Time to think harder about the ‘partnership’ in PPP
As European governments grow sceptical about the success of public private partnerships, it’s time to focus on that third ‘P’. This model is at its best when all parties strive for meaningful collaboration throughout – and avoid becoming adversarial.
It is some two decades since the rise of the public private partnership (PPP) as a model to deliver large-scale property and infrastructure programmes, and a number of governments in Europe are beginning to get cold feet.
Political leaders are increasingly concerned that historic projects have not delivered the anticipated results. As a consequence of fluctuating capital and operating costs, and a few high-profile disputes, what once looked like a good deal for the design, build, finance, maintain and operation of major projects, has become the subject of intense political and public scrutiny.
In the Netherlands, government agencies for property and infrastructure have begun to respond by exploring shorter contract timeframes for new PPP projects. But in the UK, scrutiny of PPP has been heightened by the collapse of contractor Carillion, leading some politicians to question the entire model.
As we enter a new climate for PPP, we need to avoid knee-jerk reactions to problem projects and respond in a way that proves the model can work. Investors and market operators need to adjust to changing government expectations. However both the public and the private sector must re-focus on what partnership really means and concentrate on working together through the lifetime of PPP projects.
In one sense, the rationale for the Dutch government’s reconsideration of timescales is obvious:
the longer the partnership, the greater the potential for market forces to impact the results anticipated at the start of the programme.
Government agencies in the Benelux are considering timeframes of 12-15 years for PPP, as opposed to 25+.
However, traditional PPP investors are yet to fully adapt their business cases to meet this ambition, seeking greater visibility of the PPP pipeline before committing. While this brings opportunities for those consortia and lenders who show they can move first to adapt their business cases, there is a need for greater communication between the public and private sector to ensure we do not inhibit investments in the immediate future.
It is positive therefore that the Dutch infrastructure agency is engaging the market with project consultations and open market events to promote a clearer understanding of government priorities and expectations. This should start an industry-wide response to changes in the model, with the entire supply chain adapting. During the IPFA conference, held 21 September 2018 the concept of changing roles in PPP was discussed. The concept showed the government or contracting authority taking the role as “pipeline enabler” and the private sector taking the role as “specialist, providing bespoke solutions” to these opportunities.
Focus on partnership
While shorter PPP timeframes can be achieved, they will not be suitable in every situation. To deliver world-class public services and infrastructure, we need a variety of traditional contracting and PPP models to suit individual projects and programmes. That includes longer-term PPP schemes, so we need to show they can work. This can also be the showcase for the private sector to assume the proactive “specialist” role.
In our experience, success comes back to effective partnership.
The best way to achieve this is by establishing strong foundations at the outset: embedding shared goals and collaboration in the commercial setup itself, to the benefit of government, investors, asset owners and the supply chain.
Whether a 12 or 30+ year commitment, we need to foster an enterprise culture throughout PPP projects, so that when those people who originated the contract move on, the dynamics do not change.
Building in flexibility
A built-in focus on end goals and outcomes means that problems can be solved more easily through discussion and negotiation. The long timeframes involved in PPP mean that a rigid adherence to an initial contract – which is reached for at the first sign of difficulty – is likely to sour the critical relationships that are essential to successful PPP. Instead, our goal should be to embed flexibility and create relationships which are strong enough to keep the contract out of sight.
The Parkway 6 (PW6) consortium, an international public-private partnership delivering the A6 motorway in the Netherlands, has demonstrated excellent collaboration between the consortium and the contracting authority.
The cooperation between the public sector (RWS) and the private sector (Parkway 6) is based on the Dutch market vision. In this so-called “marktvisie”, adopted by all the main public and private parties in the Dutch construction market, public and private parties work on an equal basis with each other instead of top down. Also parties strive to serve the mutual interest versus self-interest and parties pro-actively share their dilemmas and discuss these in informal and formal meetings. In essence, the goals of RWS and the goals of PW6 seemed to be largely similar and therefore RWS and PW6 made a shared set of goals and the success of RWS is the success of Parkway 6. This has resulted in a successful partnership and an exemplary relationship.
This more collaborative and flexible approach will also allow PPP enterprises to embrace innovation.
Innovation requires suppliers (especially subject matter experts) to spend time developing new ideas, and asset owners and investors to agree to the risk involved in deploying new technologies, systems, software or construction methods. Commercial models that incentivise all parties based on outcome, rather than cost and time alone, will be better placed to embrace such opportunities, as well as deal with changing regulations or sustainability standards.
Working with Crossrail in the UK, Turner & Townsend has been part of a programme that encouraged the submission of more than 1,000 ideas to the Innovate18 scheme, with 60 trails funded and more than 450 innovations achieved. Furthermore, Turner & Townsend’s project advisory team has over 10 years of experience in the Benelux PPP market and is currently active on 25+ commissions across Europe.
If we can achieve this kind of partnership, we can realise the ultimate benefits of PPP projects: unlocking project finance and sustained long-term investment; economies of scale across large programmes; sharing risk and rewards; incentivising efficiency, innovation and sustainability; and delivering quality outcomes over the long term.