A switch from traditional public procurement methods to infrastructure provided under a PPP signals a changed role for the public sector. This section examines the different role for government occasioned by the PPP procure- ment process relative to the conventional procurement method. The following section then outlines the features of PPPs that can help to bring about the better outcomes indicated in the previous section.
Table 4.3 Construction performance of PFI and conventional projects
PFI Government
projects procurement
Projects 2002 NAO census 1999 survey
Percent
on time 76 30
on budget 78 27
Source: National Audit Office (2003).
Public procurement involves the following procedures.4 1. establish alternatives
2. appraise options
3. draft terms of reference; recruit consultants for feasibility study 4. carry out feasibility study (involves consultants)
• preliminary design and cost estimates
• market analysis
• economic analysis
• financial analysis
5. undertake safety study (consultant)
6. arrange environmental impact study (consultant) 7. project recommendation (consultant)
8. parliamentary decision
9. create project team to implement project 10. apply for required permits
11. raise the finance
12. preparation of detailed design (consultants) 13. appoint contractors
14. supervise construction (consultants) 15. commission works
16. begin operations.
With a PPP, however, there are a number of different steps involved in getting the project to market and initiating construction and the operational phase:
1. undertake policy study 2. appraise options
3. publish policy document 4. prepare terms of reference
5. draft performance specifications (consultant)
6. commission consultants to undertake feasibility study
7. direct consultants to prepare plan for public involvement (public hear- ings, stakeholder group involvement, peer review, etc.)
8. evaluate feasibility study
9. Consultation Document issued for wide consultations with public and stakeholders
10. consultation with public, stakeholders and regulatory bodies
11. involve consultants in proposed regulatory regime; further analysis of associated costs; risk management plan
12. second Consultation Document for consultation with public and stake- holders
13. Decision Document to identify
• performance specifications
• financing conditions for operation
• risk management
• mode of operation
• tender procedures
• regulatory regime
• cost estimates and financing conditions for associated costs 14. legislation to go to Parliament
15. undertake pre-qualification of bidders
16. prepare shortlist and ask for bids (consultant involved) 17. evaluate bids
18. select concession holder, negotiate and sign preliminary agreement (consultant involved)
19. circulate Information Document subject to review by Auditor-General.
20. selected private party to initiate final designs to obtain
• final permits from regulatory authorities
• bids from contractors
21. negotiated agreement to be approved by relevant authorities and conces- sion holder
22. detailed design
23. final clearance from environmental and safety authorities 24. implement agreement
25. audit and manage contract.
These steps will normally be divided into a number of distinct phases, and in each of them the government will assume different roles and thus wear a number of different ‘hats’. As managers of contractual relationships, public bodies authorize contracts (government as concession grantor), evaluate infra- structure needs (government as network planner), provide supporting facilities (e.g. land) and pay for services (government funding), define performance outcomes and standards (government as customer), undertake detailed procurement planning (government as project manager), ensure facilities are constructed, used and maintained satisfactorily (government as inspector), require compliance with standards and specifications (government as over- seer), monitor business and financial viability (government as contract
manager), assess environmental impacts (government as protector of the envir- onment), and guarantee community access and achieve social policy objec- tives (government as representative of the public interest).
Table 4.4 sets out the major stages involved in developing a typical PPP project and indicates the different perspectives that the government must apply in each stage. At the same time, very different obligations are placed on the private sector entity because the government is not acquiring and taking immediate ownership of infrastructure assets but, rather, is contracting to buy infrastructure and related ancillary services from the private sector over time.
Among the key ingredients of such an arrangement are:
• a focus on services, with the emphasis on the delivery of infrastructure services using new or refurbished public infrastructure assets;
• planning and specification, so that government’s desired outcomes and output specifications are clear to the market;
• creating a viable business case for the private party;
• certainty of process, ensuring that any conditions to be fulfilled are clearly understood before the project proceeds;
• project resourcing to enable government to advance the project and address issues in line with published timeframes;
• clear contractual requirements, centred on key performance specifica- tions, to create incentives that promote performance and minimize disputes;
• formation of a partnership to encourage good faith and goodwill between government and the private party in all project dealings; and
• contract management to monitor and implement the contract.
These features give emphasis to the risk management and the output-based project definition cycle advocated by the Mott MacDonald (2002) report. They also embody the checks and balances and incentives (public perusal, perfor- mance specifications, clarity of rules and the involvement of risk capital) recommended by Flyvbjerg et al. (2003) as a solution to the problems of conventional procurement. In particular, there is the opportunity for complete integration – under one party – of upfront design and construction costs with ongoing service delivery, operational, maintenance and refurbishment costs.
Moreover, the approach focuses on output specifications, providing enhanced potential and incentives for bidders to fashion innovative solutions in meeting these requirements. With traditional procurement of infrastructure the detailed design work is normally completed in advance of calling for tenders, so removing scope for innovative new technologies or cost-saving devices. A PPP is in this respect an incentive-oriented, performance-based arrangement in which contractors are given responsibility for design as well as construction,
Table 4.4 Major stages in a PPP contract
Stage Main tasks Government role
Define service • identify service needs customer, network planner
need • determine outputs
• consider network effects, corridor planning
• allow scope for innovation
Appraisal • examine various network planner, protector alternatives (refurbishment, of environment,
reconfiguration, new representative of public
assets) interest
• evaluate financial
consequences, risks and other impacts
Business case • quantify risks and costs, network planner, funding establish net benefit
• cost–benefit analysis, PSC
• obtain funding and project approval
Project • assemble project resources project manager development (steering committee, project
director, probity auditor, procurement team)
• create a project plan
Bidding process • develop and issue expression concession grantor of interest invitation
• evaluate responses and prepare a shortlist
• issue Project Brief
• evaluate bids
Project • confirm value for money and network planner, finalization achievement of policy intent representative of public
review interest
Final negotiation • establish negotiation concession grantor, funding framework and team
• probity review
• execute contract
• financial close
Contract • handover to contract inspector, overseer, contract
management management team manager
• formalize management responsibilities
• finalize project delivery
• handle variations to contract
• monitor the service outputs
• maintain the integrity of the contract
along with operations and maintenance over extended periods of time (some- times 25–30 years). By specifying in detail the service outcomes required, the government body signals that it will no longer be responsible for cost and time overruns or systems that are inefficient or fail to work (Smith, 1999).