Learning from UK PPP Experience

Andrew FraiserAllen & Overy

24 March 2004

Overview

Background to PPP in the UK

How the UK PPP market has developed

Case Study

State of the Nation….early 1990s

Lowest ever levels of taxation Strains on the Government purse Construction industry suffering from effects of

recession Significant backlog of maintenance in government

accommodation New build projects consistently over budget Working for Government seen as the “last resort”

The Maintenance Backlog

15 billion Euros backlog in government social housing

Hospital waiting lists longest in history due to lack of accommodation

6 out of 7 schools at end of their design lives

MOST CAPITAL INVESTMENT FOCUSSED ON REPAIRS

The Case for PPP

21st century buildings bring 21st century benefits

New buildings allow civil servants to divert time to better causes

Acknowledgement that private sector more innovative than the public sector

Accounting - off balance sheet treatment of asset

Transfers the risk of whole-life costing to the private sector

No government borrowing required

What does it involve?

The purchase of a service, rather than an asset

Transferring the responsibility for the asset that delivers the service to the private sector

Allowing management of risks to be carried out by parties that are best placed to manage risks

In some cases the transfer of staff from the public sector to the private sector

Central Government Projects

Transport Roads

Bridges

Trams

Underground

Prisons

Defence

Local Government Focus

Schools

Courts

Housing

Hospitals

Street lighting

Fire Stations

RESULTS

By 1999…

First schools project closed with more than 20 stalled in procurement

Average procurement timetable more than 3 years

All housing pathfinder projects had stalled

Most hospital projects had been cancelled

Significant number of projects unaffordable

Summer, 2003

50 schools projects closed with 20 operational

More than 20 hospital project closed

First three housing projects closed

More than 50 other Local Government accommodation projects closed

April, 2004

Leeds Primary Schools

Design and build of 10 new primary schools and sports facilities

25 year maintenance 60million Euros capital cost Soft Services

Catering Cleaning Grounds maintenance

The Leeds Timetable

March 2003 – OJEC issued

May 2003 – three bidders shortlisted

June 2003 – ITN issued

September 2003 – ITN Bids received

January 2004 – winning bidder announced

March 31, 2004 – contract signature

April 26, 2004 – start of construction

What changed?

What changed?

Legal difficulties addressed

Prioritisation of projects

Approvals process for allocation of funds

Production of standardised contracts

Increased support from Central Government

More sophisticated advisory community

Case Study

Scope of the Project

Design and build of a new school

Maintenance of schools for 25 years

Provision of services for 25 years – Catering

Cleaning

Grounds Maintenance

Some issues to consider

Construction Issues

Title to land

Ground Risk

Planning

Contamination

Operational Issues

How will the Contractor be paid?

What Services should the Contractor provide?

Do any labour unions need to be consulted?

Are there any interfacing issues?

What risks is the Contractor unable to control?

Legal issues

Does the Authority have the powers to enter into the PPP Contract?

Employment issues

Property issues

Lender Issues

Credit risk of sponsoring Authority

Compensation on termination

Can the contract be transferred to another Government department?

Risk MatrixPublic Private Shared

Change in Law

Design Strikes

Useage