Positive thinking: Making the case for PPP

The UK PPP market contains a wealth of experience that is increasingly being leveraged around the world. And despite some of the headlines, there are many examples of how things have gone right, as well as wrong

Given all the focus at present on issues such as PFI expiry and aggressive contract management of existing contracts, it could be easy to assume the lessons learned from the great UK PFI experiment is that it should not be repeated.

There is a growing mobilisation across the industry, amid fears that the handback process - far from being an orderly transition from one contract to another - will be a bunfight in which only the lawyers will come out in profit.

And in some sectors - such as hospitals - the rise of antagonistic and sometimes aggressive contract management behaviours has led to higher stress levels, more adversarial relationships and concerns that the handover process when these contracts reach expiry will see parties refusing to engage and therefore assets left unfit for modern purpose and vital services left in limbo.

Add to this the general perception that all private investors made out like bandits when signing PFI contracts and it is hard to imagine that politicians would ever want to consider using the model again.

However, as those in the industry can testify, this is not the reality of the majority of the UK’s PFI experience, nor is it the lesson that should be learnt from it.

“In the vast majority of cases, you have quality, well maintained, assets doing what they were designed to do,” says Stewart Orrell, head of infrastructure asset management at InfraRed Capital Partners.

Simon Johnson, partner at advisory firm Evolution Infrastructure, agrees, adding that in many cases the PFI assets are “in a much better condition than the rest of the estate”.

This year’s Partnerships Awards, which took place in London on 4 May, once again showcased some of the best work being delivered through the partnership model, and many of the contracts now being held up as best practice by our panel of international judges bear at least some resemblance to those that were used in PFI’s heyday.

Indeed, as more and more countries around the world look to deliver infrastructure in new ways, the PPP model that was established in the UK is being exported with considerable success.

As one former banker puts it: “The schools projects being delivered in Abu Dhabi look very similar in their structure to the UK’s schools PFI model.”

The problem in the UK has long been that only the negative news has floated to the top.

“The frustration is that as an industry we really didn't systematically collect the good news stories - the delivery on time and to budget, the assumptions of risk, the haircuts accepted because that’s what the contracts said or because it was consistent with the spirit of the relationship with the public sector,” says one official who has long worked in the sector. “We (everyone) identified the failures or weaknesses but didn't celebrate the successes as much as we should have.”

So where are these examples of positive work?

PPP Positives: Examples of Good Practice

One of the best places to start may, in fact, be among the embers of the carnage caused by the collapse of support services giant Carillion. While at the time, its demise was used by many outside the industry as testament to the folly of private sector involvement in the delivery of public services, the opposite may be true.

Carillion’s collapse could have caused significant shortages of staff and a literal inability to keep the lights on in some facilities - and when those facilities included schools and hospitals, this was not an immaterial issue.

There were many examples across the industry at the time, whereby a private partner in a consortium with the stricken Carillion simply stepped up and took the extra financial hit to keep the project company afloat. “It’s important to recognise how much risk flows through to the private sector,” says Sarah Beaumont-Smith, chief executive at Fulcrum Infrastructure. “When Carillion collapsed, a lot of equity partners managed that risk as part of the project company.”

Similarly, a number of investors took on Carillion’s assets and immediately got to work to ensure continuity of service.

“We took on three major hospitals from Carillion where there were known defects and some unfinished construction works,” says Orrell. “We did a number of detailed surveys and found more issues. We as equity organised how to fix them; some of the problems were quite complex, and all have been sorted now.”

Those defects were down to the construction company’s approach, not the way in which the contract had been managed. Their rectification would not have happened like this under a traditional procurement - issues found long after the contractor has left are difficult to get remedied, and even more so once that contractor has gone bust. “But we did it, and without any major disruption to the operation of the hospitals,” adds Orrell.

One of those deals was the Oxford John Radcliffe hospital PFI, where there were significant issues with the cladding. “We found the best cladding specialist, brought in the best resource to project manage them, and had a clerk of works to check on what was being done. The work has now been completed, ahead of programme, and the client is happy,” says Orrell.

It is an example that can be replicated across the industry - but again underlines how this good work often goes unreported, because there is a tendency not to publish press releases or let anyone know that this work is underway outside those involved in the contract.

“One of the unsung positives of PFI is that it removed projects from political interference: budgets and ways of working were more or less set for 30 years,” says Johnson. “When the overall budget for an authority is cut, that causes a problem, but the cause remains the cut in the budget, not the PFI contract which is continuing to ensure the same standard of service.”

A recent example where the industry has been stepping up to go above and beyond what might be expected of it can be found in Turkey. It is understood that, in the aftermath of the recent earthquakes, Meridiam’s PPP hospitals were mobilised to support the response - in large part because they had been built to standards to withstand the tremors and were still structurally sound. This standard of design, combined with a strong maintenance regime, is an element of PPPs that can sometimes be overlooked by critics who simply see an expensive building.

PFI has often been labelled as ‘inflexible', however here, too, there is evidence to the contrary.

Beaumont-Smith points to primary care, where the changing focus of government policy means buildings built under the Lift programme are now taking on many more different activities - such as diagnostics - than they were originally designed for.

This was perhaps seen most extremely during the Covid-19 pandemic, when many primary care buildings were reconfigured first to deal with the initial wave of patients, then to help deliver the vaccine programme (all while creating spaces able to comply with social distancing rules). Many of the lessons around how to work quickly and collaboratively during the pandemic have not been forgotten, by either side, and as a result experts suggest there is often now a more ‘can do’ attitude around making changes than had been evident in the past.

And it’s not just in the medical sector. As projects head towards handback, a big topic at the moment is how these assets can be made fit for the 21st century, especially given the focus now on cutting carbon emissions - something that was not at the top of the agenda when these contracts were signed.

According to advisors, some authorities are now even considering using their local education partnerships (LEPs) to see what decarbonisation programme they could deliver. LEPs were originally established to deliver the Labour government’s Building Schools for the Future (BSF) programme, but a number were defined so broadly in their scope that they may be able to carry out a range of retrofitting and decarbonisation work across their area’s public estates.

Finally, there is also what the private sector is providing above and beyond what is in the contract: what Orrell refers to as the “licence to operate”, which goes much further than a simple financial gain for the private partner.

There are many examples - often not promoted but carried out as part of a project’s ‘business as usual’ activity - whereby the project company delivers a range of community benefits, such as fundraising for local good causes, or providing space for other community activities to take place.

To read about just some examples of the significant work being undertaken that demonstrates the added value offered by the private sector’s involvement in public assets, click here