Monday, April 16, 2012

Public Private Partnerships - Supporting the Home Team

Why were Public Private Partnerships (PPP) introduced in Britain? A recent blog post in The Guardian covers some motivations - value for money, being able to build assets now that would not have been possible with budget limitations  - but it misses some of the most obvious.

The words ‘built on time’ and ‘on budget’ and ‘will be maintained for twenty five years’ are not ones associated with traditional public sector procurement. The innovations associated with PPP include competitive tendering, whole-life costing for projects and the incentive for the private sector to keep the infrastructure maintained in a good enough condition so as not to be penalised when the assets are finally handed over at the end of the project life. Even the National Audit Office confirmed* that the traditional procurement systems could benefit from  lessons learnt from our PFI programme.
 
The UK had a massive stock of dilapidated social infrastructure by the time we reached the 1990s. This was the product of a system, largely still in place today, giving politicians kudos for ‘ribbon cutting’ and no incentive to maintain the facilities they had built. When was the last time an MP turned out to give the hospital maintenance team a pat on the back? And would the media deem this a ‘story’ worth covering? Of course not.  
 
So one man’s PPP ‘overhang of debt’ is another man’s ‘long-term maintenance budget’. Crucially, there is no similar provision on the balance sheets for the public sector to pay for the maintenance of its own infrastructure projects. Indeed, in some cases the public sector does not actually know what assets it owns in the first place, let alone what condition they are in. PPP provided one way out of this problem, and this should not be forgotten.
 
Finally, the article laments, “following in the steps of football and cricket, PPP wouldn't be the first time the UK has pioneered something, only to see it perfected overseas”. On the contrary, it is UK practitioners – individuals and firms – who are in-demand abroad. We have the star players. With 20 years of PFI and PPP experience, mostly good but sometimes bad, the UK has unrivalled expertise across a wider range of public services. This is a great British asset and it has been used in every major emerging market in the world. So as the government exhorts the private sector for an export-led growth agenda, UK expertise in putting together PPPs is at a premium. Our members in TheCityUK are out there playing the game at the top level. It would help if we had less jeering from the stands.
 

*In April 2011 the National Audit Office concluded that: “lessons from the large body of experience of using PFI can be applied to improve other forms of procurement and help Government achieve its aim of securing annual infrastructure delivery cost savings of £2 billion to £3 billion.”.

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