Memorandum by the PPP Forum (PSR 6)
1. INTRODUCTION
1.1 The PPP Forum was established earlier
this year by a number of private sector organisations to promote
the benefits of public private partnerships in the UK.
1.2 The PPP Forum's approach is threefold:
— to demonstrate the success that PPP
is now achieving in delivering completed projects that successfully
deliver public services;
— to take part in public debate and
present an accurate and business based perspective on PPP and
the issues surrounding it; and
— to monitor Government and to engage
with Government Departments, related organisations and MP's involved
in developing and promoting PPP from the public sector side.
2. PUBLIC SERVICE
ETHOS AND
THE INVOLVEMENT
OF THE
PRIVATE SECTOR
2.1 Success in PPP schemes that are now
operational has demonstrated that the private sector can have
a significant and positive part to play in the reform and improvement
of Britain's public services. Private sector contractors in this
country have always built Britain's schools and hospitals and
other public infrastructure projects for a profit, and continue
to do so in non-PPP public projects that still make up by far
the vast majority of public projects.
2.2 By involving the private sector in PPP
contracts, the public sector is obtaining several extra benefits.
Firstly, any risk of time and cost overruns are the responsibility
of the private sector consortium and not the public sector and
ultimately the taxpayer. Secondly, the significant time-consuming
elements of major public sector projects (and sometimes the subsequent
facilities management) are passed over to the private sector,
leaving public sector professionals to get on with their core
jobs.
We would also like to emphasise here the distinction
between PPPs and the contracting out of public services, as these
are vastly different, but are often confused by the general public
and others—we would welcome a clear distinction between
these forms of procurement in the Committee's report.
2.3 The Committee has asked questions about
whether profit-oriented organisations can maintain the public
service ethos. We would argue that the private sector's focus
on results, delivery of contracts to budget and on time, and continuing
measurement against pre-determined benchmarks (backed up by fines
if necessary standards have not been met) means that it is in
an ideal position to help the public sector deliver modern, efficient
public services. In addition, the private sector has often had
to undertake additional and enhanced training to make up for skills
and qualification deficits in staff which it takes on (contrary
to the impression some Unions often portray when talking about
post-TUPE conditions and training) thus contributing to employees'
long term employability and prospects.
2.4 One of the favourite criticisms of PPPs
is that private sector companies are building and running sub-standard
projects to increase their profit margins. However, it is important
to point out that with PPP projects, buildings are provided to
the specifications demanded by the public sector. Failure to do
so results in fines, possible loss of contract, and loss of future
business. The number of hospital beds in new PPP hospitals, for
example, are not determined by the private sector project company
but by the NHS Trusts themselves. Likewise, the scale of new PPP
schools and their facilities is decided upon by the public sector.
In addition, as a PPP focuses on a whole life cycle, for instance—30
years, the consortium building and running a PPP project looks
to erect buildings of much better quality and design than some
conventional procurement, as the private sector needs to look
at their own long term maintenance costs.
2.5 It also does not make sense, as some
have claimed, for a private sector company involved in a PPP bid
to massively inflate the proposed cost of the project. Competition
between companies bidding for PPP projects is fierce, and market
competition between them drives the price down, while still remaining
within the framework of the bid specifications.
More stability in contract terms and increased
standardisation would further enhance competition.
There is also general agreement amongst the private
sector companies involved in PPPs that the whole bidding process
is too long and costly.
2.6 Criticism has focused recently on whether
PFI delivers good value for money. Debt finance does cost more
than Government debt but not a significant amount more, as the
projects are supported and initiated by Government. The Government
clearly believes that value for money is being achieved, as do
neutral assessments by others. Most importantly, the majority
of PFI and PPP projects have been delivered on time and on cost,
which adds significantly to the overall value of a project in
the longer term.
2.7 A study by Arthur Andersen and the London
School of Economics commissioned by the Treasury Task Force indicated
average savings of 17 per cent using PFI.
2.8 In the majority of PPP projects, the
public and private have worked together in a spirit of positive
partnership and cooperation. The same is true for staff; there
have been very few problems with the TUPE transfers of staff from
public to private sector. Relations with clients such as NHS Trusts
for example have, in the main, been excellent, as have relations
with Unions at a local level, despite the high profile campaigns
that have been mounted by some Unions at a national level.
3. ACCOUNTABILITY
ISSUES
3.1 We believe that accountability issues
are best dealt with by issues such as penalties, and deliverables
being outlined clearly in the initial contract. As mentioned before,
a continuing positive partnership between the winning consortium
and the public sector client is also in both of their interests,
in ironing out any teething problems, both at construction stage
and the operational stage.
We believe that accountability and related aspects
are best dealt with by issues such as penalties, and deliverables
being outlined clearly, and to the satisfaction of both parties,
in the initial contract.
3.2 Accountability to Parliament is undertaken
through examinations of thorough NAO reports into specific projects
and examination by Public Accounts Committees. We believe that
this has worked well in the past in examining earlier projects,
and has led to Parliament influencing and improving future policy
in PPPs.
We support a more rational and informed debate
about the whole subject of PPPs, and believe that examinations
by organizations such as the NAO is a welcome benchmark to determine
the success of PPP projects.
3.3 Another issue which has arisen this
year has been refinancing of early PFI projects. Few such refinancings
have so far taken place. The refinancing gains are really only
relevant to the very early deals when the risk profile was unknown,
and the pricing of PFI deals allowed for this. It is a sign of
PFI's success that the market has matured to the point that there
is limited refinancing gain available in most new deals as they
are priced so competitively from the outset. This is clearly a
benefit to the public sector. Most companies believe that they
should be allowed to retain financial benefits resulting from
the successful completion of particular projects, especially the
early ones when the risk were perceived to be relatively high.
We welcome the introduction of the Gateway process
by OGC which will hopefully ensure that schemes are better prepared
before they are brought to the market—this will benefit
both public and private sector.
4. SERVICE USERS
AND PUBLIC
SERVICE REFORM
4.1 From a private sector perspective, PPP
projects attract the best directors, the best managers, and the
best team members. Companies involved realise that PPPs do have
the potential for profit, but also that if companies do not deliver
what the public sector has specified, they will shoulder the risk
of any time or cost overruns. Ultimately, this benefits the end
user—the public.
4.2 Building new public services is no longer
a wishful objective, but a reality, and it is happening with PPP.
Hospitals and schools that were built over a century ago are finally
being modernised or rebuilt.
4.3 This has its main focus on users and
consumers, most of whom are much happier to have their children
go to school in modern, draft free buildings, or to be in a modern
hospital with state of the art facilities.
4.4 No one is pretending that some PPP projects
could not have been improved upon, particularly in early cases
where both public and private were stepping into unchartered territory.
With every new project both public and private sector are learning
and improving the process.
4.5 The fact that other countries are following
Britain's PPPs with interest and pursuing their own projects is
an indicator that this is not just a cynical manipulation of "new
Labour" to hoodwink the British public.
4.6 With the help of intelligent and insightful
criticism, we can continue to stay ahead. There is a thoughtful
debate to be had on an ongoing basis as to how to improve PPPs
to the benefit of all. The private sector is committed to working
together in partnership with the public sector to achieve this.
November 2001
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