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PPP in the UK

PPP in the UK. Ian Rylatt, Chief Executive Officer, Balfour Beatty Investments. Agenda. Origins of PPP in the UK Balfour Beatty’s experience of PPP Lessons learned Summary. Overview. ORIGINS OF PPP IN THE UK. Public sector procurement in the UK in the 1980s / ‘90s.

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PPP in the UK

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  1. PPP in the UK Ian Rylatt, Chief Executive Officer, Balfour Beatty Investments

  2. Agenda • Origins of PPP in the UK • Balfour Beatty’s experience of PPP • Lessons learned • Summary

  3. Overview ORIGINS OF PPP IN THE UK

  4. Public sector procurement in the UK in the 1980s / ‘90s • c.75% of public procurement under traditional methods was delivered over budget • c. 70% was late • The reasons were many but included: • Poor specification • Poor project management • Design creep • Etc, etc

  5. Aging infrastructure EDUCATION

  6. Aginginfrastructure HEALTHCARE

  7. The creation of PPP in the UK • Launched in 1995, PPP was introduced to modernize the way in which some public infrastructure and services were delivered in the UK • Provide the public sector with access to the discipline, skills and expertise of the private sector. • Put ‘controls’ around procurement

  8. The original PPP procurement process • PPP was enabled by central government legislation • Government announced a commitment of spend per market • Local authorities competed for a subsidy (‘PFI credits’) • Credits are allocated to successful projects • Projects were approved based on a ‘value for money’ test

  9. A typical UK PPP project • Design, construct, finance and maintain for 25 years • Raise non-recourse finance: • Bank finance • Bond finance • Pension fund investment • Private sector invest equity in the project • Proposals developed based on client output specifications • Private sector takes on risk for project delivery and maintenance of the asset against client output specifications for the duration of the contract

  10. UK Investment in PPP is extensive

  11. Investment in PPP in the UK

  12. PPP Performance in the UK since 1995 • Over 80% were delivered on time. (Costs associated with the 20% that overran were funded by the private sector) • Design and construction quality improved • 94% of projects ‘always or almost always met agreed service levels’ • In many cases improved design led to improved service outcomes • Facilities were safer, designed with operational safety in mind

  13. PPP procurement in the UK Advantages • PPP has enabled the UK to undergo the biggest investment in infrastructure since the 1900s. • Projects are completed on time, to the agreed specification • Design became a key component of PPP investment and has led to the creation of exceptional community facilities • Delivered savings in design, lifecycle and hard FM

  14. PPP procurement in the UK Challenges • A complex procurement model which is difficult for the public to understand and became political • The procurement process became increasingly complex in a world of austerity

  15. PPP Reform in the UK • Greater transparency of information, making information more publicly available • Launch of the operational PPP Savings Program in order to improve the cost effectiveness • Introducing new arrangements for the assurance and approval of major projects to strengthen scrutiny and control

  16. About us Balfour Beatty’s experience of ppp

  17. PPP enabled Balfour Beatty to: • Take a holistic approach to project development delivery and operation • Incorporate design with construction, FM and lifecycle • Develop new asset management skills across a wide range of project types • Transfer and develop best practice • Allow clients to focus on service delivery

  18. Birmingham Hospital, c. $800m

  19. M25, c. $1.5bn

  20. Knowsley BSF, c. $240m

  21. Lessons learned A UK PPP EXPERIENCE

  22. Where does the process sometimes go wrong? • Lack of definition of requirements / expectations / bolting on of inconsequentials / extra cost • Over optimistic expectation of risk transfer (lack of private sector control) • Client’s lack of quality resource / lack of employment • Lack of public sector understanding of constraints of leveraged finance

  23. What makes a successful project? • Strong and focused public sector leadership and support for the project: • Establishment of the need and the value of the approach in the public’s mind • Understanding and focus from public and private sectors on the real partnering examples needed to carry the project through • Experienced, properly resourced and properly incentivized team approach to development and delivery • Clarity of economic estimates and understanding of the real project economics • Shared understanding of risks

  24. PPP in the UK SUMMARY

  25. Summary • PPP can offer significant benefits as a procurement model • It offers: • A holistic outsourcing opportunity • Greater certainty of project delivery (schedule and budget) • A transfer of risk to the private sector • Greater accountability for performance

  26. PPP in the US • Encouraging to see expansion of PPP as a procurement strategy • Offers same benefits that we have experienced in the UK • Potential for local economic boost and job growth – priorities expressed by Governor Scott • Might consider adopting successful structures used in other jurisdictions • No need to “reinvent the wheel” • Standardized (i.e. Known to the private sector) processes can reduce procurement costs and improve timing • Many experienced resources are available

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