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Learning from UK PPP Experience Andrew Fraiser Allen & Overy 24 March 2004

Learning from UK PPP Experience Andrew Fraiser Allen & Overy 24 March 2004. Overview. Background to PPP in the UK How the UK PPP market has developed Case Study. State of the Nation….early 1990s. Lowest ever levels of taxation Strains on the Government purse

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Learning from UK PPP Experience Andrew Fraiser Allen & Overy 24 March 2004

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  1. Learning fromUK PPP ExperienceAndrew FraiserAllen & Overy24 March 2004

  2. Overview • Background to PPP in the UK • How the UK PPP market has developed • Case Study

  3. State of the Nation….early 1990s • Lowest ever levels of taxation • Strains on the Government purse • Construction industry suffering from effects of recession • Significant backlog of maintenance in government accommodation • New build projects consistently over budget • Working for Government seen as the “last resort”

  4. The Maintenance Backlog • 15 billion Euros backlog in government social housing • Hospital waiting lists longest in history due to lack of accommodation • 6 out of 7 schools at end of their design lives MOST CAPITAL INVESTMENT FOCUSSED ON REPAIRS

  5. The Case for PPP • 21st century buildings bring 21st century benefits • New buildings allow civil servants to divert time to better causes • Acknowledgement that private sector more innovative than the public sector • Accounting - off balance sheet treatment of asset • Transfers the risk of whole-life costing to the private sector • No government borrowing required

  6. What does it involve? • The purchase of a service, rather than an asset • Transferring the responsibility for the asset that delivers the service to the private sector • Allowing management of risks to be carried out by parties that are best placed to manage risks • In some cases the transfer of staff from the public sector to the private sector

  7. Central Government Projects • Transport • Roads • Bridges • Trams • Underground • Prisons • Defence

  8. Local Government Focus • Schools • Courts • Housing • Hospitals • Street lighting • Fire Stations

  9. RESULTS

  10. By 1999… • First schools project closed with more than 20 stalled in procurement • Average procurement timetable more than 3 years • All housing pathfinder projects had stalled • Most hospital projects had been cancelled • Significant number of projects unaffordable

  11. Summer, 2003 • 50 schools projects closed with 20 operational • More than 20 hospital project closed • First three housing projects closed • More than 50 other Local Government accommodation projects closed

  12. April, 2004

  13. Leeds Primary Schools • Design and build of 10 new primary schools and sports facilities • 25 year maintenance • 60million Euros capital cost • Soft Services • Catering • Cleaning • Grounds maintenance

  14. The Leeds Timetable • March 2003 – OJEC issued • May 2003 – three bidders shortlisted • June 2003 – ITN issued • September 2003 – ITN Bids received • January 2004 – winning bidder announced • March 31, 2004 – contract signature • April 26, 2004 – start of construction

  15. What changed?

  16. What changed? • Legal difficulties addressed • Prioritisation of projects • Approvals process for allocation of funds • Production of standardised contracts • Increased support from Central Government • More sophisticated advisory community

  17. Case Study

  18. Scope of the Project • Design and build of a new school • Maintenance of schools for 25 years • Provision of services for 25 years – • Catering • Cleaning • Grounds Maintenance

  19. Some issues to consider

  20. Construction Issues • Title to land • Ground Risk • Planning • Contamination

  21. Operational Issues • How will the Contractor be paid? • What Services should the Contractor provide? • Do any labour unions need to be consulted? • Are there any interfacing issues? • What risks is the Contractor unable to control?

  22. Legal issues • Does the Authority have the powers to enter into the PPP Contract? • Employment issues • Property issues

  23. Lender Issues • Credit risk of sponsoring Authority • Compensation on termination • Can the contract be transferred to another Government department?

  24. Risk Matrix

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