PPP contracts by their nature are detailed and complex and involve numerous stakeholders. Unfortunately, this usually means they are difficult to alter and attempts to do so can result in strained relationships and prohibitive cost implications.
However Alison Fagan, partner at DLA Piper, says that with contracts lasting 25/30 years it is highly likely that the original contract will need to be changed in some way to evolve to suit the needs of the project as a whole.
She summarises these changes as falling into three general camps.
“You could have a change or variation which is adding something to a project, such as a trauma unit to a hospital or a wing to a school,” she explains. “This would need the old and new infrastructure to work together in a way that future-proofs effective continuity of services and the parties involved to embrace the benefits and challenges of change”. “Other changes arise from the corporate and financial structure of a Project – ownership, financing, structuring – all of which present opportunities to those involved but are not without their challenges”.
“And then thirdly, there are changes responding to a new requirement that was unknown when the Project was structured or which is needed to adapt to our changing society – new safety procedures, structural changes, energy improvements, ESG changes are all relevant”. Who wants these changes and why will be different for different projects and stakeholders – Fagan explains that sometimes the proposed evolution will be driven by the public sector wanting the physical infrastructure or service to change or by the private sector who are looking for efficiencies or with a change in ownership. As Projects move through operation, changes become more varied.
She says: “Changes can be triggered or suggested by any party but the problem is that the process is perceived to be very complicated and lengthy. You need to balance the benefit of the change against the cost and the bureaucracy of getting that change in place and delivering the opportunities presented.”
Fagan believes that the contracts do allow for flexibility and evolution but the industry needs to ensure that they are operating them in an ever changing way and are open minded to collaborative working.
“It’s not necessarily the fault of the PFI contracts or how they were put together which means that changes can be challenging. It is the nature of multi-stakeholder infrastructure projects and the number of people and organisations that need to be involved in the process,” she says.
So how do you ensure that you successfully manage evolution in a project without adversely affecting your contract or your stakeholder relationships?
Fagan has three pieces of advice, with the first involving communication. She explains: “It’s about setting out and talking about what people want to achieve, why do they want it and what is their end solution. If you start with what they actually want, then there may be a different route to achieving that end driver and efficiencies in the process which can be delivered along the way.
“Secondly, it’s important that you start with the documents but don’t be afraid to use them to their full extent. Know what they say but also what they allow you to do. Most allow for evolution and change but you need to know how to work with them – they are more flexible that you think!
“And thirdly, we need as an industry to learn better from our received wisdom. It’s about bringing in that learning from other projects and applying it to your own – refining and learning from mistakes and maximising benefits and efficiencies.”
It is this need to share learning and experiences that led DLA Piper to develop “The DLA Piper Project Simulator’.
Fagan describes it as an interactive and immersive training experience where participants are faced with a number of problems within projects that need to be resolved as a team to deliver the Project efficiently and effectively through construction, into operation and through to handback.
“The challenges are presented across a variety of scenarios and from different views,” explains Fagan. “So participants can gain insight into the decision making and drivers of the public sector or the SPV or the contractor. When people adopt different mindsets in decision making we find that it helps with empathy and understanding of different stakeholder roles and drives better results. This understanding of how and why stakeholders have a certain view is essential in finding solutions going forward and the Project Simulator aims to build experience and understanding of the “art of the possible” when it comes to addressing problems faced on infrastructure – including those arising from evolution”.
Fagan says one of the big issues is that the industry doesn’t talk about successful changes and flexibility. “We aren’t building confidence in the projects being flexible because we aren’t sharing when a change has been implemented successfully,” she says.
“If people know about some successful changes, even if they were for smaller scale items, it builds confidence that changes can be made and should therefore be explored in an open and collaborative manner. We should be drawing that happen, learning from the same and constantly refining and improving the delivery of the model – it would also help addressing some of the negativity around PPP by showcasing the benefits of the structure in evolving to suit the needs of end users whilst continuing to offer first class service.”
Back to black
In the evolution of PPPs there is one change that eclipses all the others – the handback of PFIs at the end of their lives.
According to the Treasury, there are 180 contracts that are nearing expiration and planning for what happens post handback is becoming an increasingly pressing concern.
Fagan agrees that managing what happens during handback is the biggest evolution and change that projects will face during their lives.
As such, she believes that it is the contracts which have faced variations and potentially disputes which have been overcome – that will be better prepared to manage the friction created by handback.
She says: “It’s almost the case that if you haven’t had complexity during the project then you may find handback harder. If there haven’t been any changes or disputes and the parties haven’t had to learn how to manage those issues, then dealing with the biggest evolution that there is may be more of a challenge.”
Again, Fagan stresses the importance of communication and knowing the contract. “It’s important that all parties know what they should be expecting and providing. There should be very early discussions about expectations – the contract says one thing but what does that mean in reality? What do people really want and what do they need and what do they not mind about?”
She then underlines the importance of managing a proper process of handing back the project and not “just letting it happen”.
Fagan advises all parties to actively manage the process from the moment you start all the way through. “Be prepared for some difficult discussions going forward and be prepared to deal with those in a constructive and collaborative way.”
With so many PFIs nearing the end of their lives, Fagan believes there is both huge scope and opportunity in finding ways to develop creative solutions to allow for flexibility.
She says being able to flex these projects which are perceived to be inflexible and survive to tell the tale is a far more positive news story than a project that remains unchanged over its contract life.
She says: “We are a very sophisticated industry and market but the largest skill of our industry is when people have had to deal with a huge change in a project and at the end they still all speak to each other and feel that they have achieved their end goal.”
To view the full survey results along with a report on the Big Question debate held after the survey, please click here.