UK
SWG’s Sales Director Marc Watkins was recently featured in PPP Bulletin’s popular podcast series, 3Ps in a Pod. Watkins discusses his experiences with global PPPs (Public-Private Partnerships), focussing on what lessons can be learnt from PFI (Private Finance Initiative) projects in the UK, the challenges of different behaviours around contracts, and how tech can help partnerships respond positively. You can listen to the full podcast recording on PPP Bulletin.
Moving away from stale relationships
The relationship between private and public sector in PPP contracts can sometimes be difficult to maintain. Where contracts are running smoothly, there’s a mentality of not wanting to rock the boat or make changes for fear of things going downhill. Where they aren’t running so well, it tends to be an overzealous public sector looking to penalise to receive as much revenue back as possible, or the private sector looking to monetise and deliver the bare minimum in services. Partnerships work better where there is give and take, and an understanding of the end goal. We need to move away from just being happy with the status quo and look at the benefits that can be realised for both parties.
Contract reset
Private sector innovation can create savings for themselves and the public sector. For example, streetlighting PFIs have led to LEDs replacing old inefficient lamps. However, change is more difficult in rocky relationships as the private sector may feel less inclined to try new ideas if they have been penalised for operating outside the contract terms previously. The White Fraiser Report identified relationship failings can be down to either partner, or both, and there should be a ‘reset’ opportunity to evaluate the scope of services delivered in the contract framework. Recently we’ve seen school PFIs where contracts have been overly onerous about the length of the grass all year round, leading to wasted money that could be better spent elsewhere. Such a reset would allow a discussion around the things that aren’t working well for either side, nor benefitting the people using the facilities. The budget saved could be reapportioned to new technologies that they will inevitably need to use in the near future.
Many of SWG’s client contracts experience a soft reset when we come on board at the operational phase, or just prior. We’ll sit down with the public and private sector partners and discuss how the contract will actually be deployed. Quite often we’ll find clauses that are meaningless in the real-world context of how a particular facility operates. I worked with a hospital in Australia and one of the contract requirements was that an operative had to respond to a particular type of issue within 5 minutes. But this facility was huge; there was no way someone could respond within the timeframe without having an operative permanently stationed in the area. A conversation identifying issues like this could lead to a change in response time and in return, the public sector could offer a quicker rectification time. It’s the give and take which is what the partnership is all about. We can also build resets into existing contracts – for example every five years, to look at what is working and adjust the contract formally to incorporate this.
Risk transfer
The fundamental idea of a PPP or PFI is transferring risk to where it can be better managed. The private sector has vast experience of delivering building projects and utilising technology, so can better bear such risk compared to the public sector. They may get opportunities for revenue generation as part of this but the public sector gets brand new infrastructure at the end of the project, and the reality is that if they tried to run it themselves for the contract period it would cost a lot more due to lack of experience and best practice knowledge.
There’s a great opportunity to make operational PPP contracts better using technology, such as building information modelling (BIM). It’s now mandated in the UK for new public sector building contracts but has also been a game changer within existing facilities. BIM allows data to become more accessible, and negates the need to access and update various systems and registers as it can all be done in one place. In other regions BIM has been a requirement in PPP contracts for years but, to date, in the UK the benefits have not been fully understood and it was felt to be a pricey option. But in recent years, the cost of sensors and digitisation (i.e. laser scanning services) has really come down, and can be deployed into existing contracts to improve operations – even those with a short period left. Projects can have better data capture, information available to different stakeholders, and more operational tools to give deeper insight to help understand why problems are arising and what improvements can be made. This is a big driver and can be a great advantage in new or existing contracts. If the cost is still an obstacle to the public sector, it would make sense to use the PPP framework to deliver the cost over a longer period of time.
Avoiding the contract skeletons
There used to be the idea within PFIs that if you didn’t have to get the contract out of the drawer, the project was going well; but that’s when you find skeletons in the closet. That’s perhaps where other countries like Australia and Canada are doing better – constantly reassessing, constantly in dialogue on how change things, bringing in new tech. When the private sector diversify from contract without realising we can bring them back – or if you prefer the way they are going you can make the change in the contract as appropriate.
This is where BIM comes in again. Often the information about how a contract has been run is in the minds of the people running them; but once they leave there is an information vacuum. An operational BIM model provides the capacity to deliver updates at handover, and give a better understanding of the facility up to that point for all the partners.
Gold plating in PPP contracts
In the UK especially there’s a negative perception around ‘gold plating’, as in the schools example where the private sector delivers to a standard over and above what’s actually required. With technology, there’s of course a risk that it doesn’t deliver in line with the requirements of the facility, but again this is just a conversation to be had. What are the requirements and what will the benefits be? My advice is to deliver it as part of a framework to document these benefits. What KPIs and SLAs can be aligned to the new technology in order to agree on deliverables, timeframes and who is responsible for what. Even mid-contract it can be worth bringing in new software to help deliver more transparency and efficiency benefits.
For more information about BIM, PPP contract due diligence or payment mechanisms, contact our PPP team.
