Executive Issues in Transportation Public-Private Partnerships

1. Executive Issues in Transportation Public-Private Partnerships Charles NicholasHalcrow, Inc.January 15, 2008

2. Is it all about Risk? • How do you negotiate the deal in PPP? • What makes the “gooddeal”? • What measures should we use to evaluate the success of the PPP? • From a network perspective, how should the agreement be managed?

3. Focus on PROJECT Success?

4. Is it all about Risk? • How do you negotiate the deal in PPP? • What makes the “good deal”? • What measures should we use to evaluate the success of the PPP? • From a network perspective, how should the agreement be managed?

5. Do we know and understand our future “partner’s” commercial view of a successful deal?

6. Is it all about Risk? “Risk is the likelihood of an uncertain event or behavior and its consequences for our intended purpose or objectives, set in a context that needs to be understood” Relationships are a key element of context

7. Rethinking negotiation strategies Delivering the benefit Drivers for Change Improving the Processes Innovative Procurement Committed Leadership Integration of People & Purpose in Processes Cultural Change Focus on the Customer Rethinking Risk Integrated Processes & Teams Tracking satisfaction Quality Driven Agenda Improving Communication Commitment to People

8. Business to business view Restructuring CTRL “…to achieve a true Public Private Partnership with each risk allocated to the party best able to manage it and with rewards commensurate with the risk" National Audit Office There are good risks

9. There are good risks • It is impossible to avoid all risks. • there has to be a legitimate basis for accepting risk • at every level of what is done A good risk is a risk worth taking

10. Trust is essential particularly when uncertainty is substantial • Without trust the suspicion of motives erodes effective decision making • Trust is hard earned and easily lost • Perception gaps are big risks because they erode trust • Seek first to understand and then be understood – track performance satisfaction Business to business trust as well as personal trust

11. Is it all about Risk? • How do you negotiate the deal in PPP? • What makes the “good deal”? • What measures should we use to evaluate the success of the PPP? • From a network perspective, how should the agreement be managed?

12. Tracking satisfaction Perception of Performance Importance to owner Poor Satisfactory Good Low Medium High Provider Owner Elements of value Delivery to deadline Understanding needs Dependability of cost Life cycle cost Quality of support Quality of concept Initial price Understanding why - Taking prompt action

13. Perception gaps owner View + provider View - • Do we understand our partner’s view of need / risk? • Do they understand ours? • What is the difference? – It threatens ‘trust’ Perception gap Perception governs behaviour

14. Business to business relationship owner View + provider View - • Meeting and exceeding expectations • Managing perception gaps • Together turning risk into opportunity Opportunity & Risk Creating trust

15. There are good risks • Unless we agree there are good risks • people are blamed when they happen • or nothing gets done • it is difficult to improve the process. • ‘Rethinking’ is very unrewarding • Our objective is delivery of successful outcomes • We need to know what success looks like open and honest culture

16. Is it all about Risk? • How do you negotiate the deal in PPP? • What makes the “good deal”? • What measures should we use to evaluate the success of the PPP? • From a network perspective, how should the agreement be managed?

17. expose what we do not know What we do not know Evidence of success Evidence of failure Juniper – David Blockley and John Davis – University of Bristol

18. Establishing the performance regime • A hierarchy of performance measures that enable success • Integrating purpose and people with process • Promoting innovation and managing uncertainty Owners must assess outcomes not outputs

19. Outcomes not outputs! • Why before How • Defined by outcomes not inputs • Performance not hardware • Risk sharing or risk transfer? • Recognising the importance of uncertainty A performance regime to support decisions

20. Performance regime Dimensions of value and risk Overview Cost Earnings Safety The asset Satisfaction Hierarchical process model Score Score Score Score Database of performance indicators Knowledge Expert judgements, surveys, records instrument readings,analytical models Performance Indicator Performance Indicator Performance Indicator Performance Indicator Weighted links values and objectives, codes, and standards Jim Hall - University of Bristol

21. Is it all about Risk? • How do you negotiate the deal in PPP? • What makes the “good deal”? • What measures should we use to evaluate the success of the PPP? • From a network perspective, how should the agreement be managed?

22. Twin focused approach Predict Vision Provide Innovate Evidence from future Evidence from past • Where we are now • Learning from experience • Statistical analysis • Trends • Patterns of concern • Risk analysis • Where we want to get to • Defining purpose • Strategic options • Potential added value • Balance risk & opportunity • Decisions - actions Unlocking potential Making decisions

23. Through action we add value Predict Vision Provide Innovate Unlocking potential Evidence from future Evidence from past Making decisions Remove Change process Transfer - trade redesign Manage Action plans for the planned present/future Remedy Action plans for the uncertain future ‘Turning risk into opportunity’

24. Understanding risk and opportunity consequence high low frequent Priority action Predict from history occurance Understanding what we do not know. Look out for change infrequent Understanding uncertainty

25. Conclusions • PPP to be defined by outcomes • Uncertainties need to be understood and managed • Particularly what we do not know • Human behaviour is the largest source of uncertainty • Earned trust is essential for success. • Creating a realistic performance regime is essential means to that end.

28. Provided you think about the model!