PPPs – the pitfalls, the potential and the possibilities
Berwick Partners’ Mitchell Partington recently sat down with Local Partnerships LLP – a public sector advisory body who bring public and private sector expertise to improve efficiency and support numerous government organisations and authorities with a range of projects. We discussed the potential, the pitfalls and the future of Public Private Partnerships (PPPs) and what good leadership looks like on these projects in the UK.
As we enter a period of deep economic challenges, there will be multiple business, economic and societal casualties along the way. As the UK Government has started to announce multiple stimulus and infrastructure investments, we start to discuss what PPPs these should fund and how they could support economic recovery, whilst remaining a benefit, rather than a burden, for future generations.
The nation has shown a great deal of ’good will’ during the initial stages of the COVID crisis. We have shown what we as a country are all about, as we looked to ’do the right thing’ and to overcome the obstacles thrown at us. Front line staff have worked tirelessly to ensure the smooth running, cleaning, catering and security of all our essential services, such as hospitals and schools. The Government announced they would ’do whatever it takes’ to ensure the economy and country can recover from this. As we begin to emerge, however, it is crucial we look at the structures and contracts which hold those services in place, to ensure they are still there, and arguably better placed for the future. Often, at the heart of those services, are Public Private Partnerships (PPPs), Private Finance Initiatives (PFIs) and some newer models of project delivery such as the Welsh Government’s Mutual Investment model (MIM).
Where PPPs have failed previously
Since inception, Berwick Partners and the wider Odgers Berndtson firm have worked with both the public and the private sector and we have seen, from the inside of those (both public and private) firms, the frustrations they face when the promise and potential of their PPP agreements don’t materialise. What Berwick Partner’s has observed from public and private sector clients – is that whilst some contracts run relatively smoothly with a partnership in place – and remember that a PPP is designed to be ’a Partnership’ – in reality, have turned into battlegrounds resulting in everyone losing out; from the local authority to the service provider and customer, patient or pupil; and leaving the taxpayer to pick up the bill. In general, both the private and the public sector agree that these partnerships need to be reviewed. The Chief Executive of the Infrastructure and Projects Authority (IPA), Nick Smallwood, declared this year that the delivery of PPPs urgently needed to be ‘fixed’.
When we looked at the ‘broken’ delivery of PPPs with experts from Local Partnerships LLP, they acknowledged that ineffective engagement and communication between the private and public sector partners is often at the heart of the problem. They stated that, often there is a heavy reliance by the private sector on the public sector to manage and enforce the contracts, despite it being a contractual requirement of the private sector partner – and often there is a lack of expertise in the public sector to hold the private sector to account. They further explained that, in reality, a successful partnership results from responsibility being taken by the leaders within both parties. This is further complicated by the long-term nature of some PPPs as facility requirements, government policy and key personnel can all change during the life of the project. When these changes occur the existing documentation and contracts no longer reflect a realistic (and sometimes legal) outcome, and the result is that there is even less transparency and accountability in the delivery of the project. Local Partnerships has observed over the years that once these contracts are agreed, and become operational, informal working practices can become normality – with informal agreements of changes to working practices, and a lack of formal contractual monitoring. Appropriate amendments to the contract, including the risk and pricing provisions within it, are also not formally agreed. Then when it comes to enforcing the contracts, the lack of accountability and a shortage of up-to-date documentation on both sides, often results in further complications, delays (which often requires extra financing), and a failure to deliver to the taxpayers.
The shortage of expertise
In order to avoid PPPs being held together by out-of-date unaccountable contracts, we believe it is important that both partners have access to the right resources and expertise leading these projects. Local Partnerships explained to us that whilst each PPP project will naturally require different expertise in the day to day running of a project. The overarching need, is that all functional leaders within both the public and private side are held accountable; Local Partnerships went on to explain, that the best way for this to happen if for both sides to have access to the appropriate operational, financial, technical and legal resources, with appropriate governance arrangements. These are the people whose job it is to be responsible for the specific legalities, as well as the updating and upholding of the contract.
The need for the right leaders when engaging in PPPs, was further highlighted by the IPA last year in its ‘Infrastructure Finance Review consultation paper’ (IFR), in which they identified that ‘the most successful PPPs over the next 30+ years would be those which are flexible and adaptable’ – meaning they’d be constantly changing. Local Partnerships offers multiple advisory services to the public sector at all stages of a project’s life. They also explained however, there is a need for both sides to have internal leaders who can deliver these ‘successful, flexible and adaptive’ PPPs in future. Moving forwards when hiring, both the public and private sector partners will need to be considering commercial and functional specialists including those with legal, financial, procurement and technical expertise, along with professionals with experience of holding other businesses, and crucially other sectors, accountable. Local Partnerships explained that when recruiting individuals with specific PFI experience, they are few and far between, but that functional leaders with experience delivering longer-term projects through periods of legislative, economic and policy change, will be the most successful at delivering PPPs. At Berwick Partners, we are experts in hiring leadership talent, and we know this market is competitive, and with a decreasing pool of PPP and PFI experts, it is vital – especially when your firm or body is engaged in PPPs – to get the recruitment of your functional leaders right.
The shortage of information, intel and data
Local Partnerships explained it’s not just about having the right people and expertise in place, but those individuals need access to (and know where to access) the right resources and information to accurately develop, deliver and maintain a PPP. So, in an age where data is arguably the most valuable commodity on earth, a successful PPP will rely on up to date and sufficient data/information, not only to ensure the contracts are correct and enforceable, but also to ensure maximum efficiency of the project. A good example of this from a NAO report earlier this year is HS2. In the report they stated the project has run at least £10bn over budget and has been delayed c. 5 years. They went on to state, one of the main reasons for this is that the initial financial forecasting did not include enough information and data to accurately forecast risk and increasing prices over the duration of the delivery. This just further highlights the need for leaders developing and delivering PPPs to understand and be able to access, sufficient accurate and up-to-date data.
In a period of post-Brexit devolution, Local Partnerships explained that there are further issues as data and information shortage is even greater at a local and regional level. The Government has recently announced a number of localised PPP schemes. This includes the high profile ‘Green Homes Grant: Local Authority Delivery’ where local authorities are allocated funding to partially cover the cost of energy improvements in the area. The idea being that local authorities will work with private businesses to make local building/home improvements, which will cut carbon emissions, decrease bills for consumers, increase profits for local private business-owners and create jobs. The issues however emerge when you identify that 53% of English local authorities don’t actually have any energy data for their own buildings (reported by LocalGov.co.uk in August this year) – the same authorities who, under this scheme, are responsible for distributing funds to make energy improvements. This example highlights how a lack of data access at a local level can complicate, delay and increase the cost of delivering on investments such as ‘Green Homes Grant’. The need for this improvement in data professionals and resources was further highlighted to us when Local Partnerships explained that they are seeing a steady increase of local and combined authorities taking responsibility, managing and engaging in PPPs – as such there’s been an increase in demand for localised data. There is huge value long term in local authorities having a data function (of both the data and the experts) to; generate, access, understand, and share their data. In addition, if it wasn’t clear before, the pandemic has only highlighted the necessity for, and current lack of it now. Whilst Local Partnerships explained the role they can play in the provision of data for their public sector clients, they also highlighted there is big potential for local authorities to work together in the future, working across boundaries to share information and data, especially now as the Government begins to invest heavily in new combined projects.
Future potential of PPP
There will always be a need for private financing. Even after Philip Hammond announced in October 2018 that there would be no new PFI agreements awarded, other more innovative models of private financing have emerged, such as the MIM. Local Partnerships has been working with the Welsh Government on the development and delivery of their MIM projects. They explained that the successes seen so far come down to – the right expertise leading the project, a competitive procurement process (designed to ensure better value for money,) as well as the model generating shorter term benefits, such as the creation of apprenticeships and traineeships. Early indication suggests that MIM appears to have a high success rate, and a more positive output, and is creating more accountability and transparency between both sectors. There are any number of different structures of private financing and PPP arrangements – no one model fits all projects. Ultimately, Local Partnerships explained to us the combination of; public sector leadership taking its time to identify the best partnership model and doing their due diligence during the procurement stage. Whilst having access to the right information and data to factor in their specific requirements; resources available, location etc., will lead to the most successful partnership delivered by the right partners.
So, as we look to recovery and the Government announces a £190 bn investment and numerous PPPs, in order to ensure these are successful for everyone long term, we need to start to fill the gaps in leadership expertise, data and information. Local Partnerships has; through the provision of the correct resources over the last 11 years, saved hundreds of millions and improved the outcomes of many PPPs. However, as the public sector looks to continue their participation in these partnerships, there is also a necessity for them to be led by the right people, and to access and generate, their own information and data. This in turn will enable them to better understand what it’s long term needs are, what the best PPP looks like and be able to hold the private sector accountable during delivery. Whilst the private sector leadership needs to ensure a more proactive long-term view to these partnerships, by ensuring they have the expertise in-house to maintain and update their contractual requirements and, in turn, to hold the public sector accountable too.
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