Transcript Document

PPP AND THE DELIVERY OF PUBLIC
SERVICES
Prof. David Eaton PhD, MSc, BSc, MRICS, ILTM
School of the Built Environment
University of Salford
STRUCTURE OF PRESENTATI0N:
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INTRODUCTION
PHILOSOPHY
METHODOLOGY
FRAMEWORKS
PAYMENT MECHANISMS
PUBLIC SECTOR ISSUES
UK AND WORLD VIEW OF PPP
CONCLUSIONS
WHAT IS PPP?
PPP is a:
• Government Policy;
• Partnering arrangement between the
Public and Private Sectors;
• Service delivery - responsibility is
transferred from the public to the private
sector for a considerable period of time.
PPP IS NOT / PPP SHOULD NOT
BE!!:
• An alternative financing mechanism for
public spending (but, yes it is!)
• A form of privatisation;
• A ‘SUBSTITUTE’ source of funding public
sector expenditure.
HISTORY OF PFI
Origins in ‘Turnkey’ style projects
from history – canals, turnpikes,
and railways;
Modern Derivation from ‘BOOT’
projects – Build, Own, Operate,
Transfer;
PFI launched in the UK in 1992.
CURRENT UK POSITION
Overall approximately 12% of all public
sector capital investment since 1996
has been by PFI;
Year on year this is increasing;
By 2007-08 - ~ 1000 projects with a
capital value of £50B;
The vast majority so far has been in
transport infrastructure projects.
KEY CONCEPTS IN PPP:
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Purchase services not assets;
Value for money (VFM);
Risk Management;
Incorporate private sector know-how
and expertise;
• Whole Life Cycle Costing;
• Alternative financing techniques
required.
STOP PRESS -
• “Most construction under [PPP] is
delivered on time and at the cost
expected…Obtained a much higher
degree of price certainty and timely
delivery of good quality built assets,
compared to previous conventional
…projects.”
Sir John Bourn, Head of NAO, reporting
to UK Parliament on 5th February 2003.
ISBN: 0102920141
KEY DRIVERS OF PPP:
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Need for better facilities / infrastructure;
Demand in public sector services;
Search for efficiency and creativity;
Financial need;
Desire to introduce competition.
KEY ENABLERS OF PPP
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Political framework and will;
Legal framework;
Social acceptance;
Quality practitioners;
Experience.
STOP PRESS:
“We expect quality in our [projects]. We
expect them to be well designed and fit
for purpose – safe, practical and cost
effective.
…we need to do everything we can…to
ensure that maximum whole-life value
for money is achieved.”
Rt. Hon. Paul Boateng MP Chief
secretary to the Treasury. Feb.2003.
PPP’S PHILOSOPHY is:
• A government policy to tackle
financial problems in service
provision and to integrate
private management skills to
increase efficiency,
effectiveness and quality & to
exploit new opportunities.
METHODOLOGY
NEEDS FOR
SEARCH FOR
EFFICIENCY
EFFECTIVENESS &
CREATIVITY
BETTER
FACILITIES &
INFRASTRUCTURE
STRUCTURES
BEHAVIOURS
DEMANDING
QUALITY
SYSTEMS
STRATEGIES
FINANCIAL NEED
INTRODUCE
“MARKET”
COMPETITION
PFI FINANCIAL STRUCTURE:
Commercial Banks
&
Insurance Companies
Interest
Equity Investors
Equity
Dividen
d
Lendors/Lessors
Debt
SPV
(Special Purpose Vehicle)
The Concession Company
Debt
Service
Lease
Return
Equity
Loan
Capital
KEY PPP PROCUREMENT STAGES
OUTLINE BUSINESS CASE
INVITATION TO NEGOTIATE
(ITN)
PREFERRED BIDDER
CONTRACT AWARD
CONTRACT MANAGEMENT
BASIC STRUCTURE FOR A PPP PROJECT IN UK
CENTRAL OR LOCAL
GOVERNMENT
GRANTING AUTHORITY
PRIVATE CONTRACTOR
SPECIAL PURPOSE
VEHICLE (SPV)
LENDERS AND
SPONSORS
CONSTRUCTION
CONTRACTOR
OPERATION AND
MAINTENANCE
CONTRACTOR
SERVICES
CONTRACTOR
SUB-CONTRACTOR
SUB-CONTRACTOR
SUB-CONTRACTOR
INSURERS
TYPICAL PPP LEGAL RELATIONSHIPS
GRANTING AUTHORITY
CONCESSION
AGREEMENT
DIRECT
AGREEMENT
LENDERS
CONTRAC
T
CONSTRUCTION
CONTRACTOR
AGREEMEN
T
SPECIAL
PURPOSE
VEHICLE
AGREEMEN
T
SPONSORS
CONTRACT
CONTRAC
T
OPER. &
MAINTENANCE
CONTRACTOR
SERVICES
CONTRACT
FRAMEWORKS
Payment
Mechanism
Output
Specification
Risk
Assessment
SOP’S
PAYMENT
MECHANISM
OUTPUT SPECIFICATION
FOR
ROAD PROJECT
SERVICE MONITORING
AVAILABILITY &
PERFORMANCE
STANDARDS
PAYMENT
CALCULATE
UNITARY CHARGE
COST TO GOVERNMENT
AUTHORITY
CASH FLOW PROJECTIONS
CONSTRUCTION PERIOD WITHIN
CONSESSION
OPERATION & MAINTENANCE WITHIN
CONCESSION PERIOD
COST TO GOVERNMENT
AUTHORITY
PUBLIC FUNDING
CASHFLOW CURVE
CONSTRUCTION PERIOD WITHIN
CONSESSION
OPERATION & MAINTENANCE WITHIN
CONCESSION PERIOD
COST TO GOVERNMENT
AUTHORITY
PUBLIC FUNDING
CASHFLOW CURVE
ACTUAL ANNUAL
MAINTANANCE AND
REPAIR COSTS
CONSTRUCTION PERIOD WITHIN
CONSESSION
OPERATION & MAINTENANCE WITHIN
CONCESSION PERIOD
COST TO GOVERNMENT
AUTHORITY
PUBLIC FUNDING
CASHFLOW CURVE
AVERAGED ANNUALISED
MAINTENANCE AND
REPAIR COSTS
ACTUAL ANNUAL
MAINTANANCE AND
REPAIR COSTS
CONSTRUCTION PERIOD WITHIN
CONSESSION
OPERATION & MAINTENANCE WITHIN
CONCESSION PERIOD
COST TO GOVERNMENT
AUTHORITY
PUBLIC FUNDING
CASHFLOW CURVE
ANNUAL UNITARY
CHARGE
PFI PROJECT
CASHFLOW CURVE
CONSTRUCTION PERIOD WITHIN
CONSESSION
AVERAGED ANNUALISED
MAINTENANCE AND
REPAIR COSTS
ACTUAL ANNUAL
MAINTANANCE AND
REPAIR COSTS
OPERATION & MAINTENANCE WITHIN
CONCESSION PERIOD
WHAT PFI MEANS FOR THE PUBLIC
SECTOR.
PFI means that the public sector only
pays for the services it uses – it no
longer has to finance the capital, service
and operational costs of an unused
facility;
Private sector performance is controlled
because payments are made against
pre-determined service specifications.
PUBLIC SECTOR OBJECTIVES OF PFI:
Improving Value for Money in
Government expenditure –
achieved through private sector
innovation and management skills;
It can deliver significant performance
improvements and efficiency
savings.
Local Authority
(Sponsor)
Housing
Regeneration
Special
Purpose
Vehicle
Building
Contractor
Funder(s)
Housing
Management Co.
STANDARD CANALISED PPP
PFI subsidy
Local Authority or
other Public Body
Investor/Funder(s)
Housing Developer
Housing
Regeneration
SPV
Commercial
Developer
Housing Association
Supply
Chain
NEOTENIC PPP
Local Authority or
other Public Body
Investor/Funder(s)
Building Contractor
Housing
Regeneration
Transferred
after
Refurb.
New Housing Group
PROGENESIC PPP
SPV
New Housing
Group
Local Authority or
other Public Body
Investor/Funder(s)
Building
Contractor
SPV
Housing
Regeneration
Housing
Management Co.
Supply Chain
OTHER HG
PARASITIC PPP
PFI subsidy
Local Authority or
other Public Body
Investor/Funder
Public and Cross
Subsidy
Housing
Regeneration
Housing Developer
Commercial
Developer
JV Co or LLP
Investment
Housing
Association
Infrastructure
Supply Chain
SHG
OSCILLATORY PPP
Land value
capture
CURRENT POSITION IN UK.
UK and EU financial controls and
limits for Government debt means
that PFI is a crucial element of the
UK national government policy for
infrastructure development.
PFI Achievements:
Delivered on time -
76% for PFI
30% for non-PFI
Delivered to budget - 79% for PFI
27% for non-PFI
VfM to taxpayer 81% for PFI
projects
Client experience - 76% of PFI projects
had performed better than other previous
experiences
FUTURE POSITION IN UK
Biggest future increases expected in
Health and Defence sectors;
Emerging areas:
– Schools;
– Social Housing;
– Urban Regeneration; and
– Waste Recycling.
CURRENT POSITION IN EUROPE
FRANCE - There is a long-established
tradition of public-private cooperation using a concession
structure.
GERMANY – No formal central
government unit or programme.
A BOT Law exists.
GREECE- Government has formally
launched a PPP (PFI) programme in
November 2000. There is a central
PPP (PFI) Unit.
IRELAND – A strong public
commitment to a formal PPP
(PFI) programme.
ITALY - There is a special PPP/PFI
Taskforce – Unità tecnica Finanza di
Progetto (UFP). Merloni Law in 1998
set the framework for using private
sector.
NETHERLANDS – There is a strong
framework for PPPs/PFI including a
dedicated PPP/PFI Unit.
PORTUGAL – An early exponent of
PPP/PFI in Europe. There is no
central PPP/PFI government unit. The
government is promoting large and
medium sized PPP/PFI projects.
SPAIN – No established formal PPP/PFI
Unit. Government has a road
programme using the shadow toll
structure.
CURRENT POSITION IN REST OF
WORLD
AUSTRALIA – Regional Approach;
BRASIL – Federal Programme $200B;
CANADA – Regional Approach;
CHINA - !
JAPAN – National Approach;
MEXİCO – Regional Approach $ 20B;
SOUTH AFRICA – National Approach;
TURKEY – Regional Approach >£20B
OBSERVATIONS
PFI will remain for the foreseeable
future;
PFI will become more acceptable;
Public Sector need training to respond
to the emerging demands of PFI
procurement.
PUBLIC SECTOR NEEDS
Guidance on Degree of Disclosure;
Recognised International / Chartered
PFI Practitioner Qualification;
Create and manage a Standard Form of
PFI Cost Report;
Create and manage a Standard Form of
WLCC Reports.
Government encouragement and
‘seed-corn’ fund for ‘LOCAL’ SME PFI
Projects;
Government support / approval for the
development of alternative
concession mechanisms as
alternative to fixed duration
concessions;
PUBLIC SECTOR NEEDS:
IMPROVED EDUCATION & TRAINING
in:
Guaranteed Maximum Price;
Risk Management;
Value for Money;
Whole Life Cycle Costs.
COST
COST
TIME
TIME
PROCUREMENT
QUALITY
QUALITY
CERTAINTY
COST
TIME
PROCUREMENT
QUALITY
CERTAINTY
Time for design
Time for
additional
design and
construction
Time for
construction
TIME
Time for
rectify defects
Time for client
change orders
Time for project
leader change
ordeRs
Time value of
money
Obsolescence
Deterioration
Tax implications
(Discounted cost)
COST
Building
whole-life
Initial and
life-costs
(Various design
alternatives)
Design lives of
various
components
and equipment
Hard and soft
facilities
Management
costs
Performance
(Main purpose)
(Service given after
asset completion)
Durability
(Length of time
needed for
replacement)
Manufacturing
Based Parameter
Servicability
Reliability
QUALITY
(Period of time
without failure)
Manufacturing
Based Parameter
Perceived quality
(Subjective
judgement of
quality)
User Based
Parameter
Aesthetics
Conformance
(Degree of meting
specification)
Manufacturing
Based Parameter
Risk
Chaos
Complexity
Change
CERTAINTY
Surprise
Uncertainty
Conflict
The Key Elements of Public Sector Skills Requirements
Design Cost advice to
consider construction,
operation & maintenance.
The design COST
must address
environmental
issues
The Project Costs
must incorporate
lifecycle costing
advice
Major Project
Experience
Feasibility and
Viability Expertise
Facility
Management
& Operational
Cost advice
Advice on PSC &
VFM
PFI
&
QS
Required
Public
Sector
Staff
Skills
Audit & Due
Diligence
Project management
skills of a high
calibre are vital
Innovation in
the design must
be validated
Creative solutions
must be tested for
feasibility
Risk Management is a
critical element of
successful PFI
Performance
measurement and
payment
mechanisms
Certification of work for
Primary Lenders as the
project proceeds
CONCLUSIONS:
• Effective collaboration between
Public Sector & Private Sector;
• Political Motivation: Driven by
improving Public Services without
recourse to increased taxation/public
borrowing;
• Public Sector defines what Private
Sector determines how;
CONCLUSIONS (cont.)
• Positive effect on Public Sector
balance sheet;
• Appropriate risk transfer;
• Improved life-cycle cost
performance;
• Achieve Value-for-Money (VFM);
• Achieve affordability over time for
the sponsor.
Further Details:
Prof. David Eaton
School Of The Built Environment,
Maxwell Building,
University of Salford,
M5 4WT
[email protected]
+ 44 (0)161 295 5222
Further Information
• Quantifying Quality: PFI and the
Delivery of Public Services
RICS Research Report
www.rics.org/pfi