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Overview of PPP
Edward Farquharson
28 September 2006
Agenda
• Introduction
• Types of PPP
• UK Programme Scope
• Institutional Issues
• Does it Work?
• Lessons Learnt
PPPs Are Not Standardised Internationally
Each Country’s approach to PPP is:
• Designed to meet the policy objectives of its Government
• Developed to complement other public procurement and public
service delivery methods
• Implemented according to the available public and private sector
resources
Tailored and Unique
Relevance?
‘……a genie has been released from its bottle; the
realisation that economic choices must be made based on
risk-adjusted whole life costs and benefits will alter the
nature of international economic competitiveness. In a
sense, this is as fundamental as the discovery of gravity.
When nations spend half their GDP on public services it was
only a matter of time before the penny dropped…’
‘PPP In-Depth’ - City and Financial – January 2006
Scope
Total public service
provision
‘Hard’
infrastructure
Privatizations
Concessions
PPPs are Not Just a Financing Tool
Wider focus on issue of outcomes and procurement reform
leads policy makers to address:
– Project preparation, risk management and focus on whole life
cost efficiencies
– Sustainability - under-maintenance of public infrastructure
– Value for money: optimum balance of cost and quality
– Implications for institutions and processes
Types of PPP
Concession
Contract for Services - ‘PFI’ (UK)
Joint Venture*
Investment Programme Management
* Partnerships UK is an example
Distinction between Privatisation and PPP?
Where does accountability for
public services delivery lie?
Drop Page Fields Here
Sectors
Projects by Sector
Count of projID
200
180
160
No. of Projects
140
120
100
Drop Series F
80
60
40
20
0
o
Acc
oda
mm
ti on
nt
nt
on
me
me
cati
p
i
n
u
u
o
r
d
i
E
Eq
Env
H ea
lth
H ou
sing
ICT
Leis
u
s
vic e
r
e
re S
p
Pr o
erty
or
nsp
T ra
Example UK: 731 sect_Name
projects that have reached financial close
t
Signed Deals and Value by Financial Year
5000
120
4500
Capital Value (£m)
3500
80
3000
2500
60
2000
40
1500
1000
20
500
0
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Capital Value (£m)
Source: PFI Strengthening Long Term Partnerships, HM Treasury
No. of deals
Number of Projects
100
4000
Key features of PFI procurement
• Output based contracts
• Certainty of whole life-of-asset costings
• Single point responsibility – integration / scope
• Innovation
• Competition
• Capital at risk to long term performance
• Optimal risk transfer
• Private sector capital at risk to performance in the delivery
of public services
Comparison With Conventional Procurement
(A) Conventional (input-based) procurement
€
Cash
Payment is made, regardless of service performance
0
Construction
Operation
Years
(B) PPP (output-based) procurement
€
Cash
Payment is at risk to service performance
Construction
Operation
Years
Importance of the Unitary Charge
• Payments apportion risk:
–
–
–
–
Availability
Performance quality
Usage / volume
Additional revenue streams
(where possible)
– No guarantee of return
• Composite total payment
Public Sector Comparator
Typical Profile of Net Present Cost of PSC vs. PFI
Risks retained, that are
transferred under PFI
Total net present value
of PFI Co’s unitary
charges, over life of
contract
NPV of PSC
risk transfer
NPV of PFI
cash flows
NPV of PSC
cash flows
Total value of public sector
delivering same outputs over
life of contract
– Design and build costs
– Operating costs
Risk retained
by Authority
PSC
Risk retained
by Authority
PFI
New Approaches to VfM Assessment
• Quantitative analysis
– Placed in context
– Evidence based
– Optimism bias
• Qualitative tests
–
–
–
–
–
–
–
Contractible
Flexibility/cost
Scope for cost/time overrun savings
Innovation
Length
Capacity
Competition
‘Viability’
‘Desirability’
‘Achievability’
Why Embark on a PFI Programme?
• Improved value-for-money
procurement of public services.
• Reform / modernisation of public
services.
• Contestability in delivery of public
services.
• Antidote to short-termism in both
public and private sectors.
• Improved transparency of costs of
public services delivery.
• Overcome capital budget constraints.
Opportunity to Influence Project Outcome
100%
Gate 5
Whole Life
Expenditure
Gate 4
Gate 3
Gate 2
Gate 1
Gate 0
0%
Benefits
Evaluation
Readiness
For Service
Investment
Decision
Procurement
Strategy
Business
Justification
Strategic
Assessment
Confirm
Strategy
Confirm
Justification
Competitive
Procurement
Time
Source: Office of Government Commerce
Contract
Award
In-Service
Confirm
Benefits
Public sector capacity issues
• Joining up across time
• Joining up across sectors
• Asymmetry in experience/skills
• Market knowledge
• Role of the private sector
• Independent scrutiny
Institutional challenges
• Cuts across Government
• Generic nature of issues
• Resources scarce and expensive
Central response
UK PPP policy and implementation bodies
HM Treasury
PPP Policy
Other key support bodies
e.g. 4ps
PPP support to Local
Authorities
Auditing bodies
e.g. National Audit Office
Partnerships UK
PPP Implementation
Partnerships for Schools
PDO
PUK Activities
Programme/policy
implementation
•
Policy Support
•
Guidance, Standardisation, best practice,
databases etc.
•
Help desk
•
Transaction Quality Control
•
Transaction Support
•
Investment programme management (PfH
and PfS)
•
Co-sponsoring projects
Partnership Agreements)
•
Commercialisation Investments
Project support
(Development
UK PFI: Evidence of Benefits
Delivery on time and on budget
80%
On time
On budget
On time
PPP
On budget
Conventional
Procurement
Performance of completed projects – No. of Projects
Source: National Audit Office – UK Parliament - Expenditure Auditor
30%
Service Provider Performance
Performance measurement shows that the contract service
levels are being achieved...
89%
77%
12%
Always
10%
Almost always
Source: Report on Operational PFI Projects, PUK
About half of
the time
1%
0%
Almost never
Never
Relationship
Quality of day-to-day operational relationship between the
public and private sector contract management teams.
40%
32%
25%
3%
0%
Very good
Good
Source: Report on Operational PFI Projects, PUK
Satisfactory
Poor
Very poor
User satisfaction
Chart 1.2: Did the last user satisfaction assessment find that
services were being delivered to an acceptable standard?
70
% of Response
60
50
40
30
20
10
0
Always
Almost Always
Source: Partnerships UK
Source: PFI Strengthening Long Term Partnerships, HM Treasury
About half of the
time
Almost never
Never
Lessons Learnt
• Legislative framework
• Policy framework
• Institutional reform
• Capacity building:
–
–
Public sector
Private sector
• Central support
• Communication strategy
• Programme development
• Quality Control
• … and above all, Political Commitment
edward.farquharson
@partnershipsuk.org.uk
+44 (0)20 7273 8040
www.partnershipsuk.org.uk