How PPP delivers an efficient, effective public estate

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Nigel Skinner, project director at Kajima Partnerships, outlines why the Irish market could evidence the fact that public-private partnerships (PPP) continue to deliver value for money in providing an effective public estate

Since their conception over 20 years ago until 2016, public-private partnerships have funded £56bn of private sector investment in over 700 British infrastructure projects.

The UK was the first country in the world to develop the concept of PPPs for the delivery of public services projects. Used to balance constraints on public resources with the need to invest in infrastructure, PPPs are an effective way of leveraging the efficiency and risk-management skills of the private sector to deliver and maintain much needed public assets.

PPPs have delivered new builds and the refurbishments of schools, hospitals, housing, prisons and other much-needed public sector buildings.

Recent political commentary, however, particularly in the wake of the collapse of a high-profile PFI private sector supplier, has called for the UK’s public sector to take back control of its buildings, moving away from private sector collaboration. But the question remains; is the PPP model really broken?

The UK PPP model has come under scrutiny in recent years with criticism centring around ‘inflexible and overly complex’ arrangements that have facilitated managerial failings and problematic construction, compounded by long-term cost commitments.

This negative perception of the financing model culminated last year when the Chancellor, Philip Hammond, rejected any future private finance initiatives (PFI) – a form of PPP.

The Irish Government continues to use PPP models as a key route to deliver public infrastructure across the whole of Ireland – but only where it demonstrates clear value for money.   This focus on the value proposition enables the Irish government to be selective in its use of the PPP model as a key investment tool, only applying it to projects where it is clearly the most appropriate commissioning option. This ‘choice’ ensures that many of the mistakes associated with UK public sector developments – where in many cases PPP was the only option – can be avoided.

Public-private partnerships pipeline in Ireland remains strong

The Irish Government has committed to the use of PPPs across a range of sectors from healthcare, education, justice and housing, to a detailed roads programme. The letting of the Social Housing Bundles 1 and 2, and the pending formal announcement of the Third Level Colleges, indicate a healthy pipeline for PPP infrastructure in Ireland.

The recent successful completion of 14 Primary Care Centres across the country, including sites at Westport, Carrick On Suir, Ballymote and Dungarvin, demonstrates the viability of the procurement model to deliver across all regions, not just in the big cities.

Recent announcements from the Taoiseach, Leo Varadkar, and Paschal Donohoe the Minister for Finance and Public Expenditure, have indicated that in addition to the existing pipeline, PPP procurement will be considered to achieve the goals set out in the National Development Plan.

Mitigating risks

In the commissioning of these projects the Irish government has gained critical expertise and experience in the transferring and management of risks associated with the construction and operational phases of development. These phases are proven in traditional procurement to be susceptible to run-over costs, poor specification for whole-life economies and in later years, the diversion of maintenance monies to other priorities, leaving assets to deteriorate over time.

Using careful assessment of bid applications, balancing quality of build with value for money, the Irish government can be confident that PPP will deliver well designed, cost effective, quality public sector buildings. Capital improvements and ongoing maintenance during the contractual period, ensure that the asset is handed over and thereafter maintained in optimum condition, increasing the asset’s long-term useful life and ultimately its economic value.

Speed and efficiency of delivery are especially important in areas of public infrastructure with acute demands. As seen in both the schools and the recent social housing PPP bundles, the Irish government, acting through the National Development and Finance Agency, has successfully delivered procurement models which allow for follow-on projects to be commissioned more quickly, based on robust procedures developed for the initial project. This allows all participants to be familiar with requirements, leading to shorter lead-in times, agreed risk positions and the ability to build partnerships based on a pipeline of opportunity, allowing supply chain selection to focus on economies of scale.

As with any investment programme, it is important to regularly appraise value through benefit realisation audits to learn lessons and modify approaches moving forward. The Irish Department of Education and Skills has appointed a third party to undertake a detailed review of the Pilot PPP Schools Bundle, which will include a comprehensive mid-term review at year 17 of the 25-year term to include whole life costing, asset condition surveying, facilities management and value for money. Replicating this model across all sectors, will ensure that the taxpayer gets value for money and the private sector has a financial incentive to provide the best and most efficient services.

Ensuring that capital improvements and maintenance actually take place can, of course, be difficult, but by constructing assets with transparent whole-life costs – and taking these costs into account in the first place – and through the rigorous performance regime that all PPPs must operate within, the Irish government can work productively towards delivering efficient public assets.

Ultimately, public-private partnerships projects can be a cost-effective way for the public sector to engage the private sector and drive the construction of new investment projects, bringing social and economic benefits to the whole country. With the potential for some Community Care Homes and further social housing and Primary Care Centres being commissioned by the government, the future of PPP in Ireland looks healthy.

 

 

Nigel Skinner

Project Director

Kajima Partnerships

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