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© Dr Alister W Coutts & Partners LLP [email protected]
Dr Alister W CouttsDQS, BA(Hons), MBA(Dist), MSc, PhD, FRICS, FCIOB, FCMI
currently
Lecturer in Project Finance & AppraisalEdinburgh Napier University
Senior PartnerDr Alister W Coutts & Partners LLP
Construction & Management Consultants
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© Dr Alister W Coutts & Partners LLP [email protected]
Public Private Partnerships
provide
Access to Private Sector Finance
A Mechanism for Project Control
A Chance to major on Life Cycle rather than Capital Costs
The Conceptual Framework (1)
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Public Private Partnerships
Are about the delivery of Services to the public,
by a private sector organisation
with severe penalties for performance failure!
The Conceptual Framework (2)
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A View from Inside the Public Sector
Public Private Partnerships in Action
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Where? - The Highlands of Scotland (1)
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Where? - The Highlands of Scotland (2)
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The Highland Council – Key Facts
United Kingdom Land Area - 245,000 sq. km.
Scotland’s Land Area - 80,000 sq. km.
Highland Council Land Area - 26,500 sq. km.
United Kingdom Population - 60,000,000
Scotland’s Population - 5,200,000
Population of the Highlands - 210,000
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Why Use PPPs? – The Reasons:
Acknowledged need to modernise their facilities;
Insufficient Central Government Finance available;
It left capital available for other infrastructure projects;
Financial support available from Central Government;
Allowed investment in major infrastructure developments;
Council had Project Management expertise ‘in-house’;
Council wished to promote Sustainability and to emphasise the importance of the Life Cycle approach.
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PPP - A Tried and Tested Approach
Regarded as Bad Regarded as Good
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PPP Projects in the Highlands of Scotland
Description Capital Value
Scottish Office - Skye Bridge 41 million
Scottish Office - Inverness Airport Terminal 16 million
Scottish Office - Highland Water & Sewage 80 million
NHS Highland - Easter Ross Primary Care Centre 16 million
NHS Highland - Craig Phadrig Psychiatric Unit 27 million
Highland Council - IT 22 million
Highland Council – PPP 1 Schools 28 million
Highland Council – PPP 2 Schools 150 million
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Public Private Partnerships
Use of Private Sector Finance for Small Rural Projects
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Criteria for Project Success (1)
Secure the Commitment of Sponsors / Users;
Establish the Affordability Criteria;
Establish the Value for Money Criteria;
Continually Check that Scheme is Bankability;
Check Acceptability of Key Terms / Conditions;
Check the Realism of the Risk Allocation.
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Criteria for Project Success (2)
Prepare a Realistic ‘non-political’ Programme;
Appoint & Develop the Internal Project Team;
Appoint Compatible External Advisors;
Manage Stakeholder Expectations;
Manage Political comment & Press coverage;
Continually Market the Project.
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The Show Stoppers
Lack of Open Political Leadership & Commitment;
Absence of Appropriate Legal Framework;
Non-dependable Project Revenue Stream;
Lack of Openness, Transparency & Integrity;
Unrealistic Budgets, Expectations & Programme;
A Lack of Interest (Consortia / Contractors / Funders);
An Inability to Secure Domestic or International Funds;
Political, Public & Press Hostility to the concept.
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Establish Political Oversight
The Political Process
Education PPP Sub-C om mittee[8 m em bers ]
Education C om m ittee[40 m em bers ]
The H ighland C ouncil[80 m em bers ]
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Establish Managerial Control
The M anagem ent D ecision M aking Process
Turner & Townsend Project Managem entDeloitte & Touche
Shepherd & W edderburn W S
Education PPP Project TeamDirector of P roperty & Architectural Services
Head of Support Services ; PPP Project O fficerHead of Contracts ; P rincipal Solicitor ; P rincipal Capital Accountant
PPP Project B oardChief Executive
D irector of Finance ; D irector of Corporate ServicesD irector of Education, Culture & Sport ; D irector of P roperty & Architectural Services
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The Council’s PPP Strategy was:
Start small – minimise the risk to the Council;
Aim big – devise a ‘long term’ PPP programme;
Identify suitable potential PPP projects;
Identify lead politicians – with courage & convictions;
Identify, appoint and train PPP Project Team;
Appoint appropriate external advisers;
Allocate sufficient funds to undertake the initiative!
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We tried to ensure success by (1):
Only selecting ‘appropriate’ Projects;
Getting Political support for Process & Projects;
Appointing only ‘Experienced’ Advisers;
Use of Effective Project Management arrangements;
Use of Realistic Procurement Programmes;
Use of ‘High Quality’ Procurement Documentation;
Targeting ‘known’ Consortia to pre-qualify;
Stressing the need to Consult with Communities.
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We tried to ensure success by (2):
Ensuring the Outline Business Case (OBC) was realistic;
Placing the OJEU notice to suit market conditions;
Carefully selecting ‘appropriate’ Bidders;
Preparing a detailed Invitation to Tender (ITN) package;
Relating the Bids received to both the ITN and the OBC;
Avoiding the need for Best & Final Offers (BaFO);
Negotiating the key Project Agreement clauses with Bidders and Funders at an early stage in the programme;
Updating the Business Case on a regular basis.
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Contractors / Consortia wished to know:
The Strategic Vision - the view of the Politicians!!
The Operational Context - is it important to the Council?
The Council – do they have PPP experience?
The Contractual Position – what is the period on offer?
The Design Concept – what quality / flexibility is required?
The Advisers – which firms have been appointed?
The Negotiating Team – have they experience & authority?
The Affordability Position – can the Council afford it?
The Procurement Programme – is it Practical or Political?
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Council wished to ensure Economic Sustainability
Highland Council Objectives:
– Maintain fragile local economies;
– Ensure ‘local’ firms can participate in PPP initiatives;
– Avoid any internal redundancies / loss of capacity;
– Provide Training & Development opportunities.
A PPP initiative can deliver these Objectives if:
– Funders are prepared to work with local consortia;
– The project size allows local contractors be participate;
– Economic sustainability is fully recognised.
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Public Private Partnerships
Sample Highland Council Projects
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8 year IT Contract with Fujitsu (ICL);
€ 81 million for a Managed Service;
Provision & Maintenance of 3,500 PCs;
3 year rolling refresh of all IT equipment;
Provision of all software & hardware;
Responsible for all Training & Development;
Transfer of 50 staff to Fujitsu;
First IT scheme using private finance.
Operational PPP Projects (1)
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25 year Contract with a Consortium consisting of the M J Gleeson Group plc & The Royal Bank of Scotland Group plc *
€ 128 million contract;
Project consists of 4 Schools in remote rural locations - details given later in the Presentation;
Model scheme completed in record time!
Schools now owned by Investment Fund *
Operational PPP Projects (2)
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Operational PPP Projects (3)
30 year Contract for the funding, design, construction and operation of 11 Schools;
€ 225 million ‘Build Cost’;
€ 760 million contract value;
Single Bidder - but allowed to proceed by Treasury;
Financial Close achieved on 28 March 2006;
First school was handed over on 1 April 2007;
All schools are now fully Operational.
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Outline Business Case completed for a 30 year contract for the funding, design, construction and operation of:
65 Fire Stations with a € 120 million ‘Build Cost’;
€ 270 million contract;
Project involves provision of facilities in four Municipal areas – Shetlands Isles, Orkney Isles, Western Isles and the Highlands!
Business Case was lodged with the Scottish Government for permission to proceed.
Pipeline PPP Projects (1)
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Completed a Business Case for a 20 year contract for the Disposal of Household Waste;
€ 192 million contract;
Scheme was required to comply with legislation;
Proposed service will be very high cost due to the distances between communities;
The solution also has a high capital cost;
This is a politically sensitive project;
Do you wish an EfW Plant in your back yard?
Pipeline PPP Projects (2)
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Pipeline PPP Projects (3)
Business Case accepted for a 15 year Contract for the funding, design, construction and operation of 5 Care Homes for the Elderly – € 51 million ‘Build Cost’;
Estimated € 145 million contract value;
6 Pre-qualified Bidders - with initiative being progressed under the Competitive Dialogue protocol;
Aim was to reach Financial Close in December 2008 with first Care Home to be available in August 2010;
Political decision taken to suspend the initiative!
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Business Case completed for the funding, design, construction and operation of Office Accommodation with a € 12 million ‘Build Cost’;
Estimated € 39 million contract value;
4 Pre-qualified Bidders - with initiative being progressed under the Competitive Dialogue protocol;
Financial Close was programmed for May 2008;
Offices were to be available in August 2010;
Political decision to suspend the initiative!
Pipeline PPP Projects (4)
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Education, Culture & SportPublic Private Partnership 1
Initiative
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The Council’s Principal Concern was:
Affordability
Not Value For Money
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Affordability
2,500,000
3,000,000
3,500,000
4,000,000
4,500,0001 4 7 10 13 16 19 22
Years
Annu
al C
ost
The Council was ‘up-front’ on Affordability:
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Everyone Worked Together To Achieve Success
Education Committee
(Members)
Project Board
(Officers)
Project Director
Community Groups &
School Representatives
Project Managers
External Advisers &
Internal Specialists
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Project Details (1)
2 Secondary Schools
Drumnadrochit
250 pupils + 24 Nursery
(4,280 m2)
Strontian
250 Pupils + 24 Nursery
(4,680 m2)
2 Primary Schools
Spean Bridge
75 pupils + 24 Nursery
(940 m2)
Tomatin
70 pupils + 24 Nursery
(880 m2)
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Project Details (2)
Annual Unitary Charge – € 4.5 million
Capital Value of Projects – € 25 million
Assets revert to Council ownership at contract end
No surplus land to consider
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Education, Culture & Sport PPP 1
Glenurquhart High School, Drumnadrochit - 250 pupils
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Education, Culture & Sport PPP 1
PPP1 Primary School Interiors
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Education, Culture & SportPublic Private Partnership 2 Initiative
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Project Details (1)
Dingwall Academy
1,100 pupils
Millburn Academy
1,100 pupils
Portree High School
700 pupils
Kinlochleven High
110 pupils
4 Secondary Schools
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Project Details (2)
Cawdor
120 pupils
Culbokie
80 pupils
Resolis
100 pupils
Inshes
250 pupils
Gaelic
150 pupils
Kinlochleven
70 pupils
6 Primary Schools
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Project Details (3)
Annual Unitary Charge - € 24 million
Capital Value of Projects - € 201 million
Assets revert to Council ownership at contract end
No surplus land to consider
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Education, Culture & Sport PPP 2
Dingwall Academy - 1,100 pupils
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Education, Culture & Sport PPP 2
PPP2 Primary School Interiors
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Work with Communities – It is their Project !!
Stakeholder Management Award
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Sample Pipeline Projects
Establish a Pipeline
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Fire Services PPP Initiative
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Fire Station Locations
Fire Service Sites
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Highland & Islands Fire Service
The Problem - Obsolete Fire Stations
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Highland & Islands Fire Service
The Solution - Single Bay - Achiltibue Fire Station
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Waste Management PPP Initiative
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Waste Facilities
Waste Management Sites
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Waste Management Objectives
Prevent the generation of waste at source;
Use ‘local’ rather than ‘regional’ landfill sites;
Introduce Materials Recovery Facilities (MRF);
Provide an Energy from Waste (EfW) Plant.
Capital Investment is required
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Public Private PartnershipsUse of Private Sector Finance for Large Urban
Projects
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Hong Kong MTR Corporation 1990
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Hong Kong MTR Corporation
Hong Kong MTR Hong Kong MTR Corporation is a public body;
Corporation operates on ‘prudent commercial principles’;
20 individual Development Sites above stations and depots;
Developments were phased over a 10 year period;
14 separate Development Agreements;
60% of railway funding came from PPP initiatives;
Hong Kong consortia & contractors with overseas funding.
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Hong Kong MTR Corporation
High Land Values - All land owned by Central High Land Values - All land owned by Central GovernmentGovernment
Development Agreements with 8 Private Sector Development Agreements with 8 Private Sector ConsortiaConsortia
Short Duration Contracts - Only 3 to 5 year Short Duration Contracts - Only 3 to 5 year durationduration
Value of Contracts – Value of Contracts – approximately € 1,500 million€ 1,500 million
‘ ‘Upfront’ Funding of rail infrastructure by the Upfront’ Funding of rail infrastructure by the Consortia Consortia
Design, Construction & Marketing of buildings by Design, Construction & Marketing of buildings by ConsortiaConsortia
Ongoing management of building remained with Ongoing management of building remained with CorporationCorporation
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Admiralty Development Agreement
Admiralty Centre – 2 x 28 storey towers - 95,606 m2
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Hang Lung Development Agreement
Hongway Gardens - 35 storeys - 412 flats & 2,594 m2
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Hang Lung Development Agreement
Vicwood Plaza - 33 storeys - 36,848 m2
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Kornhill Development Agreement
Kornhill Gardens – 42 x 20 to 31 storeys – 1,060 flats
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Traditional and Design & Build Projects
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Operations Directorate Projects
Alterations to Cameron Hospital
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Operations Directorate Projects
Sir George Sharpe Spinal Injuries Unit
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Property & Architectural Services Projects
Golspie Secondary School : Technical Block
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Property & Architectural Services Projects
Grantown Grammar School : Leisure Centre
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Property & Architectural Services Projects
Ullapool Secondary School
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Highland & Islands Fire Service
Kirkwall Fire Station
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Housing Services Projects
Hayton Road Social Housing, Aberdeen
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Housing Services Projects
Rorie Hall Social Housing, Aberdeen
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Issues to Consider
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Individual Project Programmes will be shorter;
Community benefits are much easier to realise;
Project Risks are easier to assess and manage;
Possible pool of local consortia and funders;
Opportunities for local consultants and contractors;
Facilitates local democratic control & management.
Advantages of Small Scale PPP Projects
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Difficult to manage a national project pipeline;
Assumes that clients have PPP procurement skills;
Procurement costs may rise due to resource issues;
Danger of a ‘feeding frenzy’ once projects emerge;
Requires a change in procurement culture – can ‘Value for Money’ be the defining characteristic if there is no possibility of delivering an initiative other than by using a Public Private Partnership?
Disadvantages of Small Scale PPP Projects
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Conclusions
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Successful PPP initiatives need
Public commitment from Senior Politicians;
Support for PPP initiatives from Senior Officers;
The creation of the appropriate Political, Legal & Financial Structures;
The creation of a Production Line of Projects;
A Project Team consisting of your best people;
To be promoted to stimulate market interest!
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A Final Thought
If The Highland Council can use private sector finance to provide municipal facilities in a remote area on the edge of Europe then so can you!
You only need to try!
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Dr Alister W Coutts & Partners LLPConstruction & Management Consultants
29 Lady Nairne DrivePERTH PH1 1RFScotland
Telephone: +44 (0)1738 565749 E-mail : [email protected]
www.awcp.co.uk
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