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8 June 2020
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Handback to the future

Partnerships Bulletin’s David Keniry talks to industry leaders on the need to gear up resources for expiring contracts as the impact of seminal reports on managing assets is assessed.
Handback to the future

A key takeaway repeated throughout National Audit Office (NAO) report on Managing PFI assets and the services as contracts ends was the need to build up resources to manage the expiry process effectively. The report stated that authorities recognise that contract expiry will be resource intensive and require unique skills, with 60% of respondents planning to hire consultants. 

Max Curzon-Hope, PFI expiry expert at Curshaw, told Partnerships Bulletin: “Curshaw identifies with the findings of the report. It correctly highlights the risk that the government may not have the right skills and expertise required”.

“If they don’t have the resource, then the resource that is currently there will be diverted from day-to-day management of the contracts, which will heap too much pressure on them and potentially affect service in the run up to expiry. You need commercial change managers, who know about infrastructure and asset condition, with the right skills to augment existing teams. “

Recommendations on capacity building in the NAO’s report include for sponsor departments to provide direct financial support to authorities where required, with particular focus on funding dispute resolutions and hiring additional resources. While sponsor departments and the Infrastructure and Projects Authority (IPA) should work with public sector stakeholders to assess how skill shortages can be addressed.

 “A striking omission is an explanation of why collaboration and partnership working is essential and what this entails; especially given their survey finding that over a third expect to use the dispute resolution procedure. PFI providers need government, and vice versa. From experience, even where there is recourse to dispute it is essential to maintain an ongoing relationship because of the operational and commercial complexity that has to be worked through,” Curzon-Hope adds.

The NAO believes the government’s piecemeal approach to hiring consultants, such as legal experts, may not represent value for money in the long term. Authorities told the watchdog they would appreciate standardised procurement documents and processes to support them when hiring consultants.

The IPA is recommended to assess whether any areas of the contract expiry process would benefit from a more coordinated and centralised approach including assessing the value for money of developing a new centralised pool of internal resources, such as lawyers and surveyors, that authorities can use.

Ashurst partner Cameron Smith commented to Partnerships Bulletin: "The NAO Report clearly lays out the enormity of the task ahead for Government. It also highlights some of the many aspects that need to be considered by the public sector when preparing for infrastructure to be handed back. The NAO concludes that what is needed is central guidance, setting out how the public sector should prepare for the expiry of PFI/PPP contracts. In addition, the NAO has highlighted the significant level of resource and expertise that will need to be dedicated to this exercise."

The NAO recommends HM Treasury should provide funding to departments which assist financially constrained authorities in formal disputes where it is value for money and practical to do so.

PPP expert and former lead at PA Consulting Mark Williams told Partnerships Bulletin: “This is an early example of NAO’s more forward leaning approach, highlighting good practice ahead of a pipeline of activity and it dovetails well with the recent Partnerships Bulletin publication on the same topic.”

He adds: “In the exit work I have already been involved in my reflection is that good day to day contract management, periodic operational efficiencies work, collaborative relationships and an upskilled team all make for a better exit. Starting early is important, and using the HM Treasury business case approach of considering a wide range of options/scenarios in an evidence based/evidence build manner helps. These are options not just on exit, but on what the delivery, serviced assets and supply chain arrangements post exit looks like.

“From the work done to date we have an approach to exit, that can be tailored to circumstances – and each PFI exit will be different.  It involves scenarios, evidence build and early engagement with the various PFI contractor parties to understand their drivers. In some cases, as with operational efficiencies, the PFI contractor parties might take a lead on ensuring a good outcome,” adds Williams.  

Ashurst infrastructure partner Philip Vernon concluded: "However the bigger policy question is perhaps 'what next?'. The handback of infrastructure is just the beginning of the next phase. Once the infrastructure is handed back, is it to be managed on an ongoing basis by the public sector or is there to be a new outsourcing programme? Gearing up for this transition is going to be critical, particularly given the importance of the infrastructure for ongoing provision of public sector services."

In a recently published guidance on expiring PPP contracts the Scottish Futures Trust (SFT) states a multi-disciplinary team is likely to be required across the authority, as well as external advisors who may need to be procured. The level of resource will vary depending upon the complexity of the project.

The SFT suggests the level and scope of external advisory support will vary with the degree of complexity of the projects but is likely to include technical, legal and financial or valuation advice.

The Scottish government body recommends that a project team is formed under the auspices of a project board or similar structure with clear responsibilities allocated to individuals and with appropriate reporting though the authority’s governing structures. As well as providing oversight and management of the project, the project board should maintain and monitor a risk register and review the project plan as the matters progress towards the end of contract and beyond. 

The SFT told Partnerships Bulletin in publishing the PPP Projects Nearing the End of Contract document, the agency funded three pilots to help public bodies understand the methodologies and scopes of service that would be required to allow each public body appoint their respective external consultant via their own frameworks.

“The lessons learnt from this approach have subsequently been incorporated into the latest specification and have helped to inform the approach for subsequent surveys in terms of improving the process, benchmarking of fees and survey scope refinements,” the spokesperson added.

The SFT’s major recommendations for each authority are:

    be well prepared and plan early 

    be clear as to what it is wanting to achieve and plan for that

    engage early and constructively with the private sector

    note that within the contract provisions there are incentive mechanisms

    treat the process as a project and ensure that appropriate governance and sufficient resources are in place

    be aware that, in the early projects, each contract is different; and

    take advantage of the support that is available from SFT, the NHS specialist support team and other Authorities that are, or have gone through, a similar process and be willing to share the Authority’s own experiences with others.

Williams notes in his experience areas like driving energy efficiency can be win:win and none/less contentious and established joint working. The NAO report talks about capacity building across this market. There is much to do, but there is an opportunity leverage pre-existing approaches, experience, lessons learned and networks. 

“Post the publication of the NAO report (and the Partnerships Bulletin publication) there are likely to be further (virtual) events to share best practice.””

In Partnerships Bulletin's Q4 2019 report on existing contracts, Graham Thomson, CEO of Affinitext said: “Handback is also a wonderful opportunity for government to intelligently capture valuable data across its many assets. This data can be used with existing and new technologies for a variety of purposes – ensuring better use of its current assets and a better understanding of its future procurement needs, as well as delivering improved life-cycle planning, operational efficiencies, health & safety outcomes, etc”

While DLA Piper partner Ailson Fagan noted in that report: “With so many PFIs nearing the end of their lives there is both huge scope and opportunity in finding ways to develop creative solutions to allow for flexibility.”

She said: “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”

The NAO’s report into PFI, and the SFT’s guidance on PPPs, had been signposted as a key events in the evolution of the PPP model in the discussions immediately following the launch of Partnership Bulletin’s survey into the evolution of existing PPPs in Q4 2019. 

Director of HCP Consultancy Eddie Davies told Partnerships Bulletin: “It’s encouraging to see a focus on post-concession considerations. As we progress into a growing phase of expiries, HCP has developed a Handback Transition process that facilitates early collaboration with project stakeholders. Whilst the physical compliance of the built asset is key, it is only part of a complex matrix of factors that must be explored in partnership, including Obsolescence Management, changing use, FM services continuity, etc. 

Future long-term concessions must ensure that handback is offered the opportunity for stakeholders to work together, in a structured manner, to explore the potential outcomes long before expiry. Preferably at least 5 years before, which would provide time to fully explore all options, not least if additional capital injection may be used to refresh an asset, which may have been designed more than 30 years earlier.”

Now that the NAO report has finally arrived and policymakers peruse overs its findings, it will again underline the extent to which the legacy of pathfinder PPPs is going to have to be managed. With governments in and outside the UK actively evaluating how partnerships can solve new challenges, maintaining existing infrastructure with no disruption in service to the end user will have a big part to play in how future projects will be delivered.

i3PT Certification chief executive officer Eoin Leonard told Partnerships Bulletin: “Recent Building failures have resulted in an increased awareness of the requirement for pre-construction, on-site and post-construction quality assurance. Clients want to make sure that they’re getting exactly what they’ve paid for and extracting maximum value for the taxpayer.

The dawn of building information modelling and other digitalisation in construction is now making this far more feasible for clients and end-user occupiers. Companies like ours are now engaging on PPP and PFI initiatives to ensure that the appropriate processes and systems are in place to make this a reality.”

Leonard adds: “What is also really interesting is that quite a lot of the demand for services is coming from the PPP company side, who are keen to ensure that they can demonstrate compliance and quality long beyond the project life cycle.”

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Partnerships Bulletin’s David Keniry talks to industry leaders on the need to gear up resources for expiring contracts as the impact of seminal reports on managing assets is assessed.

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