Using this framework, Abdel-Aziz and Russell examine a number of projects in the UK, Canada and United States. From this investigation, they provide a checklist of recommendations as to attributes of the three dimen- sions that need to be specified in documentation for PPPs. In particular, the authors stress the need for clear articulation of government requirements in such documents and PPP agreements in order to reduce the amount of supple- mentary materials issued to request proposals, help consortia respond with proposals that can fit the requirements, and reduce the amount of time spent in negotiations and perhaps the need for contract amendments to reflect market- place realities not considered at earlier stages. But, unlike in the traditional procurement process, in which all requirements are vested in government, under a PPP they are temporarily or permanently assigned to another entity.
These potential advantages of PPPs over traditional procurement come at a cost, one tangible element being the contracting costs. These contractual issues are not absent from traditional procurement but the agreements are less complex to draw up and are certainly less onerous to implement and monitor.
Nevertheless, this apparently lower cost of traditional procurement methods may be deceptive because the risk analysis may be less thorough – hence the cost overruns and project delays. In this respect, it can be argued that PPPs are formalizing the sort of independent evaluation and scrutiny that ought to have been applied to procurement policies.
There is a real sense in which the application of a partnership agenda can inform other procurement methods, as well as learn from them. It has been argued, for example, by the UK Treasury Committee (1996) that ‘There is no a priori reason why public procurement should not run to time and cost.
Indeed many of the assumed benefits of PFI would appear to be available to better-managed and controlled conventional procurement’ (para 33). As a statement of principle, this may be so. But it ignores the essential ingredient added by a PPP, which is to build in the incentives to avoid delays and cost overruns.
surrounds the PPP/PFI programme and the stringent opposition from public sector unions and their supporters, the vast amount of investment in public infrastructure in the UK – over 85 per cent – still takes place by means of conventional procurement, with PFI accounting for around 10 to 14 per cent of the total investment.
The Treasury’s view is that PFI is valuable, but only in certain applications.
These are when there are major and complex capital projects with significant ongoing maintenance requirements. Also, PPPs are considered appropriate where private sector project management skills, more innovative design and risk management expertise can be brought in to give substantial benefits. In their opinion, however, PFI is unlikely to deliver value for money in other areas, for example where the transaction costs of pursuing PFI are dispropor- tionate compared to the value of the project or where fast paced technological change makes it difficult to specify contractual requirements over the long term (HM Treasury, 2003b, p. 2).
An earlier report by the (self-appointed) Commission on Public Private Partnerships (2001) reaches similar conclusions. It recognizes that the PFI/DBFO route involving an SPV may be the most appropriate one for very complex projects, involving significant risks in the design and construction phase that carry over into the operational phase. Here project management disciplines and having some or all of the partners putting their equity at risk are relevant conditions, and there is a strong case for the integration of the contractors and subcontractors. The PPP model is also regarded as suitable for projects where there is considerable scope for innovation in design and also in operation. But the corollary may be that more routine projects, where the emphasis is on the delivery of an asset with routine maintenance and only a modest operational element, may best be dealt with using a Design Build Operate (DBO) model with the finance coming from the public sector (and the Commission particularly cites hospital projects in this respect). Also, the Commission suggests that routine refurbishment and maintenance – for exam- ple of schools – that do not involve significant risk and that do not require long contractual arrangements could be left to more conventional forms of contract- ing (pp. 100–1).
We would dispute these judgements in two ways. First, in terms of the ability of PPP/PFI to respond to changing circumstances, we note that in some PFI deals the extent of partnerships involved is not extensive in the sense that the public procurer is often cast in the role of ‘client’ rather than
‘partner’, and the private sector contractors deliver proposals that match, rather than seek to change, the requirements set out in the outline business case (Audit Commission, 2001). A more cooperative framework can provide an environment which makes it easier for both parties to negotiate contract variations in the face of changing business needs. One case study that we
consider later is of a PFI hospital in West Middlesex where some flexibility was built into the contract to take account of changing health care needs, notably in a project area in which technological change is rapid. Second, we would question whether PPP contracts need be confined to complex projects.
Another case study considered later is of a PPP hospital accommodation services project in Australia which is described as a ‘plain vanilla’ one, yet it promises to deliver good value for money. One reason for this result would seem to be that the consortium is integrated under the direction of a single entity, in this case a bank. This ‘financier-led’ approach to PPPs has been pioneered in Australia, and may offer the potential to lower bidding costs for relatively straight-forward PPP projects, while still delivering value for money, fast procurement times and projects delivered to budget.
However, we have jumped well ahead of ourselves, for a large number of considerations are involved in ascertaining whether a project can benefit from a partnership approach and deliver value for money. These issues are consid- ered in the next chapter where we examine both the ‘traditional’ approach to structuring PPPs and the newer ‘financier-led’ model.
NOTES
1. The major and notable exception is the Channel Tunnel.
2. In July 2003, passenger numbers using Eurostar were half the original predictions, and freight figures were a quarter of those forecast. Competition from ferries proved to be stronger than anticipated, while Ryanair and Easyjet have emerged unexpectedly as strong competitors for passenger services (Daily Telegraph, 31 July 2003, p. 22).
3. Leading examples are the Guy’s and St Thomas’ Hospital project, the Trident submarine berth, the Jubilee Line extension, and the 25 largest equipment projects in the Ministry of Defence (see HM Treasury, 2003b, p. 31).
4. These points and those following build on and modify listings in Flyvbjerg et al. (2003).