PUBLC PRIVATE PARTNERSHIPS – CHANGE, LEADERSHIP AND MANAGEMENT

PUBLC PRIVATE PARTNERSHIPS – CHANGE, LEADERSHIP AND MANAGEMENT LUMKA & ASSOCIATES PUBLIC SECTOR TRAINERS’ FORUM CONFERENCE 6 OCTOBER 2010

OUTLINE • Purpose • What is a PPP • Why does Government Engage PPPs • The Regulatory and Institutional Framework for PPPS In South Africa • PPP Processes: The Role of Government, The Private Sector and Civil Society • The Human Resource Development, Management, Leadership, Change Management and PPPS • PPPS and Black Economic Empowerment • Challenges in the Implementation of PPPS • Recommendations

PURPOSE • Define a PPP; • Explore the value of PPPs with reference to: • optimizing and accelerating service delivery in government; • transferring private entity skills to government officials and thereby enhancing human resource and performance excellence in government; • enhancing HRD within the BBEEE framework. • Explore PPP implementation challenges from HRD, leadership and change management perspectives; • Make recommendation to enhance the implementation of PPPs.

WHAT IS A PPP • Contract between a public sector institution for example, national, provincial or local government or state owned enterprise and a private entity; • Private party performs part of government’s service delivery or administrative functions; • Private entity assumes the associated financial, technical and operational risk in the design, financing, building and operation of a project.

TYPES OF PPPs • Service contract: • Defined service specifications; • Short-term; • Use of government facilities; • Concession: • Defined service specifications; • Medium to long-term; • Use of government / private facilities; • Private entity bears risk; • Build-Operate-Transfer (BOT) Scheme: • Private entity provides infrastructure, capital assets and other resources required to operate the project; • Long term. • Private entity bears risk

PRIVATE ENTITY’S FEES Derived from: • State budget; • Tariffs or other fees derived from the delivery of the service rendered under the PPP; • A combination of state budget and service tariffs.

PPPs & GOVERNMENT ACCOUNTABILITY • Private entity delivers government services; • Government remains accountable for the efficient and cost effective delivery of such services; • PPPs do not absolve government of its responsibility to deliver public services.

WHY DOES GOVERNMENT ENGAGE PPPs • Increase demand for effective government services due to: • population increase; • globalization; • communication & technological advancements; • high rates of unemployment. • To meet the increased demand for government services, government requires: • improved infrastructure; • increased economic growth that would lead to job creation; • skills and other competencies that meet SA’s economic needs; • Capital; • PPPs provides a platform for government to source these resources from the private sector.

WHY DOES GOVERNMENT ENGAGE PPPs (CONT.) • PPPs allow government the space to focus on strategic core-government business, thereby optimizing the staff, management and leadership capacity of government to delivery strategic core-government services. • PPPs provides government access to private sector skills & capital investment & passes the risk associated with this investment to the private party. • PPPs have the potential to improve service delivery in a cost effective manner.

REGULATORY FRAMEWORK FOR PPPs • The Republic of South Africa Constitution Act, 1996 • The Public Finance Management Act 1 of 1999 and Regulations issued in terms of that Act • The Municipal Finance Management Act 56 of 2003 and Regulations issued in terms of that Act • The Municipal Systems Act 32 of 2000 • The Preferential Procurement Framework Act 5 of 2000 • The Broad Based Black Economic Empowerment Act 53 of 2003 • Treasury Regulation 16 • The National Treasury Regulation Practice Note on PPP • The PPP standardization document

REGULATORY FRAMEWORK FOR PPPs (CONT.) • A fair, equitable, transparent, competitive and cost-effective procurement process; • open, public, transparent and competitive tender process; • Fair, transparent & equitable adjudication of all tenders; • Standardized PPP project cycle; • PPP Unit: • located within National Treasury; • technical assistance for design, procurement & governance of PPPs • approvals for the establishment of PPPs.

GOVERNMENT & PPPs FEASIBILITY STUDY PHASE: • Conduct a needs analysis of the service or administrative function to be delivered under the PPP; • Explore different options for the delivery of such services or the performance of such administrative functions; • Conduct project due diligence; • Conduct an economic and value assessment of the different modes of delivery of the relevant service or the performance of the relevant administrative function; • Develop a procurement plan for the PPP.

GOVERNMENT & PPPs (CONT.) Considerations for approval of the feasibility study: • value for money; • appropriate risk transfer to the private entity; • innovative, efficient and timeous service delivery; • access to private capital; • improved service delivery or enhanced efficiency of government administration.

GOVERNMENT & PPPs (CONT.) AFTER approval, of feasibility plan, government will: • design a fair, equitable, transparent and competitive procurement process in line with the Preferential Procurement Framework Act and other relevant Supply Chain Management policies and legislation; • prepare a bid document together with the draft PPP agreement and submit these to National Treasury for approval.

GOVERNMENT & PPPs (CONT.) Government will then proceed to: • advertise the bid; • pre-qualify prospective bidders; • issue the request for proposals together with the draft PPP agreement; • receive the bids; • evaluate the bids against the potential benefits of the PPP to government as articulated in the feasibility study; • select the preferred bidder; • prepare the value for money report and submit it to National Treasury for approval.

GOVERNMENT & PPPs (CONT.) Once National Treasury has approved the Value for Money report, the outsourcing entity in collaboration with the transaction advisor if one was appointed as well as the PPP unit will: • commence negotiations with the preferred bidder; • prepare a management plan or service level agreement for the PPP and submit the plan together with the PPP agreement to National Treasury for approval. The management plan or service level agreement will articulate: • service specifications, • project inputs, outputs and performance measures; • the fee structure and related administrative processes; • PPP governance structure; • dispute resolution mechanisms; • penalties and other remedies applicable in the event of poor or performance failure by the private entity.

THE PRIVATE SECTOR & PPP’s • Participation in pre-PPP feasibility study; • Transaction Advisory Services; • Bidding; • Capital Investment provision; • PPP infrastructure development; • PPP management & operations; • Participation in PPP governance processes; • Enhancement of skills for government service delivery & transfer of skills to government; • Support for the achievement of BBEEE targets.

CIVIL SOCIETY & PPPs • Participation in pre-PPP feasibility study; • Potential participation in: • Procurement processes; • PPP monitoring & governance.

IMPORTANT SKILLS & COMPETENCIES FOR PPPS: • Leadership and management skills; • Change management skills; • Public administration skills; • Business administrative skills; • Project management skills; • Business communication and writing skills; • Computer skills;

IMPORTANT SKILLS & COMPETENCIES FOR PPPS (CONT.) Important skills & competencies for PPPs: • Legal skills especially in respect of administrative law, commercial law and the law of contracts as well as dispute resolution mechanisms; • Negotiation skills; • Financial skills including project finance; • Technical skills required meet the objectives of respective PPPs e.g. architecture; engineering, construction; economics, etc; • Performance Management skills; • Monitoring and Evaluation skills.

PPPs AND HUMAN RESOURCE DEVELOPMENT • PPPs provide substantial capacity to absorb new entrants into the labour market in the form of internships of low ranking positions in the following areas: • administration; • finance; • technical functions e.g. artisans; • professional functions e.g. engineers, architects, accountants etc. • PPPs provide the platform for the reduction of adult literacy through ABET programmes; • PPPs provide the platform for improved training excellence through partnerships with HE and FET institutions and increase scarce & critical skills graduates; • PPP’s provide the platform to transfer management & leadership competencies from the private sector to the public sector.

PPPs AND BBEEE • The long-term nature of PPPs provides an opportune instrument to grow black equity and black management over time. Risk is clearly identified in PPPs, clearly coasted and appropriately allocated, so black participants know in advance what they are committing to. • The formation of private consortia in the form of special purpose vehicles (SPVs) for many PPPs facilitates long-term beneficial partnerships between new black enterprises and experienced, resourced companies - both as equity partners and in project management, and both at the private party SPV and subcontracting levels. • Where government is the buyer of a service, and insofar as the service is provided to the agreed standards, there is a steady revenue stream to the private party, reducing risk to new black enterprises.

PPPs AND BBEEE (CONT.) • Principal equity sponsors in a PPP are often also first-tier subcontractors, building incentives for optimal risk management. • PPPs provide significant subcontracting opportunities for black enterprises, where early cash-flow benefits can be derived as delivery commences. • PPPs have far-reaching broad-based BEE potential: through the subcontracting and procurement mechanisms they can involve a full spectrum of large, medium and small enterprises, and bring tangible local economic development benefits to targeted groups of people. • Return on equity to the private party is competitive where risk is properly assumed. • There is an increasingly strong demand for black professionals as transaction advisors to both institutions and private parties in PPPs.

PPPs AND CHANGE MANAGEMENT • Alignment of objectives – ensuring that each PPP stakeholder understands the objectives of the other and that they believe they can achieve their own objectives without bringing them in to conflict with the other stakeholders; • Effectiveness of communication – ensuring that meetings and communications are focused on the right issues and provide accurate and timeous information; • Clarity of decision-making –the process of decision-making across the partnership needs to be clear to all. The right people should be involved at the right time.

PPPs AND CHANGE MANAGEMENT(CONT.) • Clarity of accountabilities – ensuring that people understand who is accountable for what; • The right skills in the right place – ensuring that all partners deploy people with the appropriate competencies to manage the partnership; • Partnering behaviour of leaders – Openness, integrity, trust and commitment by different stakeholders is important for the success of the PPP. PPP leaders should be seen to be acting for the good of the whole partnership;

PPPs AND CHANGE MANAGEMENT(CONT.) • Responsive ways of working – all parties should be willing to adapt their ways of working to resolve interface issues and meet the needs of others; • Continuity - Staff that negotiate the contract need to be retained as part of the contract management team; • Because most PPPs are of medium to long-term duration, it should strike a strike a balance between all future contingencies and the outcomes to be achieved; • Cultural issues needs need to play a role in selecting a partner as well as other strategic role players such as the civil society representative.

PPPs AND LEADERSHIP Adaptable leadership is important for the success of PPPs • Autocratic leadership: • Leader makes decisions without reference to anyone else; • High degree of dependency on the leader; • Can create de-motivation and alienation of staff; • May be valuable in some types of business where decisions need to be made quickly and decisively.

PPPs AND LEADERSHIP (CONT.) Democratic: • Encourages decision making from different perspectives – leadership may be emphasised throughout the organisation; • Consultative: process of consultation before decisions are taken; • Persuasive: Leader takes decision and seeks to persuade others that the decision is correct.

PPPs AND LEADERSHIP (CONT.) Democratic: • May help motivation and involvement; • Workers feel ownership of the firm and its ideas; • Improves the sharing of ideas and experiences within the business; • Can delay decision making.

PPPs AND LEADERSHIP (CONT.) Laissez-Faire: • ‘Let it be’ – the leadership responsibilities are shared by all; • Can be very useful in businesses where creative ideas are important; • Can be highly motivational, as people have control over their working life; • Can make coordination and decision making time-consuming and lacking in overall direction; • Relies on good team work; • Relies on good interpersonal relations.

PPPs AND LEADERSHIP (CONT.) Paternalistic: • Leader acts as a ‘father figure;’ • Paternalistic leader makes decision but may consult; • Believes in the need to support staff.

FACTORS DETERMINING APPROPRIATE LEADERSHIP STYLE • Type of staff employed by PPP stakeholders; • Institutional history of the different stakeholders; • The institutional culture of the different stakeholders; • Quality of partnership relationships; • Nature of the changes needed; • Accepted norms within the partnering institutions.

FACTORS DETERMINING APPROPRIATE LEADERSHIP STYLE (CONT.) • Risk - decision making and change initiatives based on degree of risk involved; • Type of business – creative business or supply driven? • How important change – it is change for change’s sake? • Organisational culture – may be long embedded and difficult to change; • Nature of the task needing cooperation, direction or structure.

CHANGE LEADERSHIP • The most challenging aspect of government and business is leading and managing change; • The government and business environment is subject to fast-paced economic and social change; • Government and business must adapt and be flexible to survive; • Problems in leading change stem mainly from human resource management; • Leaders need to be aware of how change impacts on different PPP stakeholders, particularly employees and respond appropriately.

CHALLENGES IN THE IMPLEMENTATION OF PPPS • Lack of a systematic planning in the identification of PPPs; • Disparate bargaining power, competencies and resources among different PPP stakeholder’s and lack of support for least empowered PPPs e.g. capacity building, improving communication mechanisms, facilitating access to funding for BBEEE entities through the provision of government guarantees; • Substantial change management dynamics in the implementation of PPPs as PPPs involve a variety of stakeholders; • There is a need to enhance government accountability in respect of PPPs.

RECOMMENDATIONS • Introduce systematic PPP planning through the National Planning Commission to ensure that PPPs form part of government’s long-term planning agenda. • Introduce mechanisms for balancing resource and skills disparities among different PPP stakeholders, for example by providing additional support to different stakeholders to enhance their participation in PPP processes. Such support may range from capacity building, improving communication mechanisms, facilitating access to funding for BBEEE entities through the provision of government guarantees, etc.

RECOMMENDATIONS (CONT.) • A change management process should be factored into the design of PPPs to address change management dynamics inherent in PPP projects. • Incorporate PPPs into government’s M&E framework to enhance government accountability in respect of PPPs. • Putting in place a knowledge management framework to ensure that lessons learnt from implementing PPPs is documented, shared and inform future PPP processes.

RECOMMENDATIONS (CONT.) • Link PPP processes to other government policy interventions such as BBEEE charters and the HRD-SA to maximize the potential development impact of PPPs. • Conduct a skills audit to establish the requisite competencies and skills required for the effective implementation of PPPs.

RECOMMENDATIONS (CONT.) • Develop capacity at national, provincial and municipal level by: • sharing expertise and experiences with other governments and government departments; • implementing appropriate skills development interventions in line with the skills audit; • establishing PPP Facilitation Units in national and regional development finance institutions (DFIs); and • developing good transaction skills (legal, financial, negotiation and industry specific skills) in the relevant government institutions. • Ensure that PPP agreements clearly articulate how PPPs will result in skills transfer and articulate specific skills transfer outcomes, performance measures and penalties applicable in the event of failure to attain the set skills transfer objectives.

RECOMMENDATIONS (CONT.) • Root out corruption by implementing mechanisms to guarantee transparency at all stages in the tendering process for example civil society participation in bidding processes. • Form partnerships with experienced private operators with proven track records. • Include criteria for partnerships with and subcontracting of local firms in bid documents to ensure that PPPs support the achievement of BEE outcomes.

PUBLC PRIVATE PARTNERSHIPS – CHANGE, LEADERSHIP AND MANAGEMENT