Presentation is loading. Please wait.

Presentation is loading. Please wait.

PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins.

Similar presentations


Presentation on theme: "PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins."— Presentation transcript:

1 PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins (KPMG) 16 January 2007

2 2/RRD/247DB70 Introduction to the Private Finance Initiative Part 1: Some Background –What is the difference between PPP and PFI? –What is PFI? –Terminology Quiz - 1 Part 2: The Legal Framework –Basic contractual structure –Terminology Quiz - 2 –Principal documents –Treasury guidance Part 3: Conclusion

3 3/RRD/247DB70 Part 1: Some Background What is the difference between PPP and PFI? What is PFI? Terminology Quiz - 1

4 4/RRD/247DB70 What is the difference between PPP and PFI? Is it: A)Not a lot? B)F and I? C)That one is a general term for public private partnerships, the other a particular type of public private partnership?

5 5/RRD/247DB70 The PPP Range PPP Conventional Procurement Outsourcing & FM LeasingGOCO Joint Ventures Full Privatisation Strategic Partnering PFI

6 6/RRD/247DB70 Headlines Quiz nThese are all headlines: (A) I.T. Hits The Fan (B) Amey Amiss (C) The Strange case of the Vanishing Hospitals (D) The Great PFI Sell-off n…from the Times, The Daily Mirror, Private Eye

7 7/RRD/247DB70 Terminology Quiz - 1 What does PIN mean and how does it fit into the PFI process? A)Personal Identification Number - needed to access funding for the PFI B)Pesticide Information Network - term only used in specialised agricultural PFIs C)Prior Information Notice - initial formal announcement of the project D)Project Identification Number - used to track each project throughout its set-up and operation

8 8/RRD/247DB70 Terminology Quiz - 1 What is the OJEU? A)Official Journal of the European Union - publication in which new projects are announced B)Orange Juice officially approved by the European Union for consumption in the course of a PFI C)Original Jurisdiction of the European Union - regime under which approval for PFI projects must be sought

9 9/RRD/247DB70 Terminology Quiz - 1 What is the ITN in this context? A)Integrated Testing Network - prototype scheme used to roll out and test the features of a PFI scheme B)Invitation to Negotiate - discussions and negotiations with co- sponsors, contractors, banks and advisors for the preparation of a deliverable technical, commercial and financing solution C)The evening news - used to catch up on the latest developments in the scheme D)Identification Tasking and Networking - allocation of responsibilities between the parties at the outset and provision for interaction between the parties

10 10/RRD/247DB70 Part 2: The Legal Framework Basic contractual structure Principal documents Treasury Guidance

11 11/RRD/247DB70 Basic Contractual Structure Contractor usually a Special Purpose Vehicle Significant up-front investment required –Equity is usually 10-15% of requirement –Lenders provide the remaining funding Lenders rely solely on the project cashflows for debt servicing Risk to cashflow is minimised by appropriate allocation of risk

12 12/RRD/247DB70 Concession Agreement (may include Land transfer agreement or lease) (Basic Contractual Structure) Contractor (SPV) Shareholders/Sponsors (Shareholders Agreement) Insurers Lenders (Inter-Creditor Agreement) AUTHORITY Construction Contractors Operations and maintenance Contractor Equity Direct Agreement Insurance policies/agreements Construction Agreement Suppliers/ Subcontractors Operating Agreement Suppliers/ Subcontractors Possibly collateral warranties Direct Agreement Loan Agreement

13 13/RRD/247DB70 Terminology Quiz - 2 What is a Unitary Payment? A)One-off payment paid by the public sector for the provision of services by the concession holder. B)Periodic payment paid by the public sector for the provision of services by the concession holder C)Periodic payment paid by the project parties to their much valued legal and accounting advisors

14 14/RRD/247DB70 Terminology Quiz - 2 What is Financial Close? A)The point at which all the contracts are signed by all parties involved in the project B)The funders correspondence address C)The point at which the final payment is made by the public sector to allow operation of the project to commence D)The point at which the final payment is made by the public sector upon termination of the project

15 15/RRD/247DB70 Principal Documents Concession Agreement Subcontracts Direct Agreement Loan Agreement Insurance Shareholders Agreement

16 16/RRD/247DB70 Principal Documents Concession Agreement Service requirement Payment mechanism Acceptance of the Service by the Authority Performance regime Change mechanisms Termination Refinancing restrictions on Contractor

17 17/RRD/247DB70 Principal Documents Risk allocation –authority risks –contractor risks –operating risks

18 18/RRD/247DB70 (Principal Documents) Subcontracts May be shareholders of the SPV Construction Contractor Operation and maintenance contracts Authority must carry out due diligence Authoritys rights under collateral warranties arise on termination of Concession Agreement

19 19/RRD/247DB70 (Principal Documents) Direct Agreement Main purpose: sets out rights and obligations following threatened or actual termination of the Concession Agreement Rights of step-in and liability during step-in Rights to replace non-performing Subcontractors Application of insurance proceeds to reinstate assets on total loss

20 20/RRD/247DB70 (Principal Documents) Loan Agreement Restrictions on the Contractor to alter the Projects risk profile Cashflow requirements and ratio setting: breaches can trigger loan default Term will be shorter than the Concession Agreement

21 21/RRD/247DB70 Treasury Guidance Standardisation of PFI Contracts, version 3 (April 2004) (SOPC3), as updated Guidance for negotiating (and some required drafting) the Concession Agreement and Direct Agreement Promotes consistency of approach and aims to reduce negotiating time Assumes: –Contractor is an SPV –there is a construction phase and an operational phase –there is limited recourse debt

22 22/RRD/247DB70 (Treasury Guidance) Standardisation of PFI Contracts (continued) SOPC3 must be followed, but: –assumptions above may not apply –large, complex and/or novel projects may need individual treatment –example drafting is not exhaustive –MoD standard contract consultation ongoing ( April 2005) Principle of freedom of contract under UK legal system has allowed PPP contract structures to be developed in deals without requiring contract to conform to rigid legal structure Document is continually reviewed and amended to reflect differences with market practice or current legislation

23 23/RRD/247DB70 Part 3: Conclusion The future of PFI

24 24/RRD/247DB70 Future of PFI Current projects are still in the early stages of operation So far the National Audit Office has concluded that PFI deals have saved public money, but early schools deals proved to be more expensive than conventional procurement Many governments overseas considering and beginning to use PFI Considered to be an important UK export

25 25/RRD/247DB70 PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton and Nick Hopkins 16 January 2007


Download ppt "PPP/PFI terminology unravelled [or An idiot's guide to the curious world of Public Private Partnerships] Richard Dyton (Simmons & Simmons) and Nick Hopkins."

Similar presentations


Ads by Google