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PPPs and Strategic Partnering Author: Adrian D Eakin \| Date Added : 10-Apr-05

With the scale of Public/Private Partnership Projects in Northern Ireland set to increase, Adrian Eakin describes a possible new way of delivery multi-site schemes. Projects Strategic Partnering To date, PFI/PPP Projects in Northern Ireland have focused on the delivery of one, or a small number, of schemes. As the number and size of schemes increase however, it may be that different structures are needed to address backlogs and deliver successful schemes at a large number of sites. This article examines the "Partnering" approach currently being reviewed in Northern Ireland. Traditional The traditional way of delivering a PPP Scheme is now well established. Documents are reasonably well standardised, advisers well used to the other side's arguments and structuring time is kept to a minimum. However, where an awarding Authority (such as a health trust or education body) needs improvements at most of its facilities across a significant number of sites, there are obvious drawbacks with this approach; the main one being that further schemes to be procured by the Authority must be provided under separate time-consuming and expensive procurements. Partnering Northern Ireland has not yet seen the strategic partnering structure that has been underway in Great Britain in recent years. Schemes such as "Building Schools for the Future" and "NHS Lift" have removed the need for the awarding Authority to procure future schemes under separate procurements, leading to quicker project delivery and significant cost savings. Under a strategic partnering arrangement, the successful bidder in a PPP Project would have the right (for a certain period of years) to undertake further schemes selected by the awarding Authority. The main advantages are broadly that: no separate procurements for further facilities are needed during that time period - the private sector operator undertaking the initial schemes simply prices the further schemes in accordance with the partnering agreement; there is no competition (subject to the Authority having certain safeguards described below); the awarding Authority can take into account performance of the initial schemes in deciding whether or not to award future schemes to the private sector operator - if certain thresholds relating to non-performance are reached, the operator could lose its exclusive right to bid for future projects; and the partnering agreement would require the benchmarking and market-testing of the private sector supply chain to ensure that the private sector operator's price for future schemes is competitive. As with any new contractual structure, local contractors would have to be educated on how the arrangements were intended to work, documents would have to be drafted for the Northern Irish market and start up costs would obviously be greater than normal. Such issues are far from insurmountable where long-term benefits are identified. Joint Ventures Strategic partnering makes obvious sense when a large number of schemes are likely to be needed in a particular area served by one Authority. However, the more schemes, the more cost and the more cost, the more an awarding Authority may ask itself whether the public purse should share in the financial upside (namely the profit being made by the private sector). Certain schemes in Great Britain involve the awarding Authority becoming a shareholder in the project delivery vehicle along with the successful private sector bidder - that vehicle becomes the awarding Authority's strategic partner with the right to undertake all projects selected by the awarding Authority in its particular area (as contemplated above). It is argued that the public and private sector are never true partners until their economic interests are aligned; and the joint venture model achieves this. It also enables local issues to be put on the private sector operator's agenda and the public sector to keep a close eye on how matters progress generally. It goes without saying that a number of legal issues need to be addressed to create such a structure but the advantages of doing so in some cases are clear. The Future Structures such as these are currently being examined in Northern Ireland and it may be that some of the major PPPs recently announced by the Government's Strategic Investment Board (the SIB) adopt this novel approach. The recently announced Belfast Schools Project, with a potential capital value of up to £500m, made reference for the first time in Ireland's PPP history to strategic partnering arrangements - "there has to be a better way of procuring multi-site projects, partnering with one successful private sector bidder over the course of time has obvious benefits and given the current infrastructure deficit across our schools and hospitals, strategic partnering in PPPs deserves serious consideration" (Roger Alexander, the SIB). Adrian is a Partner in the firm's Corporate Department specialising in projects and project financing. He is currently advising on a number of projects sponsored by the SIB, including Belfast Schools. Quote: significant cost savings

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PPPs and Strategic Partnering