Public-Private Partnerships (PPP) - new ways of working together

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Public-Private Partnerships (PPP) - new ways of working together

Published 1 March 2018

The provision of investment in public sector estate and new ways of delivering Public-Private Partnerships (PPP) was the subject of a panel debate at this year’s Government Property 2018 conference at the QEII Centre in London. Michael Peeters and Anne Crofts from DAC Beachcroft, The Right Honourable Charles Clarke, Tom Roberts, Head of Infrastructure Advisory at BDO LLP and Melanie Leech CBE from The British Property Foundation discussed the route to a sustainable future for this way of working.

Following the collapse of Carillion; the resignation of Haringey Council’s leader over the proposed Haringey Development Vehicle and on-going scrutiny over the use of PPP models the panel debate provided a timely forum to assess how the UK should move forward in its use of these contracting models.

Tom Roberts commented, "The model of using Public Private Partnerships (PPP) to deliver private investment, risk transfer and value for money can be an effective model but it is going through a ‘crisis of confidence’. As a partnership model it’s easy to overlook that the majority of PFI/PPP projects have successfully delivered investment in new infrastructure assets where the maintenance standards are locked-in over the contract term".

Charles Clarke advised that collaboration is key to the success of future partnerships. "The focus needs to be on getting better at partnership working. All the professionals involved need to look at this challenge; it is not more of a responsibility for one group or another. The substantial public benefits to be gained when the model works well would be difficult to achieve without this approach."

Detailing how the UK has led the way in the development of partnership models Tom Roberts said, "The United Kingdom has been at the forefront of developing partnership models and has created legal documentation and structures that are incredibly robust and have been exported globally to other countries wanting to emulate these models. In 2016 the global market for Project Finance investment was worth some $276 billion with many large PPP deals included in this figure.”

With a focus on building better relationships between both sectors, Melanie Leech commented, "A recent report by the British Property Foundation and the Local Government Association helpfully highlights some of the key points around developing partnership relationships. This included the need for the public sector to develop a more commercial mind-set and communicate effectively. Greater public sector ownership of equity and involvement means the governance of the long term investments becomes a joint commitment."

Charles Clarke advises the public sector to look to best practice commissioning procedures, which will deliver the necessary robust scrutiny of contracting partners, followed up by improved management. For the private sector he suggests checking supply chains, avoid working across too many markets and too much complexity and think longer term.

Both parties must commit to:

  • Putting the interest of the citizen at the heart of the contract, clearly establishing the social purpose of the partnership

  • Treating workers properly with proper contracts, training, pay and trade union recognition

  • Following an open and transparent approach, reinforced by strong auditing from the National Audit Office

Speaking from experience working in the Health sector, Anne Crofts advised, "For the NHS for example, the current statutory framework doesn’t always support efficiency and there can be legal blockers to effective collaboration. Even within the NHS, NHS Trusts and Foundation trusts have different legal powers to participate in limited liability companies and LLPs which can inhibit the use of tried and tested models for developing in house and shared services at scale. There are many examples of "reinvention of the wheel" by individual organisations where a clearer legal path to collaboration and risk share might enable a better deal to be struck. This isn’t about gearing up for "privatisation" but about building centres of expertise and excellence using well established methods of managing risk and effective governance.

Allied to this is the point acknowledged in the Government response to Sir Robert Naylor's report on the NHS Estate that expertise in the NHS to manage complex contractual and commercial arrangements has fragmented and requires additional support. There needs to be greater recognition that these contractual arrangements require active management.

Lastly, there is uncertainty around the contracting arrangements with some of the proposals to move to population based capitated budgets being challenged through active judicial reviews. Until there is certainty as to the future operating model it is very difficult for organisations to plan investment in the required infrastructure.

Michael Peeters considers the procurement and contracting and suggests the following, as just a few examples where improvements could be made.

  • In most above threshold procurement processes, the use of Crown Commercial Service ("CCS") Selection Questionnaire ("SQ") is mandatory. It represents best practice for a variety of circumstances, but does require customising by each commissioning body. Although the guidance accompanying the SQ sets out that normally, potential suppliers should be able to self-certify that they meet the minimum financial requirements, it is important that the financial tests are right and appropriate for the size and nature of the contract. It is a proportionate approach, rather than one size fits all;

  • In assessing supplier financial risk, public sector bodies should look at PPN 02/13 which provides suggestions on how financial risk can be assessed and suggest requesting financial projections, which anticipates future performance, rather than relying on historic information;

  • Build in a continuous obligation into the procurement process, and subsequent contract, give updates on financial information;

  • The inclusion of standard termination provisions including the right to terminate in an insolvency event (which should include liquidation and administration);

  • Contingency plans in the event the contractor cannot perform any part of the contract;

  • A right enabling the procuring authority to enter into a direct contract with any sub-contractors in the event that the lead/prime contractor goes into insolvency/cannot perform the contract.

There has been a tendency for the private sector to take on more risk than what was perhaps intended as a principle of partnership working. However, a greater balance of risk between the parties involved is a likely evolution. Margins that leave more room for manoeuvre and more reasonable deadlines are a more viable and long term approach.

The panel debate concluded that there appears to be widespread support for PPP and recognition that private finance and skills are an essential part of enabling the public sector to deliver investment. Many attendees at the conference could see the benefit of these arrangements and accepted that there is scope for greater collaboration and more public sector ownership and involvement within partnership vehicles.

This article was contributed to by Tom Roberts, Head of Infrastructure Advisory at BDO LLP.

Authors

Anne Crofts

Anne Crofts

London - Walbrook

+44 (0)20 7894 6531

Key Contacts

Ioan Davies

Ioan Davies

Leeds

+44 (0)113 251 4861

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