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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