Alister Coutts, Predavac, Edinburg Napier Univesity

Dr Alister W Coutts
DQS, BA(Hons), MBA(Dist), MSc, PhD, FRICS, FCIOB, FCMI

currently

Lecturer in Project Finance & Appraisal
Edinburgh Napier University

Senior Partner
Dr Alister W Coutts & Partners LLP
Construction & Management Consultants

© Dr Alister W Coutts & Partners LLP alister.coutts@awcp.co.uk

The Conceptual Framework (1)

Public Private Partnerships
provide

Access to Private Sector Finance
A Mechanism for Project Control
A Chance to major on Life Cycle rather than Capital Costs


The Conceptual Framework (2)


Are about the delivery of Services to the public,
by a private sector organisation

with severe penalties for performance failure!


Public Private Partnerships in Action

A View from Inside the Public Sector


Where? - The Highlands of Scotland (1)


Where? - The Highlands of Scotland (2)


The Highland Council – Key Facts

 United Kingdom Land Area - 245,000 sq. km.
 Scotland’s Land Area - 80,000 sq. km.
 Highland Council Land Area - 26,500 sq. km.

 United Kingdom Population - 60,000,000
 Scotland’s Population - 5,200,000
 Population of the Highlands - 210,000


Why Use PPPs? – The Reasons:

 Acknowledged need to modernise their facilities;
 Insufficient Central Government Finance available;
 It left capital available for other infrastructure projects;
 Financial support available from Central Government;
 Allowed investment in major infrastructure
developments;
 Council had Project Management expertise ‘in-house’;
 Council wished to promote Sustainability and to
emphasise the importance of the Life Cycle approach.

PPP - A Tried and Tested Approach

Regarded as Bad Regarded as Good

PPP Projects in the Highlands of Scotland

Description Capital Value

 Scottish Office - Skye Bridge ∈ 41 million
 Scottish Office - Inverness Airport Terminal ∈ 16 million
 Scottish Office - Highland Water & Sewage ∈ 80 million
 NHS Highland - Easter Ross Primary Care Centre ∈ 16 million
 NHS Highland - Craig Phadrig Psychiatric Unit ∈ 27 million
 Highland Council - IT ∈ 22 million
 Highland Council – PPP 1 Schools ∈ 28 million
 Highland Council – PPP 2 Schools ∈150 million



Use of Private Sector Finance for Small Rural Projects


Criteria for Project Success (1)

 Secure the Commitment of Sponsors / Users;
 Establish the Affordability Criteria;
 Establish the Value for Money Criteria;
 Continually Check that Scheme is Bankability;
 Check Acceptability of Key Terms / Conditions;
 Check the Realism of the Risk Allocation.


Criteria for Project Success (2)

 Prepare a Realistic ‘non-political’ Programme;
 Appoint & Develop the Internal Project Team;
 Appoint Compatible External Advisors;
 Manage Stakeholder Expectations;
 Manage Political comment & Press coverage;
 Continually Market the Project.


The Show Stoppers
 Lack of Open Political Leadership & Commitment;
 Absence of Appropriate Legal Framework;

 Non-dependable Project Revenue Stream;

 Lack of Openness, Transparency & Integrity;
 Unrealistic Budgets, Expectations & Programme;
 A Lack of Interest (Consortia / Contractors / Funders);
 An Inability to Secure Domestic or International Funds;
 Political, Public & Press Hostility to the concept.

Establish Political Oversight

T h e P o litic a l P r o c e s s

T h e H ig h la n d C o u n c il
[8 0 m e m b e rs ]

E d u c a tio n C o m m itte e
[4 0 m e m b e rs ]

E d u c a tio n P P P S u b -C o m m itte e
[8 m e m b e r s ]


Establish Managerial Control
T h e M a n a g e m e n t D e c is io n M a k in g P r o c e s s

P P P P ro je c t B o a rd
C h ie f E x e c u t iv e
D ir e c t o r o f F in a n c e ; D ir e c t o r o f C o r p o r a t e S e r v ic e s
D ir e c t o r o f E d u c a t io n , C u lt u r e & S p o r t ; D ir e c t o r o f P r o p e r t y & A r c h it e c t u r a l S e r v ic e s

E d u c a tio n P P P P r o je c t T e a m
D ir e c t o r o f P r o p e r t y & A r c h it e c t u r a l S e r v ic e s
H e a d o f S u p p o r t S e r v ic e s ; P P P P r o j e c t O f f ic e r
H e a d o f C o n t r a c t s ; P r in c ip a l S o lic it o r ; P r in c ip a l C a p it a l A c c o u n t a n t

T u rn e r & T o w n s e n d P ro je c t M a n a g e m e n t
D e lo it t e & T o u c h e
S h e p h e rd & W e d d e rb u rn W S


The Council’s PPP Strategy was:

 Start small – minimise the risk to the Council;
 Aim big – devise a ‘long term’ PPP programme;
 Identify suitable potential PPP projects;
 Identify lead politicians – with courage & convictions;
 Identify, appoint and train PPP Project Team;
 Appoint appropriate external advisers;
 Allocate sufficient funds to undertake the initiative!


We tried to ensure success by (1):

 Only selecting ‘appropriate’ Projects;
 Getting Political support for Process & Projects;
 Appointing only ‘Experienced’ Advisers;
 Use of Effective Project Management arrangements;
 Use of Realistic Procurement Programmes;
 Use of ‘High Quality’ Procurement Documentation;
 Targeting ‘known’ Consortia to pre-qualify;
 Stressing the need to Consult with Communities.

We tried to ensure success by (2):

 Ensuring the Outline Business Case (OBC) was realistic;
 Placing the OJEU notice to suit market conditions;
 Carefully selecting ‘appropriate’ Bidders;
 Preparing a detailed Invitation to Tender (ITN) package;
 Relating the Bids received to both the ITN and the OBC;
 Avoiding the need for Best & Final Offers (BaFO);
 Negotiating the key Project Agreement clauses with
Bidders and Funders at an early stage in the programme;
 Updating the Business Case on a regular basis.

Contractors / Consortia wished to know:

 The Strategic Vision - the view of the Politicians!!
 The Operational Context - is it important to the Council?
 The Council – do they have PPP experience?
 The Contractual Position – what is the period on offer?
 The Design Concept – what quality / flexibility is required?
 The Advisers – which firms have been appointed?
 The Negotiating Team – have they experience & authority?
 The Affordability Position – can the Council afford it?
 The Procurement Programme – is it Practical or Political?


Council wished to ensure Economic Sustainability

 Highland Council Objectives:
– Maintain fragile local economies;
– Ensure ‘local’ firms can participate in PPP initiatives;
– Avoid any internal redundancies / loss of capacity;
– Provide Training & Development opportunities.
 A PPP initiative can deliver these Objectives if:
– Funders are prepared to work with local consortia;
– The project size allows local contractors be participate;
– Economic sustainability is fully recognised.

Sample Highland Council Projects

Operational PPP Projects (1)

 8 year IT Contract with Fujitsu (ICL);
 € 81 million for a Managed Service;
 Provision & Maintenance of 3,500 PCs;
 3 year rolling refresh of all IT equipment;
 Provision of all software & hardware;
 Responsible for all Training & Development;
 Transfer of 50 staff to Fujitsu;
 First IT scheme using private finance.



 25 year Contract with a Consortium
consisting of the M J Gleeson Group plc & The
Royal Bank of Scotland Group plc *
 € 128 million contract;
 Project consists of 4 Schools in remote rural
locations - details given later in the
Presentation;
 Model scheme completed in record time!
 Schools now owned by Investment Fund *



 30 year Contract for the funding, design, construction
and operation of 11 Schools;
 € 225 million ‘Build Cost’;
 € 760 million contract value;
 Single Bidder - but allowed to proceed by Treasury;
 Financial Close achieved on 28 March 2006;
 First school was handed over on 1 April 2007;
 All schools are now fully Operational.


Pipeline PPP Projects (1)

 Outline Business Case completed for a 30 year contract
for the funding, design, construction and operation of:
65 Fire Stations with a € 120 million ‘Build Cost’;
 Project involves provision of facilities in four Municipal
areas – Shetlands Isles, Orkney Isles, Western Isles and
the Highlands!
 Business Case was lodged with the Scottish Government
for permission to proceed.



 Completed a Business Case for a 20 year contract
for the Disposal of Household Waste;
 Scheme was required to comply with legislation;
 Proposed service will be very high cost due to the
distances between communities;
 The solution also has a high capital cost;
 This is a politically sensitive project;
 Do you wish an EfW Plant in your back yard?



 Business Case accepted for a 15 year Contract for the
funding, design, construction and operation of 5 Care
Homes for the Elderly – € 51 million ‘Build Cost’;
 Estimated € 145 million contract value;
 6 Pre-qualified Bidders - with initiative being progressed
under the Competitive Dialogue protocol;
 Aim was to reach Financial Close in December 2008 with
first Care Home to be available in August 2010;
 Political decision taken to suspend the initiative!



 Business Case completed for the funding, design,
construction and operation of Office Accommodation with a
€ 12 million ‘Build Cost’;
 Estimated € 39 million contract value;
 4 Pre-qualified Bidders - with initiative being progressed
under the Competitive Dialogue protocol;
 Financial Close was programmed for May 2008;
 Offices were to be available in August 2010;
 Political decision to suspend the initiative!

Education, Culture & Sport
Public Private Partnership 1 Initiative


The Council’s Principal Concern was:

Affordability

Not

Value For Money


The Council was ‘up-front’ on Affordability:

Affordability

4,500,000

4,000,000
Annual Cost

3,500,000

3,000,000

2,500,000
1

4

7

10

13

16

19

22
Years


Everyone Worked Together To Achieve Success

Education Committee Project Board
(Members) (Officers)

Project Director
Project Managers

Community Groups & External Advisers &
School Representatives Internal Specialists


Project Details (1)

2 Secondary Schools 2 Primary Schools

Drumnadrochit Spean Bridge
250 pupils + 24 Nursery 75 pupils + 24 Nursery
(4,280 m2) (940 m2)

Strontian Tomatin
250 Pupils + 24 Nursery 70 pupils + 24 Nursery
(4,680 m2) (880 m2)


Project Details (2)

 Annual Unitary Charge – € 4.5 million

 Capital Value of Projects – € 25 million

 Assets revert to Council ownership at contract end

 No surplus land to consider


Education, Culture & Sport PPP 1

Glenurquhart High School, Drumnadrochit - 250 pupils


PPP1 Primary School Interiors

Education, Culture & Sport
Public Private Partnership 2 Initiative


Project Details (1)

4 Secondary Schools

Dingwall Academy Portree High School

1,100 pupils 700 pupils

Millburn Academy Kinlochleven High

1,100 pupils 110 pupils


Project Details (2)

6 Primary Schools
Cawdor Inshes
120 pupils 250 pupils
Culbokie Gaelic
Resolis Kinlochleven

Project Details (3)

 Annual Unitary Charge - € 24 million

 Capital Value of Projects - € 201 million

 Assets revert to Council ownership at contract end

 No surplus land to consider



Dingwall Academy - 1,100 pupils


PPP2 Primary School Interiors

Work with Communities – It is their Project !!

Stakeholder Management Award

Establish a Pipeline

Sample Pipeline Projects


Fire Services PPP Initiative


Fire Service Sites

Fire Station Locations

Highland & Islands Fire Service

The Problem - Obsolete Fire Stations


The Solution - Single Bay - Achiltibue Fire Station


Waste Management PPP Initiative


Waste Management Sites

Waste Facilities

Waste Management Objectives

 Prevent the generation of waste at source;
 Use ‘local’ rather than ‘regional’ landfill sites;
 Introduce Materials Recovery Facilities (MRF);
 Provide an Energy from Waste (EfW) Plant.

Capital Investment is required


Use of Private Sector Finance for Large Urban Projects


Hong Kong MTR Corporation 1990


Hong Kong MTR Corporation

 Hong Kong MTR Corporation is a public body;
 Corporation operates on ‘prudent commercial principles’;
 20 individual Development Sites above stations and depots;
 Developments were phased over a 10 year period;
 14 separate Development Agreements;
 60% of railway funding came from PPP initiatives;
 Hong Kong consortia & contractors with overseas funding.


Hong Kong MTR Corporation

 High Land Values - All land owned by Central Government
 Development Agreements with 8 Private Sector Consortia

 Short Duration Contracts - Only 3 to 5 year duration

 Value of Contracts – approximately € 1,500 million

 ‘Upfront’ Funding of rail infrastructure by the Consortia

 Design, Construction & Marketing of buildings by Consortia

 Ongoing management of building remained with Corporation


Admiralty Development Agreement

Admiralty Centre – 2 x 28 storey towers - 95,606 m 2

Hang Lung Development Agreement

Hongway Gardens - 35 storeys - 412 flats & 2,594 m2


Hang Lung Development Agreement

Vicwood Plaza - 33 storeys - 36,848 m2

Kornhill Development Agreement

Kornhill Gardens – 42 x 20 to 31 storeys – 1,060 flats

Traditional and
Design & Build Projects


Operations Directorate Projects

Alterations to Cameron Hospital

Operations Directorate Projects

Sir George Sharpe Spinal Injuries Unit

Property & Architectural Services Projects

Golspie Secondary School : Technical Block


Grantown Grammar School : Leisure Centre


Ullapool Secondary School


Kirkwall Fire Station

Housing Services Projects

Hayton Road Social Housing, Aberdeen

Housing Services Projects

Rorie Hall Social Housing, Aberdeen

Issues to Consider


Advantages of Small Scale PPP Projects

 Individual Project Programmes will be shorter;
 Community benefits are much easier to realise;
 Project Risks are easier to assess and manage;
 Possible pool of local consortia and funders;
 Opportunities for local consultants and contractors;
 Facilitates local democratic control & management.


Disadvantages of Small Scale PPP Projects

 Difficult to manage a national project pipeline;
 Assumes that clients have PPP procurement skills;
 Procurement costs may rise due to resource issues;
 Danger of a ‘feeding frenzy’ once projects emerge;
 Requires a change in procurement culture – can
‘Value for Money’ be the defining characteristic if
there is no possibility of delivering an initiative
other than by using a Public Private Partnership?


Conclusions


Successful PPP initiatives need

 Public commitment from Senior Politicians;
 Support for PPP initiatives from Senior Officers;
 The creation of the appropriate Political, Legal &
Financial Structures;
 The creation of a Production Line of Projects;
 A Project Team consisting of your best people;
 To be promoted to stimulate market interest!


A Final Thought

 If The Highland Council can
use private sector finance to
provide municipal facilities
in a remote area on the
edge of Europe then so can
you!
 You only need to try!


Contact Information

Dr Alister W Coutts & Partners LLP
Construction & Management Consultants
29 Lady Nairne Drive
PERTH
PH1 1RF
Scotland

Telephone: +44 (0)1738 565749 E-mail : enquiries@awcp.co.uk

www.awcp.co.uk

Please visit our web-site or contact us if you wish further information


Alister Coutts, Predavac, Edinburg Napier Univesity

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