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  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”

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

The Case for PPP  21 st century buildings bring 21 st 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

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

Central Government Projects  Transport  Roads  Bridges  Trams  Underground  Prisons  Defence

Local Government Focus  Schools  Courts  Housing  Hospitals  Street lighting  Fire Stations

RESULTS

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

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

April, 2004

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

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

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

Case Study

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

Some issues to consider

Construction Issues  Title to land  Ground Risk  Planning  Contamination

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?

Legal issues  Does the Authority have the powers to enter into the PPP Contract?  Employment issues  Property issues

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

Risk Matrix PublicPrivateShared Change in Law Design Strikes Useage