Panel:
Paul Jarvis, Partnerships Bulletin (Chair)
Matthew Vickerstaff, Infrastructure & Projects Authority
Lord John Hutton, Association of Infrastructure Investors in PPPs
Richard Adams, Burges Salmon
Jack Banks, P2G
Sarah Channin, Equans
Jay Doshi, Infrastructure and Projects Authority
Jessica Evans, Burges Salmon
Alan Gravatt, Aecom
Patrick Hamill, Vercity
Simon Hayman, Equans
Ben Lambert, Veolia
Claire Logue, Burges Salmon
Shola Matiluko, Camden School Services
Stuart McMillan, Burges Salmon
Claire Oram, Ministry of Defence
Stewart Orrell, InfraRed Capital Partners
Zara Rattray, P2G
Eileen Rogausch, Ministry of Defence
Mark Williams, The Chartered Institute of Public Finance and Accountancy
The backdrop of the PFI/PPP industry has undergone a dramatic transformation. With the likelihood of a change of government - which will inherit tight fiscal conditions while promising more public spending - the industry is eyeing a resurgent role in the country’s infrastructure investment and delivery.
Matthew Vickerstaff set out what’s at stake at the start of the session: “There’s an opportunity here for both the public and private sector if we can deliver better results from the PFI portfolio of assets that we have, through expiry,” he said. “By improving the way that we operate and manage contracts, and ultimately spending money to get better assets, for citizens and the public, we have a way in which we can take the industry forward.
“That’s my challenge: how can we lift our horizons, collaborate together, be less mired in contracts, and just deliver better outcomes?”
It’s an exciting test for the industry, many of whom will be buoyed by the idea of turning a new page in the PPP annals, especially after the rough few years of cantankerous debates on expiry.
But as Vickerstaff pointed out, making sure that the new horizon is the land of opportunity and not the event horizon of an expiry-shaped black hole, will rely on the industry putting its best foot forward.
“There's a big picture story we mustn't lose here - the ‘what’s next? question,” agreed Lord Hutton. “There is a real opportunity in the industry to move the dial forward; that’s what we want to do, and to do it in a collaborative way.
“We are here to tackle some of the issues around handback and how that can be better managed,” he added, pointing to the White Fraiser Report as a potential blueprint. “We have to have a proper, grown-up debate around how we can do that, [and] we stand ready to do that.”
A Mountain to Climb
Despite the Green Book business guidance on considering a range of models, it was pointed out that Treasury orthodoxy tends to view private finance as the more expensive option. However, the room was divided on whether risk transfer was truly effective, as some pointed to the collapse of Carillion on the London Tube PFIs as examples of where the public sector had ended up feeling the brunt of the failures. Others, though, highlighted that in many cases, the cost of transferring operations from Carillion to other providers had been largely borne by the private sector.
Again, Vickerstaff laid down a challenge: “I’m not sure we’re seeing the assets coming back into the public sector in a way that makes us think it’s really worked. I think there’s an opportunity to do that, but it means collaborating and getting closer to key themes for the IPA: spending money better and managing public assets better. If we can do that in partnership with the private sector and find a solution that gives us a better set of scenarios, then I think we’ll have a horizon scan in the future for this industry.”
This will require a change of approach, particularly in the controversial corners of the industry where parties are at loggerheads - and have been for some time. Some of these issues are coming to the fore as projects enter the handback phase, when it is critical for parties to deliver successful outcomes if they want to prove that the model works.
“We are here to tackle some of the issues around handback and how that can be better managed,” said Lord Hutton, adding that White-Fraiser can be a blueprint for doing that.
PPPs Past, Present and Future
If future opportunities are to be offered and taken, lessons must be learned from the existing portfolio - and that requires an honest look at where things are.
One of those representing the public sector warned that “all too often we’re seeing assets that do not necessarily deliver what they’re designed for”. Many in the room agreed that the Treasury won’t be ready to try new things until the industry can show that assets are currently being returned in a “good, fit, and adequate” way.
So what’s causing these issues? With 25 years of experience, the industry is well placed to conduct an open analysis on its successes and failures - and feed them back into today’s operations and future creations.
One area of near unanimous agreement was the relationship between project attention and project success, with both sides urging each other to invest more in relationships, contractual understanding and proactive approaches.
“When you have engaged a client, the evidence is that these are much better managed projects,” said one one the private sector side, adding that a robust, tough relationship benefits all parties.
“The delivery of the output still rests with people, with individuals maintaining buildings, clients' concerns and constraints. What we’re not doing across the industry is building the compatibility and skillets to let meaningful discussion take place,” said one advisor.
Part of the problem here, highlighted one participant, is that the public sector hasn’t built a cadre of people that are experts on PFIs.
“Unless you invest into the skills, on both sides of the house, then you will continue to have those challenges,” said another advisor.
Pushing back, however, some in the public sector representatives were keen to point out that these projects were intended to be self-monitoring, asserting that the contract deliverer should be leading the way in upskilling and project management.
Agreeing, another participant said that handback was a “meaningful test” for relationship and model, adding that the public sector is actively “moving at pace” to be ready for the challenge.
Complexity
There was general agreement across all participants that one of the difficult issues facing the industry today is dealing with overly complex contracts drafted 30 years ago, which has led to accusations of inflexibility.
“PFI contracts are too complicated. They’re unnecessarily complicated, and that means it is difficult to manage them,” said one. “Half the time is spent looking at the contract and asking what it means. It's the biggest challenge.”
When it comes to thinking about what comes next, a more straightforward approach would clearly be welcomed by many in the room - although it will require a difficult balancing act between simplicity and ensuring standards are met across a 20 or 30-year contract.
Perhaps one answer to this, the room agreed, would be to slightly divorce the FM contracts from the main project - thus allowing for more traditional FM contracts that run for a few years and can be regularly updated and amended to reflect changing needs.
There was also broad agreement in the room that any future model should focus more on outcomes than specific contractual requirements. The goals of what the contract is trying to achieve should be clearer, most agreed, making it a lot easier for parties to be certain on what each side should be getting.
“We need to reorientate,” said one participant. “For anything we do going forward, we should ask just exactly what it is we’re trying to achieve.”
All of these influences and complexities are putting contracts under strain - and structural issues, such as difficulty in enacting variations, are generating deep-seated frustration from the public sector.
But a human approach can help by taking them away from breaking point.
“We have taken a very conscious decision not to enter into a dispute, instead finding a collaborative approach,” said one public sector manager. “The way we achieved that is by continually focussing on our client, that’s the important thing.
“If we had a more flexible model that built that partnership from the outset, it could respond to changes in the environment whatever they may be,” they added.
So how can issues such as these be avoided from arising again? How can a contract that binds together two parties for decades deliver?
“We should take the contract that we’ve got and drill down, in a collaborative way, to understand what has worked, what hasn’t worked, [and] how we can better manage it,” said one advisor.
The conversation was emblematic of the new situation the industry finds itself in: there are thorny issues stemming from deeply entrenched positions; but they didn’t derail the discussion. Instead, the industry was able to put the issues into the larger frame of what’s next.
Whether the industry can overcome the differences within it, remains to be seen. But the impetus is there. There is much to be discussed, as Lord Hutton said: “This is the debate that is crying out to happen.”
This article was originally published by Patnerships Bulletin.