A recent round table discussion, facilitated by PA Consulting Group, explored the future of Private Finance Initiatives (PFI) and Public Private Partnership (PPP) models for public-sector property in the UK.
The participants were clear that the UK Government is still looking to the private sector as a partner to help it consolidate, rationalise and realise value from its estates but that PFI is not necessarily the preferred model. However, it is currently unclear what types of deal will be agreed in the future.
From a private-sector perspective, a major threat to the future of PFI/PPP deals is the increasing length of UK procurement processes. These are now much longer than in other countries. For example, in Spain, deals can be completed in as little as two months compared to a UK average of 33-36 months. The high cost of the long bidding process limits the value for money that potential bidders can achieve, and, as a result, they are deterred from bidding.
This is one element in the wider problem of an intellectual gap between private and public sectors which each has a very different approach to commercial negotiations and very different objectives.
Another important issue is the need to learn lessons from previous PFI and PPP initiatives. In particular, the private sector must provide transparency and win trust, by using detailed, specific and clear agreements that recognise the commercial nature of the relationship.
In general, the public sector understands the imperative for the private sector to generate profits (although not necessarily the best way to incentivise the private sector efficiently). However, there are particular challenges relating to transparency when, for example, a PFI/PPP deal, apparently concluded in good faith, is later refinanced to generate substantial additional private-sector profit with no gain to the public sector. So the public sector needs good advice to help it understand the drivers of private-sector behaviour.
A further challenge, discussed by participants, was the need for greater flexibility in long-term partnering arrangements. Most PFI/PPPs welcome increased demand/workload, but cannot adjust to reduced demand/workload. So work is needed to understand how more flexible arrangements can be put in place.
The way forward
A vital focus for the future of PFI/PPP deals is the need to review, shorten and simplify the UK procurement process to bring it in line with the rest of the world. This should be underpinned by a focus on bridging the intellectual gap between the private and public sectors, and the design and implementation of more flexible and transparent contracts. In this way a true partnership approach can be created for the next generation of PFI/PPP contracts.
To find out how we can help your organisation maximise value from PFI/PPP initiatives, please contact us now