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Lessons Learned from PPP Project Preparation and Implementation

Ed FarquharsonApril 2008

From whose perspective?

• Policy – was it value for money?

• Operational – did I get the bridge I wanted?

• Financial – will I get my money back?

• Development impact

• Project or process?

Queen Elizabeth Bridge, Second Dartford Crossing

Content

• Background: Example of a PPP programme - UK

• Evaluation Tools and Processes

• Evidence and Lessons learned

Background

M6 Toll

OGC

Auditing bodiese.g. National Audit Office

Department Private Finance Units

UK PPP policy & implementation bodies

HM Treasury

PPP PolicyOther key support bodies

e.g. 4psPPP support to Local

AuthoritiesPartnerships UK

PPP Implementation

Partnerships for SchoolsPDO

Scottish GovtFinancial Partnerships Unit

Snapshot

• Delivered £50bn + of capital investment in the UK

• 860 projects, 675 operational• PPPs now a global market• PPP models evolving over

time

HM Treasury

** excl London Underground

UK PPP Sector analysis

111

213

5135

269

21

82

13 7

63

0

50

100

150

200

250

300

Number of projects

Acco

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odat

ion

Educ

atio

nEn

viron

men

t

Equi

pmen

t

Hea

lth

Hou

sing ICT

Leisu

re S

ervic

es

Prop

erty

Tran

spor

t**

Sectors

Number of Deals Grouped By Sector

Signed Projects and Capital Value by Financial Year

Source: HM Treasury

Evaluation Tools and Processes

Nottingham Trams

Tools and processes

• PPP Units• Guidance – e.g. VfM• Contract Standardization

• Project Review Group• GatewayTM Reviews• Major Project Reviews

• Value for Money Audits

Outline Business Case

1. Programme, project, procurement level review (scope, term)

2. Clarity of requirements3. Design Quality4. Risk Allocation5. Key Terms and Conditions6. Indication of commercial interest7. Affordability8. Suitability of Proposed Advisers9. Indicative Timetable10. Project Team11. Commitment of Sponsors/Users12. Statutory Processes

Value for MoneyAssessment

Commercial Interest Assessment

Project Management Assessment

Affordability Assessment

Can the project be delivered?

GatewayTM process

100%

Who

le L

ife

Expe

nditu

re

Confirm Strategy Confirm Justification

Competitive Procurement In-Service Confirm

Benefits

Time

Strategic Assessment

Contract Award

0%

Gate 0

Gate 1

Gate 2

Gate 3

Gate 4

Gate 5

ProcurementStrategy

InvestmentDecision

ReadinessFor Service

BenefitsEvaluation

BusinessJustification

Evaluation matrix: Key management themes

• Fitting business requirements• PFI is the appropriate delivery mechanism• Stakeholder support• Good quality project management• Optimal balance between cost, quality and flexibility• Effective risk allocation and management

Evaluation Matrix: Key project phases

• New methodology based on the 6 key project phases• Each part of the cycle is assessed on management themes

Strategic analysis Tendering

Earlyoperational

Asset construction

Contract completion

Matureoperational

The Evaluation Matrix – a shortened version

ProceduresUpdated

Risk Transfer Sticks

Mitigation and Updating

Risk TransferAgreed

Optimum transfer of risk

Risks AssessedRiskManagement

Good Quality but Affordable

Deal remains affordable

Changes made are VFM

Price quality & finance good

Good quality bids received

Groundwork for Solution

Cost, Quality& Flexibility

Right skills & Relationships

Governance & Relationships

Evaluate pastPlan future

Getting thebest deal

Structures areEffective

Project structuresGood qualityManagement

Continue to review Review level of satisfaction

Kept informed of progress

Support for agreed deal

Key partiescommitted

A Strategy to Communicate

StakeholderSupport

Assess if deal is delivering

Consider termination if poor delivery

Continue baselining

Review that PFI is right

Performance is baselined, Bids innovate

Clear case forPFI in OBC

PFI the rightMechanism

Services meet Core Business Requirements

Contract met, Asset is fit for purpose

Asset delivery as specified

Right contract reflects the requirements

Bidders given rigorous specifications

The right project has been selected

Fit withBusiness Requirement

MatureOperational

EarlyOperational

ImplementContractcompletion

TenderingStrategicAnalysis

Source: NAO www.nao.org.uk/publications/nao_reports/05-06/Framework_PFI_Projects_i.pdf

British Embassy, Berlin

Evidence and Lessons Learned

Evidence of delivery - construction

PPP can deliver projects effectively (right time and right cost)

Construction IndustryPPP

n/an/a8%Over 2 months late

37%70%24%Late to public sector

45%73%22%Exceeds price agreed in the contract

(2005)(2001)(2003)

Source: National Audit Office

• Public sector managers report 96% of projects performing at least satisfactorily, with 66% at a very good/good standard.

• Users believe service standards being delivered always or almost always in 80% of projects

• 97% of managers rated the relation with their private sector counterpart as satisfactory or better with 72% rating it very good/good

Source: PUK Operational Projects Report 2006

Operational performance has been good

Benefits achieved

• Delivered tangible improvement in public services

• Introduced a more strategic approach to infrastructure investment

• Made people think about whole life cost• Developed greater capacity and

competition in the supply markets• Developed efficient capital markets• Improved the public sector client

capability• Improved the quality of procurements Brentside School

Common problems

• Allocation of risk and reward• Public sector not clear what it

wants• Project complexity exceeds

public and private sector capacity

• Poor market assessment and management

• Appointing/managing advisers• Poor project governance• Affordability issues

DLR

Conclusion - General Lessons

• PPPs do not suit every type of infrastructure investment

• Public Sector skills are very difficult to retain – central support is needed

• Programs of investment are better than one off deals

• Standardisation needs enforcement• Plan for contract management –

change is the norm• Quality control processes West Middlesex Hospital