Managing Risks in PPP Project Procurement

Claire PhillipsProject Director, Partnerships UK

24 March 2005

The Bad News - It only seems like this………..!

The Good News -Scale of the UK PFI/PPP programme

Over 620PFI Contracts

Signed

Over 620PFI Contracts

Signed

£40 BillionCapital Value£40 Billion

Capital Value

£4 Billion p.a. of new projects in procurement

£4 Billion p.a. of new projects in procurement

450 Projects nowoperational

450 Projects nowoperational

Presentation Structure

• Identifying and quantifying risks

• Common risks that crystallise

• Mitigating risks

• Dealing with the unforeseen

• Summary and questions.

Identifying Risks

Not a single shot process; embed procurement risk as a project management concept and continually review for emerging or changing risk factors.

•Use the public sectors collective knowledge•Use advisors•Use your own local knowledge•Use the private sector, bidders’ experience is valuable

and the top 10 risks that crystallise are………………

The Top Ten

1. Land acquisition,2. Existing site ownership,3. Planning permission,4. Lack of consensus among stakeholders,5. Affordability,6. Lack of competition,7. Project scope unstable,8. Bid price unsecure9. Commercial agreement ,10.Due diligence “unforeseens”,

Risks that Crystallise in More Detail

• Land acquisition– Sites must be in Authority ownership

• Planning permission:– Engage with Planning, development briefs are a good way to make

clear what is expected of bidders

– Consider impact of new sites arising at ITN/ deliverability factor

– Consultation and communication has a big role to play

• Affordability– Is your affordability target accurate? How do you know?

– Manage expectations

Risks that Crystallise in More Detail (cont.)

• Commercial Agreement. – Rush to appoint preferred bidder at your peril!

– PB appointment letter is a critical point in procurement

• Security of Bid Price– Have sub-contractors priced on the commercial terms you have

agreed with the preferred bidder?

– What is price validity period?

– What openings are there for the PB to re-open price?

Tools for Quantifying Risk

No' Risks I dentified Consequences

Likelihood Category Authority Response and Action/ Mitigation

Risk Headings H/ M/ L Description H/ M/ L A/ B/ C/ D Strategic 1 Affordability issues may

require two or more schools to be removed from the project as envisaged in OBC.

H Educational impact. Pressure on main capital programme. Political impact. Bad publicity

H A Decision requires to be taken on overall VFM grounds prior to ITN issue: need, ability to deal within prudential regime to be key drivers.

2 Planning unlikely to be granted for new site for school A.

M Use of existing site will change risk profile and affordability model.

H B Develop alternative proposal for existing site, confirm affordability and market acceptability prior to ITN.

Mitigating Risks

Have a plan, embed procurement risk in the overall project management planning.

Identify, quantify and then consider:

• What you can control and how.

• What you can influence and how.

• What you can only react to.

Mitigating Risk – Good Foundations

• Review the project scope, the more complex the project, the greater the risks to procurement and deliverability will be.

• Establish a clear project management structure, with visible senior ownership and accountability.

• Ensure a corporate base for project delivery.

• Build corporate inclusion (HR, planning, estates, finance etc should all be built into project management plan).

• Take ownership of good communications, • Manage expectations (dare I say it, optimism seldom

pays!)

The Unforeseen

Not everything can be anticipated and planned for, so project management structures should:

• Allow for quick action and response, the Authority’s management/ decision making machinery needs to be “light on its toes”.

• Sufficient delegated authority is required to manage and make decisions.

• Ask yourself why it was unforeseen, what can you do better going forward.

Summary

• Embed concept of procurement risk into project management planning

• Learn from earlier projects

• Good project management structures and communications are key to managing risks

Managing procurement risk is not a single shot process; embed procurement risk as a project management concept and continually review for emerging or changing risk factors.

Financial Partnerships Unit

Questions?

Local Authority Training Seminar