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Structure of presentation

Putting it into practice – experience from the UK International Seminar on Improving the Quality of Public Investments and Public-Private Partnerships Edward Farquharson Brasilia 26 April 2005. Structure of presentation. Challenge Making the right decision Making the decision right

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Structure of presentation

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  1. Putting it into practice – experience from the UKInternational Seminar on Improving the Quality of Public Investments and Public-Private PartnershipsEdward FarquharsonBrasilia26 April 2005

  2. Structure of presentation • Challenge • Making the right decision • Making the decision right • New forms of programme delivery

  3. The challenge • Scale • Scope • Size • Situation

  4. Sectoral distribution

  5. Scale • 666th PFI signed last week (!) • Around 1 PFI deal signed per week • 450+ operational

  6. Size distribution

  7. Authority distribution

  8. Time Process overview 100% OBC - PRG VALUE FOR MONEY Ability to influence outcome FBC Strategy/programme Procurement Award Service delivery Assessment 0%

  9. OBC Deliverability check-list Value for money assessment Deliverability Bankability assessment Project Management assessment

  10. Case study • Grouped schools project • Based in North London borough of 1/4m pop • 10 primary schools and 1 secondary school • Raise quality/some expansion • Central government credit of £55m • Decision to launch the project taken in Sept 2001 • Most non-teaching services • 30 years

  11. Choosing the schools • Do nothing/do minimum/preferred option • Sufficiency • Condition • Suitability Project scope

  12. Risk allocation

  13. Public Sector Comparator

  14. New vfm guidance • Embed an evidence based approach to decision making • PSC used at programme level and prior to procurement start • Generic VfM Model • Green Book changes – e.g. optimism bias, STP of 3.5% real • Qualitative assessment: • Achievability - can you contract? • Desirability - is the process justified? • Viability - competition

  15. Bankability • Market soundings with 10 prospective bidders • Analysis on a whole life cost basis showed rebuild cheaper than refurbishment in 10/11 schools • Output specs in accordance with Guidance for Local Authorities • Financing assumptions

  16. Affordability

  17. Project team Project Steering Group Steering Group Chair + 4 other steering group members Budget of £750,000: Legal advisers

  18. What happened next? • At OJEC 7 expressions of interest where received • 3 invitations to negotiate (ITN) • Standard contract terms issued at ITN • Standard payment mechanism issued at ITN • Change in scope • Best and Final Offer for 3 bidders

  19. The bids

  20. Who won?

  21. The bids

  22. Timetable

  23. Drivers • Quality of the ITN: clarity of outputs • Authority changes • Externals: e.g. planning approvals • Complexity

  24. Final Business Case • NPV of unitary charge 16.5% better than PSC • 75% of risk transferred • Community benefits won • Good competitive tension achieved

  25. Opportunities arise for further development of the procurement process….

  26. Local Authority Local Stakeholders (Schools, PCT, LSC) BSF Strategic Business Case Strategic Partnering Agreement Partnerships for Schools (c10%) Shareholders Agreement Local Education Partnership Local Authority (c10%) Private Sector Partner (c80%) Local Supply Chain Programme level PPPs

  27. PPP2? • Procurement and contract standardisation • Removal of repeated bidding (for public and private) • Estate rationalisation • Construction efficiencies, through strategic partnering driving economies of scale from long term volume • Off-site and modular construction • Lifecycle and FM efficiencies

  28. 80% 30% Has it worked? Delivery on time and on budget On time On budget On time On budget Conventional Procurement PPP Performance of completed projects – No. of Projects Sources National Audit Office – UK Parliament – Expenditure Auditor

  29. Performance by sector

  30. Contract management issues • Effective hand-over • Importance of central support • Quality of contractual arrangements • Importance of a strong senior lender • Refurbishment projects present challenges • Benefits of a mixed approach • Managing change • Refinancing

  31. Oversight National Audit Office – Central Government Audit Commission – Local Government Public Accounts Committee/Parliament Credibility is key

  32. Some useful websites • www.partnershipsuk.org.uk • PPP guidance, Projects Database • www.hm-teasury.gov.uk • Guidance, Policy, Meeting the Investment Challenge • www.nao.gov.uk • Value for money reports, lessons learnt • www.4Ps.gov.uk • Local government guidance • www.ogc.gov.uk • Gateway processes

  33. Guidance examples • TN 1: How to Account for PFI transactions   • TN 2: How to follow EC Procurement Procedures and Advertise in the OJEU (OJEC); • TN 3: How to Appoint and Manage Financial Advisers to PFI Projects; • TN 4: How to Appoint and Work with a Preferred Bidder; • TN 6: How to Manage the Delivery of Long Term PFI Contracts; • TN 7: How to Achieve Design Quality in PFI Projects • Value for Money Guidance (Replaces TN5) • Standardized PFI Contracts Version 3 (SoPC3)

  34. Lessons Learnt • Legislative framework • Policy framework • Institutional reform • Capacity building: • Public sector • Private sector • Central support • Communication strategy • Programme development • Quality Control • … and above all, Political Commitment

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