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