Select Committee on Public Administration Appendices to the Minutes of Evidence

Memorandum by the PPP Forum (PSR 6)


  1.1  The PPP Forum was established earlier this year by a number of private sector organisations to promote the benefits of public private partnerships in the UK.

  1.2  The PPP Forum's approach is threefold:

    —  to demonstrate the success that PPP is now achieving in delivering completed projects that successfully deliver public services;

    —  to take part in public debate and present an accurate and business based perspective on PPP and the issues surrounding it; and

    —  to monitor Government and to engage with Government Departments, related organisations and MP's involved in developing and promoting PPP from the public sector side.


  2.1  Success in PPP schemes that are now operational has demonstrated that the private sector can have a significant and positive part to play in the reform and improvement of Britain's public services. Private sector contractors in this country have always built Britain's schools and hospitals and other public infrastructure projects for a profit, and continue to do so in non-PPP public projects that still make up by far the vast majority of public projects.

  2.2  By involving the private sector in PPP contracts, the public sector is obtaining several extra benefits. Firstly, any risk of time and cost overruns are the responsibility of the private sector consortium and not the public sector and ultimately the taxpayer. Secondly, the significant time-consuming elements of major public sector projects (and sometimes the subsequent facilities management) are passed over to the private sector, leaving public sector professionals to get on with their core jobs.

    We would also like to emphasise here the distinction between PPPs and the contracting out of public services, as these are vastly different, but are often confused by the general public and others—we would welcome a clear distinction between these forms of procurement in the Committee's report.

  2.3  The Committee has asked questions about whether profit-oriented organisations can maintain the public service ethos. We would argue that the private sector's focus on results, delivery of contracts to budget and on time, and continuing measurement against pre-determined benchmarks (backed up by fines if necessary standards have not been met) means that it is in an ideal position to help the public sector deliver modern, efficient public services. In addition, the private sector has often had to undertake additional and enhanced training to make up for skills and qualification deficits in staff which it takes on (contrary to the impression some Unions often portray when talking about post-TUPE conditions and training) thus contributing to employees' long term employability and prospects.

  2.4  One of the favourite criticisms of PPPs is that private sector companies are building and running sub-standard projects to increase their profit margins. However, it is important to point out that with PPP projects, buildings are provided to the specifications demanded by the public sector. Failure to do so results in fines, possible loss of contract, and loss of future business. The number of hospital beds in new PPP hospitals, for example, are not determined by the private sector project company but by the NHS Trusts themselves. Likewise, the scale of new PPP schools and their facilities is decided upon by the public sector. In addition, as a PPP focuses on a whole life cycle, for instance—30 years, the consortium building and running a PPP project looks to erect buildings of much better quality and design than some conventional procurement, as the private sector needs to look at their own long term maintenance costs.

  2.5  It also does not make sense, as some have claimed, for a private sector company involved in a PPP bid to massively inflate the proposed cost of the project. Competition between companies bidding for PPP projects is fierce, and market competition between them drives the price down, while still remaining within the framework of the bid specifications.

    More stability in contract terms and increased standardisation would further enhance competition.

    There is also general agreement amongst the private sector companies involved in PPPs that the whole bidding process is too long and costly.

  2.6  Criticism has focused recently on whether PFI delivers good value for money. Debt finance does cost more than Government debt but not a significant amount more, as the projects are supported and initiated by Government. The Government clearly believes that value for money is being achieved, as do neutral assessments by others. Most importantly, the majority of PFI and PPP projects have been delivered on time and on cost, which adds significantly to the overall value of a project in the longer term.

  2.7  A study by Arthur Andersen and the London School of Economics commissioned by the Treasury Task Force indicated average savings of 17 per cent using PFI.

  2.8  In the majority of PPP projects, the public and private have worked together in a spirit of positive partnership and cooperation. The same is true for staff; there have been very few problems with the TUPE transfers of staff from public to private sector. Relations with clients such as NHS Trusts for example have, in the main, been excellent, as have relations with Unions at a local level, despite the high profile campaigns that have been mounted by some Unions at a national level.


  3.1  We believe that accountability issues are best dealt with by issues such as penalties, and deliverables being outlined clearly in the initial contract. As mentioned before, a continuing positive partnership between the winning consortium and the public sector client is also in both of their interests, in ironing out any teething problems, both at construction stage and the operational stage.

    We believe that accountability and related aspects are best dealt with by issues such as penalties, and deliverables being outlined clearly, and to the satisfaction of both parties, in the initial contract.

  3.2  Accountability to Parliament is undertaken through examinations of thorough NAO reports into specific projects and examination by Public Accounts Committees. We believe that this has worked well in the past in examining earlier projects, and has led to Parliament influencing and improving future policy in PPPs.

    We support a more rational and informed debate about the whole subject of PPPs, and believe that examinations by organizations such as the NAO is a welcome benchmark to determine the success of PPP projects.

  3.3  Another issue which has arisen this year has been refinancing of early PFI projects. Few such refinancings have so far taken place. The refinancing gains are really only relevant to the very early deals when the risk profile was unknown, and the pricing of PFI deals allowed for this. It is a sign of PFI's success that the market has matured to the point that there is limited refinancing gain available in most new deals as they are priced so competitively from the outset. This is clearly a benefit to the public sector. Most companies believe that they should be allowed to retain financial benefits resulting from the successful completion of particular projects, especially the early ones when the risk were perceived to be relatively high.

    We welcome the introduction of the Gateway process by OGC which will hopefully ensure that schemes are better prepared before they are brought to the market—this will benefit both public and private sector.


  4.1  From a private sector perspective, PPP projects attract the best directors, the best managers, and the best team members. Companies involved realise that PPPs do have the potential for profit, but also that if companies do not deliver what the public sector has specified, they will shoulder the risk of any time or cost overruns. Ultimately, this benefits the end user—the public.

  4.2  Building new public services is no longer a wishful objective, but a reality, and it is happening with PPP. Hospitals and schools that were built over a century ago are finally being modernised or rebuilt.

  4.3  This has its main focus on users and consumers, most of whom are much happier to have their children go to school in modern, draft free buildings, or to be in a modern hospital with state of the art facilities.

  4.4  No one is pretending that some PPP projects could not have been improved upon, particularly in early cases where both public and private were stepping into unchartered territory. With every new project both public and private sector are learning and improving the process.

  4.5  The fact that other countries are following Britain's PPPs with interest and pursuing their own projects is an indicator that this is not just a cynical manipulation of "new Labour" to hoodwink the British public.

  4.6  With the help of intelligent and insightful criticism, we can continue to stay ahead. There is a thoughtful debate to be had on an ongoing basis as to how to improve PPPs to the benefit of all. The private sector is committed to working together in partnership with the public sector to achieve this.

November 2001

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