initiating a P3 RFP the agency must conduct a qualitative and quantitative analysis 10

P3 Regulatory Requirements The qualitative and quantitative analysis includes: – – – – – Risk controls Efficiency of delivery Leverage private sector partner expertise Allocate risk to private partner ROI for private partner 11

P3 RFPs The RFP must include: Methods of oversight agency will use Responsibilities of the agency Plans for financing and operating the project Revenues, service payments, bond financing and appropriations needed – Considerations resulting from the qualitative and quantitative analysis – – – – 12