a thesis submitted for the degree of doctor of...

Developing a Best Practice Framework for Implementing

Public Private Partnerships (PPP) in Hong Kong

Esther Cheung

BEng (Hons), MPhil

A thesis submitted for the degree of

Doctor of Philosophy

School of Urban Development

Faculty of Built Environment and Engineering

Queensland University of Technology

March 2009

Keywords

i

KEYWORDS

Public Private Partnership (PPP)

Build Operate Transfer (BOT)

Infrastructure

Procurement

Public Works

Public Sector

Private Sector

Researcher

Hong Kong

Australia

Abstract

ii

ABSTRACT

Public Private Partnership (PPP) is a well established methodology for procuring public

works projects. By incorporating the private sector’s expertise, efficiency, innovation,

business sense, risk sharing, financing etc. into public works projects, the quality of

public services and facilities can be uplifted. Like many jurisdictions, Hong Kong is also

keen to take aboard this methodology which is so familiar but yet so distant. Although

they have been one of the first jurisdictions to utilise the private sector in public works

projects, their comfortable financial reserves has meant that there has been no urge to

push the movement until recently. PPP has become increasingly popular amongst

governments. The Hong Kong Special Administrative Region (HKSAR) government is

no exception. Some of the more active works departments have commissioned studies to

investigate the best ways to deliver these projects, others have even trialed the method

themselves. The efficiency Unit of the HKSAR government has also become an active

arm in conducting research in this area. Although so, the information that is currently

available is still very broad. Building from their works there is a need to develop a best

practice framework for implementing PPP projects in Hong Kong by incorporating

international experiences.

To develop a best practice framework will require thorough investigation into the benefits,

Abstract

iii

difficulties and critical success factor of PPP. PPP should also be compared with other

procurement methods. In order to do so it is important to clearly understand the local

situation by an analysis of projects conducted to date. Lessons learnt can further be

derived from other countries and incorporated to those derived locally. Finally the best

conditions in terms of project nature, complexity, types, and scales for adopting PPP

should be derived.

The aim and objectives of this study were achieved via a comprehensive literature review,

in-depth case analyses, interview survey with experts from both Hong Kong and overseas,

and finally a large scale data collection was conducted via a questionnaire survey with

PPP practitioners. These findings were further triangulated before they were used as the

basis to form the best practice framework presented in this thesis. The framework was

then further validated by PPP experts to ensure it is comprehensive, objective, reliable

and practical.

This study has presented a methodology that can be adopted for future studies. It has also

updated our knowledge on the development trends of PPP as well as opened up the

experiences of other jurisdictions. The findings have shown that the local industry is

familiar with “what” should be done in PPP projects but they are unsure of “how” these

goals can be achieved. This framework has allowed this further knowledge to be

delivered to PPP practitioners. As a result, the development of this framework can help

to resolve the current economic crisis by encouraging more developments and business

opportunities for the private sector. In addition, the correct projects can be delivered by

Abstract

iv

PPP, the advantages of PPP can be maximised, and the general public can benefit from

the private sector’s participation.

List of Publications

v

LIST OF PUBLICATIONS

Journal Papers (published and accepted)

1. Esther Cheung and Albert P.C. Chan, Financing Model for Future Infrastructure

Projects in Hong Kong – A Case Study of the Hong Kong – Zhuhai – Macau

Bridge, Journal of Property Investment and Finance, Journal of Property

Investment and Finance, Paper accepted for publication.

2. Esther Cheung, Albert P.C. Chan and Stephen Kajewski (2008). Reasons for

Implementing Public Private Partnership Projects – Perspectives from Hong

Kong, Australian and British Practitioners. Journal of Property Investment and

Finance, Vol. 27, No. 1, 81 – 95.

3. Albert P.C. Chan, Patrick T.I. Lam, Daniel W.M. Chan and Esther Cheung (2008).

A Mechanism for Risk Sharing in PPP Projects – The Sydney Cross City Tunnel

Case Study, Surveying and Built Environment (Journal of the Hong Kong Institute

of Surveyors), 19, 1, December 2008.


vi

4. 陈炳泉，林俊业，陈炜明，张泳沁，柯永建 (2008). 香港基础设施融资模式

比较研究. 建築經濟, October 2008, 89-92. (English translation: Albert PC Chan,

Patrick TI Lam, Daniel WM Chan, Esther Cheung and Yongjian Ke (2008).

Comparative Study of Different Financial Modalities in Infrastructure

Development of Hong Kong. Construction Economy, October 2008, 89-92.)

Journal Papers (under review)

1. Esther Cheung, Albert P.C. Chan and Stephen Kajewski (2008). The Hong Kong

and Australian Private Sector’s Perspective on Procuring Public Works Projects,

Journal of Property Investment and Finance, Journal of Property Investment and

Finance, Paper under review.

2. Esther Cheung, Albert P.C. Chan and Stephen Kajewski (2008). The Public

Sector’s Perspective on Procuring Public Works Projects – Comparing the Views

of Practitioners in Hong Kong and Australia, Journal of Civil Engineering and

Management, Paper under review.

3. Esther Cheung, Albert P.C. Chan and Stephen Kajewski (2008). The Researcher’s

Perspective on Procuring Public Works Projects – Findings from Hong Kong and

Australian Interviewees, Australian Journal for Construction Economics and

Building, Paper under review.


vii

4. Esther Cheung, Albert P.C. Chan and Stephen Kajewski (2008). Suitability of

Procuring Large Public Works by Public Private Partnership - Comparing Hong

Kong Practitioners' Views against those in the United Kingdom and Australia.

Engineering, Construction and Architectural Management, Paper under review.

5. Esther Cheung, Albert P.C. Chan and Stephen Kajewski (2008). Factors

Contributing to Successful Public Private Partnership Projects – Comparing Hong

Kong with Australia and the United Kingdom. Canadian Journal of Civil

Engineering, Paper under review.

6. Esther Cheung, Albert P.C. Chan and Stephen Kajewski (2008). Enhancing Value

for Money in Public Private Partnership Projects - Findings from a Survey

Conducted in Hong Kong, Australia and the United Kingdom. Journal of

Financial Management of Property and Construction, Paper under review.

7. Albert PC Chan, Patrick TI Lam, Daniel WM Chan, Esther Cheung and Yongjian

Ke (2008). Critical Success Factors for Public Private Partnerships (PPP) in

Infrastructure Developments: A Chinese Perspective. Journal of Construction

Engineering and Management, ASCE, Paper under review.


Ke (2008). A Comparative Study of Critical Success Factors for Public Private

Partnerships (PPP) between China and the Hong Kong Special Administrative

Region. Journal of Management in Engineering, ASCE, Paper under review.


viii


Ke (2008). Driving Forces to Adopt Public Private Partnership (PPP) in China and

the Hong Kong Special Administrative Region. Engineering, Construction and

Architectural Management, Paper under review.


Ke (2008). Potential Obstacles to Successful Implementation of Public Private

Partnerships (PPP) in China and the Hong Kong Special Administrative Region.

Journal of Management in Engineering, ASCE, Paper under review.


Ke (2008). Drivers for Adopting PPP - A Comparison between China and Hong

Kong Special Administrative Region. Journal of Construction Engineering and

Management, ASCE, Paper under review.

12. Yongjian Ke, Shouqing Wang, Albert P.C. Chan and Esther Cheung (2008).

Research Trend of Public-Private Partnership (PPP) in Construction Journals,

Journal of Construction Engineering and Management, ASCE, Paper under

review.

Journal papers (pending submission)

1. Albert P.C. Chan, Patrick T.I. Lam, Daniel W.M. Chan, Esther Cheung, Yongjian

Ke, Yang Wen and Yelin Xu (2008) Understanding the Major Risks in Mainland

China's PPP Projects, Pending submission.


ix

2. Albert P.C. Chan, Patrick T.I. Lam, Daniel W.M. Chan, Esther Cheung, Yongjian

Ke, Yang Wen and Yelin Xu (2008) Critical risk groupings of public-private

partnerships in China, Pending submission.

Conference Papers (published and accepted)

1. Esther Cheung and Albert P.C. Chan. Suitability of Procuring Large Public Works

by Public Private Partnership (PPP) - A Case Study of the Kai Tak Cruise

Terminal Project in Hong Kong. The 34th Australasian Universities Building

Education Association (AUBEA) Annual Conference, 7 – 10 July 2009, Abstract

accepted.

2. Albert PC Chan, Patrick TI Lam, Daniel WM Lam, Esther Cheung and Yongjian

Ke (2009). Privileges and Attractions for Private Sector Involvement in PPP

Projects - A Comparison between China and the Hong Kong Special

Administrative Region. The Fifth International Structural Engineering and

Construction Conference, Las Vegas, Nevada, USA, 21 – 27 September 2009,

Abstract accepted.

3. Esther Cheung (2009). Common Problems Holding Back the Development of PPP

in Hong Kong, Public Private Partnerships (PPPs) Seminar Series, Hong Kong

Institute of Surveyors, 14 February 2009.


x


Application of Public Private Partnership (PPP) Model in Procuring Infrastructure

Projects in Hong Kong, CIB W055 – W065 Joint International Symposium:

Transformation Through Construction, 190 – 191, 17 – 19 November 2008,

Dubai.


Application of Public Private Partnership (PPP) in Hong Kong Special

Administrative Region – The Private Sector’s Perspective, The Chinese Research

Institute of Construction Management (CRIOCM) 2008 International Symposium

on “Advancement of Construction Management and Real Estate” , 31 October – 3

November 2008, Beijing, China.

6. Albert P.C. Chan, Patrick T.I. Lam, Daniel W.M. Lam, Esther Cheung and

Yongjian Ke (2008). Measures that Enhance the Achievement of Value-for-Money

in PPP Projects, Building Abroad - Procurement of construction and

reconstruction projects in the international context, IF Research Group, i-Rec and

CIB, University de Montreal, Canada, 23 – 25 October 2008.


Application of Public Private Partnership (PPP) in Hong Kong Special

Administrative Region – the Critics’ Perspectives, International Conference on

Construction in Developing Countries - Advancing and Integrating Construction,

Education, Research & Practices (ICCIDC-I), Pakistan, 4 – 5 August 2008, 302-

311.


xi

8. Albert P.C. Chan, Tony Sidwell, Stephen Kajewski, Patrick T.I. Lam, Daniel W.M.

Chan and Esther Cheung (2007). From BOT to PPP - A Hong Kong Example,

2007 International Conference on Concession Public / Infrastructural Projects

(ICCPIP), Dalian University of Technology, China, 24 – 26 August 2007.

9. Albert P.C. Chan, Patrick T.I. Lam, Daniel W.M. Chan, Tony Sidwell, Stephen

Kajewski and Esther Cheung (2007). A Research Framework for Investigating

Public Private Partnerships (PPP) in Hong Kong, 4th International Conference on

Construction in the Twenty First Century (CITC-IV), Gold Coast, Australia, 11 –

13 July 2007.

Book Chapter (published)

1. Janardhan Rao N. and Singh Sisodiya A. (2009). Public-Private Partnership Model in

India: Concepts, Issues and Outlook. Albert P.C. Chan, Stephen Kajewski and Esther

Cheung. Obstacles in Adopting PPP – Lessons from Australia. Icfai University Press,

181-187.

Magazine Article (published)

1. Albert P.C. Chan, Stephen Kajewski and Esther Cheung (2008). Obstacles in

Adopting PPP – Lessons from Australia. Projects and Profits, Special Issue –

Managing Construction Projects, The Icfai University Press, 60, 28 – 31, May 2008.

Table of Contents

xii

TABLE OF CONTENTS

KEYWORDS i

ABSTRACT ii

LIST OF PUBLICATIONS v

TABLE OF CONTENTS xii

LIST OF TABLES xxi

LIST OF FIGURES xxv

LIST OF ABBREVIATIONS xxvii

STATEMENT OF ORIGINAL AUTHORSHIP xxx

ACKNOWLEDGEMENTS xxxi

CHAPTER 1 INTRODUCTION 1

1.1 Background 2

1.2 Research Aim and Objectives 4

1.2.1 Aim 4

1.2.2 Objectives 4

1.3 Research Methodology 5

1.4 Structure of the Thesis 7

Table of Contents

xiii

1.5 Research Significance and Value 9

1.6 Chapter 1 Summary 10

CHAPTER 2 RESEARCH METHODLOGY 11

2.1 Chapter 2 Introduction 12

2.2 Research Design 12

2.3 Research Process 13

2.3.1 Background study 13

2.3.2 Project experience 13

2.3.3 Extraction of expert knowledge 14

2.3.3.1 Interviews with the public sector 16

2.3.3.2 Interviews with the private sector 18

2.3.3.3 Interviews with researchers 21

2.3.4 Large scale data collection 23

2.4 Data Analysis Techniques 24

2.4.1 Qualitative data analysis 24

2.4.2 Quantitative data analysis 25

2.4.2.1 Mean score ranking technique 25

2.4.2.2 Kendall’s concordance analysis 26


CHAPTER 3 LITERATURE REVIEW 28


Table of Contents

xiv

3.2 What is the Traditional Practice of Procuring Public Works Project? 31

3.2.1 Progression from traditional to PPP 31

3.2.2 Traditional vs PPP 36

3.3 Background of PPP 39

3.3.1 Background 39

3.3.2 Types of PPP 42

3.3.3 The PPP process 44

3.3.4 The parties involved in a PPP project 46

3.3.5 Research conducted in PPP 47

3.4 Attractive Factors of adopting PPP 49

3.5 Negative Factors of adopting PPP 55

3.6 Value for Money in PPP projects 59

3.7 Achieving Successful PPP projects 61


CHAPTER 4 PROCURING INFRASTRUCTURE PROJECTS IN HONG KONG 64


4.2 BOT/PPP Experience in Hong Kong 65

4.3 BOT/PPP Case Studies 67

4.3.1 Cross Harbour Tunnel (CHT) 67

4.3.2 Western Harbour Crossing (WHC) 69

4.3.3 Asia World Expo (AWE) 71

4.3.4 West Kowloon Cultural District (WKCD) 74

Table of Contents

xv

4.3.5 Findings from the case studies 76

4.3.6 Section 4.3 summary 79

4.4 Is BOT the Best Financing Model to Procure Infrastructure Projects? 81

4.4.1 Background of the Hong Kong – Zhuhai – Macau Bridge 82

4.4.1.1 Background 82

4.4.1.2 The proposed design 84

4.4.1.3 The original BOT decision 86

4.4.1.4 Underlying problems of the project 87

4.4.2 Change from private financing to public financing 88

4.4.2.1 The Process of change 88

4.4.2.2 Government motives for not opting for the BOT model 91

4.4.2.3 Other underlying reasons for using public finance 92



CHAPTER 5 THE AUSTRALIAN PPP EXPERIENCE 100


5.2 PPP in Australia 101

5.2.1 The Victoria practice 102

5.2.2 The Queensland practice 103

5.3 A New Era of PPP in Australia

– The Southbank Education and Training Precinct Case Study

106

5.3.1 Background 106

Table of Contents

xvi

5.3.2 The obstacles 109

5.3.3 Other projects in Queensland 110


5.4 Risk Sharing Mechanism for PPP Projects

– The Sydney Cross City Tunnel Case Study

112

5.4.1 Background 112

5.4.2 Underlying causes leading to failure 116

5.4.3 Appropriate risk allocation 121

5.4.4 Risk sharing mechanism 127



CHAPTER 6 DIFFERENT PERSPECTIVES ON PROCURING PUBLIC

WORKS PROJECTS IN HONG KONG AND AUSTRALIA

132


6.2 The Public Sector’s Perspective 133

6.2.1 Selecting respondents 133

6.2.2 Interview findings 137

6.2.2.1 Research on local case studies 141

6.2.2.2 Comparing PPP with traditional procurement methods 142

6.2.2.3 Projects best suited to use PPP 144

6.2.2.4 Key performance indicators in PPP projects 146

Table of Contents

xvii

6.2.2.5 Critical success factors leading to successful PPP projects 148

6.2.2.6 In-house guidance/practice notes 150


6.3 The Private Sector’s Perspective 154



6.3.2.1 Local and international experience in conducting PPP

projects

161

6.3.2.2 Implementation process of PPP projects 162

6.3.2.3 Major reasons for adopting PPP projects 163


6.3.2.5 Projects of interest to the private sector 166

6.3.2.6 Key performance indicators of PPP projects 167


6.3.2.8 In-house guidance/practice notes 169


6.4 The Researcher’s Perspective 174



6.4.2.1 Research on local case studies 179


6.4.2.3 Projects best suited to use PPP 181

6.4.2.4 Key performance indicators in PPP projects 182

Table of Contents

xviii




CHAPTER 7 SUITABILITY OF PROCURING LARGE PUBLIC WORKS BY

PPP

188


7.2 Collection of Research Data 189

7.3 Survey Results 194

7.3.1 Ranking of attractive factors for adopting PPP 194

7.3.2 Ranking of negative factors for adopting PPP 201

7.3.3 Agreement of the survey respondents 206

7.3.4 The suitability of adopting PPP 208


CHAPTER 8 IMPLEMENTING PUBLIC PRIVATE PARTNERSHIP PROJECTS 215


8.2 Reasons for Implementing PPP Projects 216


8.2.2 Ranking of the reasons for implementing PPP projects 219


8.3 Factors Contributing to Successful PPP Projects 227


Table of Contents

xix

8.3.2 Ranking of factors that contribute to the success of PPP projects 230


8.4 Enhancing Value for Money in PPP Projects 238


8.4.2 Ranking of value for money measures in PPP 241



CHAPTER 9 A BEST PRACTICE FRAMEWORK FOR IMPLEMENTING PPP

IN HONG KONG

251


9.2 The PPP Process 252

9.3 Incorporating the Research Findings into the PPP Process 257

9.4 Validation of the Framework 267

9.4.1 Design of the validation questionnaire survey 267

9.4.2 Respondents of the survey 268

9.4.3 Results of the validation 270


CHAPTER 10 CONCLUSIONS AND RECOMMENDATIONS 273


10.2 Review of the Project Objectives 274

Table of Contents

xx

10.3 Major Findings 277

10.3.1 Benefits, difficulties and critical success factors of PPP 277

10.3.1.1 Benefits/attractive factors of PPP 277

10.3.1.2 Difficulties/negative factors of PPP 280

10.3.1.3 Critical success factors of PPP 284

10.3.2 PPP compared to other procurement methods 287

10.3.3 Representative case studies from Australia 289

10.3.4 PPP experiences in Hong Kong 290

10.3.5 Best conditions for using PPP 292

10.3.6 Recommendations for Developing a Best Practice Framework for

Public Private Partnerships in Hong Kong

294

10.4 Value and Significance of the Research 295

10.5 Limitations of the Research 297

10.6 Recommendations for Future Research 298


REFERENCES 300

APPENDICES 327

Appendix 1 Questionnaire Survey Template for Research Study 328

Appendix 2 Questionnaire Survey Template for Validation Process 331

List of Tables

xxi

LIST OF TABLES

Table 2.1 Project objectives linking up with interview questions for public sector

interviewees

17

Table 2.2 Project objectives linking up with interview questions for private sector

interviewees

19

Table 2.3 Project objectives linking up with interview questions for researcher

interviewees

22

Table 4.1 Summary of the analysed case studies (Asia World Expo, 2007; Bouygues-

Asia, 2007; Hong Kong Engineers, 2006; Li, 2001; Nishimatsu, 2006)

78

Table 4.2 Summary of the HZMB details (Mak, 2008; Hong Kong Special

Administrative Region Government, 2008; Chen and Lee 2008; Hung,

2008; Transport and Housing Bureau, 2008a)

86

Table 4.3 Comparison of estimated toll fees to be charged under different financial

models (Ming Pao, 2008b)

95

Table 5.1 Risk allocation structure for CCT (Clifton and Duffield, 2006)

123

Table 5.2 Risk allocation framework for the annuity-based BOT model (Singh and

Kalidindi, 2006)

125

List of Tables

xxii

Table 6.1 List of interviewees from the public sector in Hong Kong 135

Table 6.2 List of interviewees from the public sector in Australia 136

Table 6.3 Summary of responses from public sector interviewees 138

Table 6.4 Question 1 - Have you conducted any research looking at local case

studies?

142

Table 6.5 Question 2 - How would you compare PPP with traditional procurement

methods?

144

Table 6.6 Question 3 - Which type of project do you feel is best suited to use PPP? 146

Table 6.7 Question 4 - What do you feel are the key performance indicators in a PPP

project?

148

Table 6.8 Question 5 - In general, what do you think are the critical success factors

leading to successful PPP projects?

150

Table 6.9 Question 6 - Does your organisation have any in-house guidance/practice

notes?

151

Table 6.10 List of Interviewees from the private sector in Hong Kong 155

Table 6.11 List of Interviewees from the private sector in Australia 156

Table 6.12 Summary of responses from private sector interviewees 158

Table 6.13 Question 1 - Which PPP projects has your company been involved in? 162

Table 6.14 Question 2 - Please describe the implementation process in these projects 162

Table 6.15 Question 3 - What were the major reasons for adopting PPP in these

projects?

164

Table 6.16 Question 4 - How do you think PPP compares with traditional procurement

methods?

165

List of Tables

xxiii

Table 6.17 Question 5 - Which type of project would your company be most interested

in applying PPP?

167


project?

168



169

Table 6.20 Question 8 - Does your company have any in-house guidance/practice notes

on PPP implementation?

170

Table 6.21 List of interviewees 175

Table 6.22 Summary of interview findings with researchers from Hong Kong and

Australia

177

Table 7.1 Mean scores and rankings for the attractive factors of PPP 200

Table 7.2 Mean scores and rankings for the negative factors of PPP 205

Table 7.3 Results of Kendall’s concordance analysis for the attractive factors of PPP 206

Table 7.4 Results of Kendall’s concordance analysis for the negative factors of PPP 207

Table 7.5 Checklist of attractive and negative factors for the Kai Tak cruise terminal

project

212

Table 8.1 Mean scores and rankings of the reasons for implementing PPP projects 217

Table 8.2 Results of Kendall’s concordance analysis of the reasons for implementing

PPP projects

218

Table 8.3 Mean scores and rankings for the factors that contribute to the success of

PPP projects

228

List of Tables

xxiv

Table 8.4 Results of Kendall’s concordance analysis for the factors that contribute to

the success of PPP projects

229

Table 8.5 Mean scores and rankings for the VFM measures in PPP projects 239

Table 8.6 Results of Kendall’s concordance analysis for the VFM measures in PPP

projects

240

Table 9.1 Guideline for conducting step 1 “Mobilisation and development of a

business case”

258

Table 9.2 Guideline for conducting step 2 “Funding” 260

Table 9.3 Guideline for conducting step 3 “Technical assessments, consultation and

land requirements”

261

Table 9.4 Guideline for conducting step 4 “Expression of interest exercise” 262

Table 9.5 Guideline for conducting step 5 “Policy and funding approvals” 263

Table 9.6 Guideline for conducting step 6 “Procurement and selection” 264

Table 9.7 Guideline for conducting step 7 “Service commencement” 265

Table 9.8 Guideline for conducting step 8 “Payment and contract management” 266

Table 9.9 Details of the survey respondents for the validation process 269

Table 9.10 Results of the validation questionnaire survey 271

Table 10.1 Tools used to achieve the research objectives 276

List of Figures

xxv

LIST OF FIGURES

Figure 1.1 Flow diagram of research process 6

Figure 3.1 Procurement selection process for typical public works project in Hong

Kong (adapted from Environment, Transport and Works Bureau, 2004)

32

Figure 3.2 The generic procurement categories with their respective sub-categories for

public works projects in Hong Kong (adapted from Environment, Transport

and Works Bureau, 2004)

34

Figure 3.3 Differences in procurement between the traditional and PPP approaches of

conducting public works projects in Hong Kong (adapted from Efficiency

Unit, 2008b)

38

Figure 3.4 Annual investment of infrastructure projects with private participation in

developing countries between 1990-2006 (World Bank, 2008)

41

Figure 3.5 Typical processes for delivering PPP projects in New South Wales, Australia

(adapted from Infrastructure Implementation Group, 2005)

45

Figure 4.1 Photograph of the Cross Harbour Tunnel entrance and exit on Kowloon

Peninsula (Kowloon Motor Bus 30X/230X, 2008)

68

Figure 4.2 Photograph of the Western Harbour Crossing entrance and exit on Kowloon

Peninsula (Forum Sara, 2008)

70

List of Figures

xxvi

Figure 4.3 Photograph of the Asia World Expo (Asia World Expo, 2008a) 72

Figure 4.4 Artist’s impression of the proposed West Kowloon Cultural District project

(Home Affairs Bureau, 2008)

75

Figure 4.5 Alignment of the HKZMB (Transport and Housing Bureau 2008a) 85

Figure 5.1 Ariel photograph of the Southbank Education and Training Precinct project

in October 2007 (Department of Education, Training and the Arts; 2008)

108

Figure 5.2 Photograph of the Cross City Tunnel (Traffman, 2008) 113

Figure 5.3 Examples of newspaper headlines relating to the CCT when it opened

(Infrastructure Implementation Group, 2005)

117

Figure 7.1 Histogram showing the number of years of working experience in

construction industry for the Hong Kong survey respondents

192


construction industry for the Australian survey respondents

192

Figure 7.3 Histogram showing the number of PPP projects the Hong Kong survey

respondents have been involved with

193

Figure 7.4 Histogram showing the number of PPP projects the Australian survey


193

Figure 8.1 Rank relationship between Hong Kong, Australia and the United Kingdom

for success factors of PPP

236

Figure 8.2 Rank relationship between Hong Kong, Australia and the United Kingdom

for VFM measures of PPP

246

Figure 9.1 The process for implementing PPP projects in Hong Kong (adapted from

Efficiency Unit, 2008b)

255

List of Abbreviations

xxvii

LIST OF ABBREVIATIONS

AUD: Australian Dollar

AWCG: Advance Work Co-ordination Group

AWE: Asia World Expo

BOO: Build Own Operate

BOOR: Build Own Operate Remove

BOOT: Build Own Operate Transfer

BOT: Build Operate and Transfer

BTO: Build Transfer Operate

CCT: Cross City Tunnel

CHT: Cross Harbour Tunnel

DBFO: Design Build Finance Operate

DBFOM: Design Build Finance Operate Manage

Dr.: Doctor

e.g.: exempli gratia

et al.: et alii

etc.: et cetera

f: Frequency of each rating for each factor

HKSAR: Hong Kong Special Administrative Region


xxviii

HM: Her Majesty

HPDI: China Highway Planning and Design Institute

HZMB: Hong Kong – Zhuhai – Macau Bridge

JV: Joint Ventures

km: Kilometre

KPI: Key Performance Indicator

LROT: Lease Renovate Operate Transfer

Mr.: Mister

MS: Mean Score

n: Number

N: Number

No: Number

NDRC: National Development and Reform Commission

NGO: Non Governmental Organisation

No.: Number

NSW: New South Wales

O&M: Operation and Maintenance

OM&M: Operate Maintain and Manage

PFI: Private Finance Initiative

PPP: Public Private Partnerships

R : Average of the ranks assigned across all factors

iR : Average of the ranks assigned to the ith factor

RMB: Renminbi


xxix

s: Score given to each factor by the respondents

SETP: Southbank Education and Training Precinct

SPSS: Statistical Package for Social Science

TAFE: Technical and Further Education

U.K.: United Kingdom

VFM: Value for Money

W: Kendall’s Coefficient of Concordance

WHC: Western Harbour Crossing

WKCD: West Kowloon Cultural District

Statement of Original Authorship

xxx

STATEMENT OF ORIGINAL AUTHORSHIP

The work contained in this thesis has not been previously submitted to meet requirements

for an award at this or any other higher education institution. To the best of my

knowledge and belief, the thesis contains no material previously published or written by

another person except where due reference is made.

Signature:

Date: 23 March 2009

Acknowledgements

xxxi

ACKNOWLEDGEMENTS

I would like to take this opportunity to thank those who have supported me throughout

the course of my studies and contributed towards this thesis. Without them this thesis

would definitely not have been possible.

I would sincerely like to thank my PhD associate supervisor Professor Albert P.C. Chan.

Being an overseas student the majority of my time has been spent working under his

patient, professional and knowledgeable guidance. Not only has he taught me the skills

of becoming a researcher, he has also enlightened the world of research and consolidated

my decision to pursue a future career in this field.

I would also like to thank my PhD principal supervisor Professor Stephen Kajewski.

Stephen has always communicated with me regularly and responded to my needs

promptly. His advice and guidance has been vital towards completing this thesis.

I would also like to take this opportunity to thank my family for their continuous support

in whatever decisions I make in life.

Acknowledgements

xxxii

Sincere thanks goes to Dr. Bing Li and Professor Akintola Akintoye for permitting to

adapt their survey questionnaire template. Special gratitude is also extended to those

industrial practitioners from both Hong Kong and Australia, who have kindly participated

in the interviews and questionnaire survey of this study.

Finally, this study would not have been possible without the financial support from the

Research Grants Council of the Hong Kong Special Administrative Region, China (RGC

Project No. PolyU 5114/05E), and the QUT International Doctoral Scholarship offered by

Queensland University of Technology. Their financial support has allowed me to

concentrate solely on my research work.

Chapter 1 Introduction

1

CHAPTER 1

INTRODUCTION

1.1 Background

1.2 Research Aim and Objectives

1.3 Research Methodology

1.4 Structure of the Thesis

1.5 Research Significance and Value

1.6 Chapter 1 Summary


2

1.1 Background

The success of implementing Public Private Partnership (PPP) projects in places such as

Western Europe, the United States and Australia has been an attractive alternative for

procuring public works projects instead of the usual traditional methods. With benefits

such as risk transfer, increased efficiency and innovation, and private financing

governments around the world are keen to encourage PPP projects.

Hong Kong is not completely new to the PPP idea. Back in the late sixties several Build

Operate Transfer (BOT) projects were conducted. These were mainly transportation type

projects. Unfortunately, not all of these were equally successful hence the

implementation of PPP projects have decelerated since. Another reason for the slow

adoption of PPP is that the Hong Kong Special Administration Region (HKSAR)

government has been able to enjoy a budget surplus for many years running. Hence,

providing for their own public projects has not been a problem. In other jurisdictions that

first adopted PPP, often their motives have been finance driven. But with the matured

development seen across the world and the in-depth research conducted, the other

advantages of PPP are even more obvious. The public sector is also aware that in many

cases they cannot deliver projects as efficiently and effectively as the private sector. The

private sector is able to introduce efficiency, skills, innovation, technology, motivation,

finance and most importantly a share of the project risks. On the other hand, the public

sector is best dealing with administrative matters. Similarly, the private sector is also

interested in public works projects as they tend to be large. And as business persons they


3

are keen to become players within this circle.

Unfortunately, a string of recent projects in Hong Kong linked with PPP have received

much opposition. Debates have been going on for many years for certain projects to

whether they should be procured by the PPP model. In other cases, projects have been

heavily criticised for over benefiting the private consortium. Some cases have even

changed from originally being procured by PPP to opting for more traditional methods.

These obstacles have heavily discouraged both the public and private sectors from

considering the PPP model. Although so, the Efficiency Unit of the HKSAR has been

continuously working on PPP related research. Some of the local government

departments have also continued to use different forms of PPP such as Design Build

Operate (DBO). Obviously this shows that there are still many in Hong Kong who has

faith in the PPP model.

Although Hong Kong has not rejected PPP, undoubtedly the local practitioners lack

knowledge on how to procure PPP projects hence they have become reluctant to do so.

Therefore, a best practice framework should be put in place. Being aware of this need,

this research has looked into developing such a framework for PPP projects in Hong

Kong. The derived framework combines international and local experience in order to

appropriately fit in with the local culture, practice and unique features, as well as

incorporate the lessons learnt from overseas. This framework acts as a guideline for the

user, enabling them to build on the existing PPP process adopted in Hong Kong. Both the

public and private sectors can adopt this framework. The users are provided clear


4

instructions to what they should and should not be doing within the PPP process.

Currently, no such framework exists and this development is believed to benefit the

construction industry at large, as well as introduce new opportunities.

1.2 Research Aim and Objectives

1.2.1 Aim

This research study aims to develop a best practice framework for implementing PPP in

Hong Kong by looking at international experience.

1.2.2 Objectives

In order to achieve the aim the following objectives were identified for this research:

(a) Identify the benefits, difficulties and critical success factors of PPP.

(b) Measure the effectiveness of PPP against other procurement methods.

(c) Identify representative case studies from other countries for analysis to identify

their approach to success/failure.

(d) Identify previous projects in Hong Kong that utilised a similar approach to PPP

and to analyse their implementation successfulness.


5

(e) Investigate the best conditions in terms of project nature, project complexity,

project types and project scales under which the use of PPP is the most

appropriate.

(f) Evaluate the findings collected to determine a best practice framework for

implementing PPP in Hong Kong.

1.3 Research Methodology

Figure 1.1 shows a flow diagram of the research process that was adopted for this study.

The research consisted of mainly four stages. The first stage focused on the identification

of research objectives, design of research methodology and gaining background

knowledge on the topic. These activities were achieved by conducting a comprehensive

literature review, holding informal discussions with experts and running brainstorming

sessions with supervisors and colleagues. The second stage focused on the data

acquisition. This stage was conducted by the collection of case study information,

interviews with experts and an empirical questionnaire survey. The third stage was the

data interpretation and analysis phase. This was achieved by a selection of methods such

as comparative analysis, content analysis, statistical analysis and triangulation of the

results. The final stage presented the conclusions and recommendations. These were

achieved by drawing conclusions from the analysed data, deriving recommendations for

the research scope and also suggesting recommendations for future research.


6

Figure 1.1 Flow diagram of research process

Research Stages Methodology Adopted

Stage 1 Identification of research

objectives Design of research

methodology Background knowledge

Comprehensive literature review

Informal discussions with experts

Brainstorming sessions with supervisors and colleagues

Collection of case study information

Interviews with experts Empirical questionnaire

survey

Stage 2 Data acquisition

Comparative analysis Content analysis Statistical analysis Triangulation of results

Stage 3 Data Interpretation and

analysis

Draw conclusions Derive recommendations for

research scope Validation Suggest recommendations for

future research

Stage 4 Conclusions Recommendations


7

1.4 Structure of the Thesis

The structure of this research report is as follows:

Chapter 1 gives the introduction of the research study. It covers the background,

research aim and objectives, scope and significance of the research. The research

approach and the structure of the research report are also outlined.

Chapter 2 presents the methodology of this research study. The chapter explains the

research design, process and data analysis techniques used.

Chapter 3 provides an insight into the existing literature of the research topic. The

literature studies the traditional practice of procuring public works projects and also

looks into the option of using PPP. Specific features of PPP have also been covered

including the attractive factors, the negative factors, the value for money measures

and the factors leading to success.

Chapter 4 studies the BOT and PPP experience in Hong Kong. BOT is a more

common form of PPP adopted in Hong Kong. Several cases from different eras are

analysed to observe the development of PPP in Hong Kong. Lastly this chapter

considers whether BOT/PPP is the best financing model for conducting public

infrastructure in Hong Kong.


8

Chapter 5 studies Australia’s experience in conducting PPP projects by looking at

the problems encountered in two highly profiled cases. Lessons learnt from these

cases were derived.

Chapter 6 presents the findings from interviews conducted in both Hong Kong and

Australia with PPP experts. The chapter considers the views of these experts from

three different perspectives: the public sector’s angle, the private sector’s angle and

the researcher’s angle. Each perspective has been analysed for commonalities and

unique features between the two jurisdictions.

Chapter 7 looks at the suitability of procuring large public works by PPP from the

findings of a questionnaire survey conducted in both Hong Kong and Australia. The

attractive and negative factors for adopting PPP have been analysed to help provide

solutions on whether the PPP model is more ideal than traditional methods.

Chapter 8 continues to present the findings of the same questionnaire survey. This

chapter specifically considers the reasons for implementing PPP projects, the factors

contributing to successful PPP projects and the ways to enhance value for money in

PPP projects. Again the findings present a comparative analysis for the two survey

jurisdictions.

Chapter 9 presents a best practice framework for implementing PPP in Hong Kong.

The framework is presented according to the project steps as defined by local


9

governmental guidelines. The results obtained in this study are drawn together to

illustrate how each stage can be carried out more efficiently. As a result both the

public and private sectors can better conduct future PPP projects by referring to this

framework. Also, the findings from the validation process are presented.

Chapter 10 concludes this research study. A review of the research objectives, a

presentation of the major findings, the limitations have been highlighted and finally

potential future research areas have been suggested.

1.5 Research Significance and Value

The Hong Kong Special Administrative Region (HKSAR) government has realised the

benefits of using PPP in Hong Kong as well as the success achieved overseas. But a

more thorough research is needed to develop the most suitable practice of PPP in terms of

project nature, project complexity, project type and project scale under which PPP is most

appropriate for Hong Kong. The lessons learnt from other countries are also useful.

Hence this study has opted to consider the experience of PPP in Australia: one of the

leading countries in implementing this model. From their experiences and a study of the

local situation in Hong Kong a best practice framework has been developed. The

findings of this study are believed to be valuable to the government and construction

industry at large. The opportunities for infrastructure development in Hong Kong will be

broadened. In addition this project also forms a comparative study for the use of PPP in

Australia and Hong Kong.


10


This chapter outlines the framework of this research study by considering the background,

research aim and objectives, research methodology, and research significance and value.

The structure of the thesis has also been introduced.

Chapter 2 Research Methodology

11

CHAPTER 2

RESEARCH METHODLOGY

2.1 Chapter 2 Introduction

2.2 Research Design

2.3 Research Process

2.4 Data Analysis Techniques



12


This chapter describes the research methodology used to achieve the study objectives.

Data was collected utilising a combination of different methods. And both qualitative

and quantitative techniques were used to analyse the data.

2.2 Research Design

Construction management research is commonly carried out using four standard methods,

these include: (1) Literature review; (2) Case study; (3) Interview; and (4) Questionnaire

survey (Chow, 2005). Therefore this research study combines these methods to collect

information and data on Public Private Partnership (PPP) both locally and internationally.

The techniques and design of the data collection process were arranged so that the

research objectives would be achieved (as described in later sections of this chapter). The

research data and analyses were triangulated from multiple sources to help improve the

credibility of the findings. And finally the results contributed to the development of a

best practice framework for PPP projects in Hong Kong.


13

2.3 Research Process

2.3.1 Background study

Literature on the current practice of PPP both locally and internationally were extensively

reviewed via books, journals, magazines, newsletters, conference proceedings,

workshops, seminars and other sources. Past and current practices of PPP were

documented. The review exercise also included the development of an instrument to

conduct the interviews and questionnaires. The information collected from these

interviews and questionnaires were fully documented individually but analysed

collectively to firstly verify the literature study conducted and secondly achieve the

proposed research objectives. In addition as a result of the literature review appropriate

case studies were identified for analyses.

2.3.2 Project experience

From the literature review representative case studies were selected. The selected cases

included ones with unique features such as having particular success or failure. These

cases consist of ones both locally and internationally. The findings from the case studies

enable us to verify and triangulate the findings from the other sources of data collection

used in this study.

This part of the data collection mainly aimed to collect information for the objectives


14

“Identify representative case studies from other countries for analysis to identify their

approach to success/failure” and “Identify previous projects in Hong Kong that utilised a

similar approach to PPP and to analyse their implementation successfulness”. Through

this process some of the other objectives were also achieved including: “Identify the

benefits, difficulties and critical success factors of PPP”; “Investigate the best conditions

in terms of project nature, project complexity, project types and project scales under

which the use of PPP is the most appropriate”; and “Evaluate the findings collected to

determine a best practice framework for implementing PPP in Hong Kong”.

In addition, a comparison of the experiences was performed to identify whether the PPP

approach is appropriate to be used in Hong Kong. Also, the best way to avoid risks and

maximise the benefits of PPP was studied.

2.3.3 Extraction of expert knowledge

The interviews which were carried out in this research study adopted the “Grounded

Theory” approach. This approach is an iterative process by which the analyst becomes

more and more “grounded” in the data and develops increasingly richer concepts and

models of how the phenomenon being studied really works (Denzin and Lincoln, 2005).

This approach involves the interviewer to collect word for word transcripts from the

interviewees. These transcripts can then be further analysed by identifying themes which

are common and meaningful by an “open coding” technique. Therefore the findings will

be solely based on the responses given by the interviewees.


15

Dainty et al. (2000) also adopted the Grounded Theory approach for construction

management research. In their methodology they collected unstructured data and coded

meaning information. This method allows the researcher to relate categories in complex

ways and ensuring density and precision to the developed theory. They also believed that

too much structuring would mean that the interviewees’ responses would be defined by

the researcher. Hence, they used a semi-structured interview format. Their aim was not

to promote consistency in terms of response, but to uncover as many relevant responses

as possible. Consistencies would therefore emerge from the subsequent Grounded

Theory analysis.

Raiden et al. (2008) agreed that structured questions would not allow interviewees to

fully expand on their knowledge. This does not mean that the theory from literature

should not be tested but its generalization should be tested with a population first.

Based on these concepts, interviews were conducted with experts from the public sector,

private sector and with researchers. The experts were selected based on two main criteria,

these included:

1) The experts must possess adequate knowledge in the area of PPP; and

2) The experts have hands-on experience with PPP projects, experience in conducting

PPP research or have followed very closely with the development of PPP.


16

2.3.3.1 Interviews with the public sector

Based on the Grounded Theory approach, six interview questions linking up to the

project objectives were derived for the interviews with the public sector interviewees

(please refer to Chapter 1 for the project objectives). Table 2.1 shows how these

objectives are linked to the interview questions. In the first question the interviewees

were asked “Have you conducted any research looking at local case studies?” This

question aimed to collect information for objectives 3 – 6. Question 2 “How would you

compare PPP with traditional procurement methods?” targeted to achieve objectives 2,

4 – 6. Objectives 5 and 6 were covered again in Question 3 “Which type of project do

you feel is best suited to use PPP?” and Question 4 “What do you feel are the key

performance indicators in a PPP project?” In Question 5, interviewees were asked to

answer “In general, what do you think are the critical success factors leading to

successful PPP projects?” This question sought information for objectives 1, and 6. The

final question was “Does your organisation have any in-house guidance/practice notes?”

This question aimed to collect information for objectives 1, 5 – 6.


17

Table 2.1 Project objectives linking up with interview questions for public sector interviewees

Question Objective 1 2 3 4 5 6

Identify the benefits,

difficulties and critical

success factors of

PPP

Measure the effectiveness

of PPP against other procurement

methods

Identify representative case studies from other

countries for analysis to

identify their approach to

success/failure

Identify previous

projects in Hong Kong

that utilised a similar

approach to PPP and to

analyse their implementation successfulness

Investigate the best

conditions in terms of project nature, project

complexity, project types and project scales under

which the use of PPP is the

most appropriate

Evaluate the findings

collected to determine a best practice framework

for implementing PPP in Hong

Kong

1. Have you conducted any research looking at local case studies?

2. How would you compare PPP with traditional procurement methods?

3. Which type of project do you feel is best suited to use PPP?

4. What do you feel are the key performance indicators in a PPP project?

5. In general, what do you think are the critical success factors leading to successful PPP projects?

6. Does your organisation have any in-house guidance/practice notes?


18

2.3.3.2 Interviews with the private sector

Eight interview questions linking up to the project objectives were derived. Table 2.2

shows how these objectives are linked to the interview questions. In the first question the

interviewees were asked “Which PPP projects have your company been involved in?”

This question aimed to collect information for objectives 3 – 6. Question 2 “Please

describe the implementation process in these projects.” targeted to achieve objectives 3, 4

and 6. Objectives 1, 2, 5 and 6 were covered in Question 3 “What were the major reasons

for adopting PPP in these projects?” Question 4 “How do you think PPP compares with

traditional procurement methods?” and Question 5 “Which type of project would your

company be most interested in applying PPP?” collected information for objectives 2, 5

and 6. Question 6 “What do you feel are the key performance indicators in a PPP

project?” sought information for objectives 5 and 6 only. Question 7 “In general, what do

you think are the factors leading to successful PPP projects?” collected information for

objectives 1, 5 and 6. The final question was “Does your company have any in-house

guidance/practice notes on PPP implementation?” This question aimed to collect

information for objectives 5 and 6 only.


19

Table 2.2 Project objectives linking up with interview questions for private sector interviewees




success factors of

PPP



methods




success/failure

Identify previous







complexity, project types and project scales under which the

use of PPP is the most

appropriate




Kong

1. Which PPP projects has your company been involved in?

2. Please describe the implementation process in these projects.

3. What were the major reasons for adopting PPP in these projects?

4. How do you think PPP compares with traditional procurement methods?


20

5. Which type of project would your company be most interested in applying PPP?


7. In general, what do you think are the factors leading to successful PPP projects?

8. Does your company have any in-house guidance/practice notes on PPP implementation?


21

2.3.3.3 Interviews with researchers

Five interview questions linking up to the project objectives were derived. Table 2.3

shows how these objectives are linked to the interview questions. In the first question the

interviewees were asked “Have you conducted any research looking at local case

studies?” This question aimed to collect information for objectives 3 – 6. Question 2

“How would you compare PPP with traditional procurement methods?” targeted to

achieve objectives 2, 4 – 6. Objectives 5- 6 were covered again in Question 3 “Which

type of project do you feel is best suited to use PPP?” and Question 4 “What do you feel

are the key performance indicators in a PPP project?” In Question 5, interviewees were

asked to answer “In general, what do you think are the critical success factors leading to

successful PPP projects?” This question sought information for objectives 1, and 6.


22

Table 2.3 Project objectives linking up with interview questions for researcher interviewees




success factors of

PPP



methods




success/failure

Identify previous







complexity, project types and project scales under which the

use of PPP is the most

appropriate




Kong

1. Have you conducted any research looking at local case studies?

2. How would you compare PPP with traditional procurement methods?

3. Which type of project do you feel is best suited to use PPP?


5. In general, what do you think are the critical success factors leading to successful PPP projects?


23

2.3.4 Large scale data collection

Questionnaire survey is an effective method to seek a large sample size for quantitative

data analysis. Representative practitioners with in-depth experience in PPP were targeted.

The selection criteria for suitable respondents were similar to those for the interviewees

mentioned in Section 2.3.3 “Extraction of expert knowledge”. The questionnaire aimed

to achieve several key features of PPP projects including: the attractive and negative

factors, reasons for implementation, value for money measures and also factors

contributing to success (please refer to Appendix 1 for questionnaire template). Using the

questionnaire survey the following objectives were achieved: “Identify the benefits,

difficulties and critical success factors of PPP”; “Investigate the best conditions in terms

of project nature, project complexity, project types and project scales under which the use

of PPP is the most appropriate”; and “Evaluate the findings collected to determine a best

practice framework for implementing PPP in Hong Kong”.

The questionnaire template designed by Li (2003) was adopted for this study. Although a

new research questionnaire could be developed based on the literature and interview

findings, there were several advantages foreseeable to adopt Li’s (2003) survey

questionnaire rather than designing a new template. Firstly, the value of Li’s (2003)

questionnaire has already been recognised by the industry at large. His publications as a

result of the research findings derived from the questionnaire are evidence of its

worthiness. Secondly, there would be no added advantage to reinvent the work that has

previously been done by other researchers. And thirdly by administering Li’s (2003)


24

questionnaire in different administrative systems, it would be of interest for comparison

purposes in the future. In addition, Hong Kong is traditionally influenced by the British,

so the construction practice is very close hence no problems in adopting this

questionnaire could be observed. Therefore, Li’s (2003) questionnaire was adopted for

the survey as presented in Chapters 7 and 8 with prior permission obtained from the

author Dr. Bing Li and his doctoral research supervisor, Professor Akintola Akintoye who

is currently the Head of the School of Built and Natural Environment, University of

Central Lancashire, United Kingdom.

2.4 Data Analysis Techniques

2.4.1 Qualitative data analysis

The literature review and case studies were analysed by content analysis. Literature from

different sources were summarised (as shown in Chapter 3). Content analysis is often

used to determine the main facets of a set of data, by simply counting the number of

times an activity occurs (Fellows and Liu, 1997). The initial step in content analysis is

for the researcher to identify the material to be analysed. The next step is to determine

the form of content analysis to be employed: qualitative, quantitative or structural. The

choice is dependent on, if not determined by, the nature of the research project. The

choice of categories will also depend upon the issues to be addressed in the research.

Using this approach the case studies were analysed both individually and collectively.

The process of each case was mapped out, and each stage was analysed and compared.


25

The analysis of the case studies drew answers behind successful implementation of PPP

projects and also highlighted the common obstacles and problems which could be

encountered (as shown in Chapters 4 and 5).

2.4.2 Quantitative data analysis

The quantitative data collected was analysed using the Statistical Package for Social

Science (SPSS). The techniques that were used in this research study, in respect of

quantitative analysis include the mean score ranking technique and Kendall’s

concordance analysis.

2.4.2.1 Mean score ranking technique

Chan and Kumaraswamy (1996) adopted the “mean score” method to establish the

relative importance of causes of delay in building construction projects in Hong Kong as

suggested by the clients, consultants and contractors. The data collected from the current

questionnaire survey was also analysed using the same technique, within various groups

being categorised according to the origins of the respondents (i.e. Hong Kong and

Australia). The five-point Likert scale (1 = Least Important and 5 = Most Important) as

described previously was used to calculate the mean score for each factor, which was

then used to determine its relative ranking in descending order of importance. These

rankings made it possible to triangulate the relative importance of the factors to the

respondents from Hong Kong, Australia and the United Kingdom as presented in Li’s


26

(2003) survey 2003. The mean score (MS) for each factor was computed by the following

formula:

5)MS(1 , N

s)(fMS ≤≤

×= ∑

Where s = Score given to each factor by the respondents, ranging from 1 to 5 (1 = Least

Important and 5 = Most Important);

f = Frequency of each rating (1-5) for each factor; and

N = Total number of responses concerning that factor.

2.4.2.2 Kendall’s concordance analysis

The survey respondents in this study were based on two groups: Hong Kong and

Australia. Kendall’s concordance analysis was conducted to measure the agreement of

different respondents on their rankings of factors based on mean values within a

particular group. If the Kendall’s coefficient of concordance (W) is significant at a pre-

defined allowable significance level of, say 0.05, a reasonable degree of consensus

amongst the respondents within the group on the rankings of factors was indicated. The

W for the factors was calculated by the following formula (Siegel and Castellan, 1988):


27

( )12/)1( 2

1

2

−

−=∑=

nn

RRW

n

ii

Where n = Number of factors being ranked;

iR = Average of the ranks assigned to the ith factor; and

R = Average of the ranks assigned across all factors.

According to Siegel and Castellan (1988), W is only suitable when the number of

attributes is less than or equal to 7. If the number of attributes is greater than 7, chi-

square is used as a near approximation instead. The critical value of chi-square is

obtained by referring to the table of critical values of chi-square distribution, which can

be found in Siegel and Castellan (1988).


This chapter provides a detailed account of the research framework for this study. The

methods used to achieve the research objectives are described. The overall research

design and process were first introduced, followed by the explanation of qualitative and

quantitative data analysis techniques.

Chapter 3 Literature Review

28

CHAPTER 3

LITERATURE REVIEW


3.2 What is the Traditional Practice of

Procuring Public Works Project?

3.3 Background of PPP

3.4 Attractive Factors of Adopting PPP

3.5 Negative Factors of Adopting PPP

3.6 Value for Money in PPP Projects

3.7 Achieving Successful PPP Projects



29


Public Private Partnership (PPP) is a procurement approach where the public and private

sector join forces to deliver a public service or facility. In this arrangement normally both

the public and private sector will contribute their expertise and resources to the project

and share the risks involved. The definition of PPP may differ slightly between different

jurisdictions, depending on which part of the arrangement the importance is focused on.

For example, PPP is defined by the Efficiency Unit of the Hong Kong Special

Administrative Region (HKSAR) government as any agreement where the public and

private sectors work together to deliver a public project:

“Arrangements where the public and private sectors both bring their complementary

skills to a project, with varying levels of involvement and responsibility, for the purpose

of providing public services or projects.” (Efficiency Unit 2008a)

Whereas, according to the New South Wales Government the term PPP is used to mean:

“An arrangement for the provision of assets or services, often in combination and usually

for a substantial or complex ‘package’, in which both private sector supplier and public

sector client share the significant risks in provision and/or operation.”



30

In this definition there is an emphasis that both the public and private parties share a large

proportion of the risks in a PPP project. In reality it is not always that an equal split of

risks is experienced. Naturally, each party will want to pass on more risks to the other

party. It is noticed that this occurrence is more common in developing countries or

jurisdictions where the government has less experience in this alternative procurement

method. The New South Wales (NSW) government further describes the importance in

the financing of PPP projects and how passing on financial risks is appealing to

governments:

“Privately financed projects involve provision by investors of equity capital and debt

capital to fund what might otherwise be wholly publicly funded projects financed from

NSW Government borrowings and/or budget revenue.”



31

3.2 What is the Traditional Practice of Procuring Public Works

Project?

3.2.1 Progression from traditional to PPP

According to a technical circular prepared by the Environment, Transport and Works

Bureau (2004) of the HKSAR government, in a typical public works project the selection

process will consist of three stages (Figure 3.1). In the first stage the generic

procurement category will be selected. In the second stage a sub-category will be

selected. And in the third and final stage the major areas requiring improvement in

performance will be identified. Also, the optimal project delivery techniques to address

these identified improvement areas will be selected. In an ideal case a project manager

from the government will be assigned to follow up the selection process as early as

possible.


32

Figure 3.1 Procurement selection process for typical public works project in Hong

Kong (adapted from Environment, Transport and Works Bureau, 2004)

Four generic procurement categories are identified (Figure 3.2). These include: I -

Designer Led; II – Design and Construct; III – Design, Construct and Operate; and IV –

Finance Design Construct and Operate. The four categories show different levels of

private sector participation. The first category is where the private sector has the least

involvement, whereas the fourth category shows the private sector having the most

involvement. The most extreme form of these categories is category IV. In this category

the private sector’s involvement is the maximum. This model can be regarded as

equivalent to the PPP arrangement. Typically PPP projects have a strong emphasis on the

private financing aspect. Also, the private consortium is required to maintain and operate

the product/facility for an agreed concession period. For the other procurement

categories identified these could be regarded as the traditional approaches for delivering

public works projects in Hong Kong.

Stage 1

Select generic procurement category

Stage 2

Select sub-category

Stage 3

Select optimal project delivery technique


33

Under each procurement category, there are also a number of sub-categories. Under the

first category “Designer Led” the sub-categories include:

Lump Sum Contract (with bills of quantities or with drawings and

specifications);

Remeasurement Contract;

Term Contract; and

Prime Cost Contract.

The second category “Design and Construct” includes the sub-categories:

Employer’s Designer Novated;

Independent Designers; and

Contract Designer.

The third category “Design, Construct and Operate” includes the sub-categories:

Design Build Operate (DBO); and

Prime Contracting.

And the final category “Finance, Design, Construct and Operate” includes the sub-

categories:

Private Finance Initiative (PFI);

PPP; and

Build Operate Transfer (BOT).


34

Figure 3.2 The generic procurement categories with their respective sub-categories

for public works projects in Hong Kong (adapted from Environment,

Transport and Works Bureau, 2004)

Category I Designer Led

Lump Sum Contract (with bills of quantities or

with drawings and specifications)

Remeasurement Contract

Term Contract

Prime Cost Contract

Category II Design and Construct

Employer’s Designer Novated

Independent Designers

Contract Designer

Category III Design, Construct and Operate

Design Build Operate (DBO)

Prime Contracting

Category IV Finance, Design, Construct and Operate

Private Finance Initiative (PFI)

PPP

Build Operate Transfer (BOT)

Lev

el o

f par

ticip

atio

n

Public sector

Private sector


35

In the third and final stage of the project selection process the delivery technique is

identified. These have been broadly categorised into six groups that include:

Non-contractual Project Delivery Techniques – Partnering;

Contractual Project Delivery Techniques - Guaranteed Maximum Price, Target

Cost, Construction Management, Incentivisation, Revenue Sharing and

Contractor Designed Portions;

Project Design Improvement Techniques – Life Cycle Costing, Environmental

Assessments and Buildability Rating System;

Supplier/Contractor Management - Supply Chain Management, Supplier

Benchmarking and Performance Assessment Scheme;

Techniques for General Application - Value Management and Risk

Management; and

Dispute Resolution Mechanisms - Dispute Resolution Advisor, Dispute

Resolution Panel, Expert Determination, Mediation, Adjudication, Local

Arbitration and International Arbitration.


36

3.2.2 Traditional vs PPP

The Efficiency Unit (2008b) of the HKSAR government conducted a thorough

comparison to look at the differences between procuring public works projects in Hong

Kong traditionally and by PPP (Figure 3.3).

In both approaches the client department takes the lead. Traditionally the client

department will request the relevant works department to design their desired facility.

Via the PPP approach the client department would define their desired facility in terms of

the service required. Next, for both approaches the client department together with

external experts would form a group to monitor the project.

In the traditional approach, after planning and approvals are obtained, the works

department would call for tenders from private contractors to construct or to design and

build the facility. On the other hand, in a PPP approach the client group would prepare an

output-based performance specification to request proposals for a private sector

consortium to design, build, finance, operate and maintain the facility for a specified

period.

For both approaches the client department would then conduct a consultation with the

general public and Legislative Council Panels before obtaining financial endorsement.

The successful bidder in a traditional approach would be the one that satisfies the

minimum requirements specified by the client department with respect to quality of


37

service or product, and also scores the highest mark in the tender evaluation which

weighs both the technical and cost aspects. In a PPP approach, the successful consortium

bidder would be the one that satisfies the mandatory requirements specified with respect

to the ability of the facility to deliver the service required, the quality of design,

construction and operation and on terms which provide best value for money.

Once the contract has been awarded the works department would monitor the

construction process under a traditional approach. In a PPP approach, the client

department advisors would deal solely with the consortium only. The consortium would

also manage the specialist contractors involved.

After completion of a traditional project the works department would inspect the works,

and upon satisfaction payment would be made to the contractor. On the other hand, in a

PPP approach the client department or a third party would verify the facility to be fit for

the purpose before payment is made to the consortium.


38

Figure 3.3 Differences in procurement between the traditional and PPP approaches of

conducting public works projects in Hong Kong (adapted from Efficiency Unit, 2008b)

Traditional approach PPP approach

Client department requests works department to design

Client department defines facility in terms of service required

Client department and external experts form group to monitor project

Client department and external experts form group to monitor project

After planning and approvals are obtained, works department would call for tenders

from private contractors to construct or to design and build

The group would prepare output-based performance specification to request

proposals for a private sector consortium to design, build, finance, operate and maintain the facility for a specified

period

Client department would conduct consultation with general public and

Legislative Council Panels before obtaining financial endorsement

Client department would conduct consultation with general public and

Legislative Council Panels before obtaining financial endorsement

Successful bidder would be the one that satisfies the minimum requirements

specified by the client department with respect to quality of service or product and

scores the highest mark in the tender evaluation which weighs both the

technical and cost aspects

Successful consortium bidder would be the one that satisfies the mandatory

requirements specified with respect to the ability of the facility to deliver the service required, the quality of design,

construction and operation and on terms which provide best value for money

Works department monitors construction process

Client department advisors deal solely with consortium. Consortium will manage the specialist contractors

After completion works department would inspect the works, upon satisfaction

payment will be made to the contractor

Client department or third party would verify the facility to be fit for the purpose

before payment to the consortium


39

3.3 Background of PPP

3.3.1 Background

PPP projects can be dated as far back as the 1600s during the railway construction boom

in the United Kingdom (Grimsey and Lewis, 2004). PPP is a relatively modern term for

this arrangement used only more commonly in the last decade. Previously different

variations of the arrangement included Private Finance Initiative (PFI), which is a more

familiar term to many people due to its popular development in the United Kingdom

during the early nineties (Tieman, 2003).

It would not be incorrect to say that the PFI practice developed in the United Kingdom

raised the world’s attention to this alternative option for delivering public infrastructure

and services. PPP projects now account for about 15 and 8 percent of infrastructure spent

in the United Kingdom and Australia respectively (Ernst and Young, 2005). Up to 2006,

794 PPP/PFI deals had already been signed. The combined capital value was

approximately £55 billion (National Audit Office, 2008). Amongst these projects almost

70% were in the health sector, and over 40% costing below £10 million (Akintoye, 2007).

However, Maltby (2003) asserted that PPP/PFI should be abolished for smaller projects

and for information technology schemes.

Partnership UK was set up in 2000 to succeed the Treasury Taskforce. The Taskforce

was set up in 1997 to oversee the implementation of PPP/PFI projects. One observation


40

is that Partnerships UK was initiated by the local Treasury. The team is generally

responsible for providing project advice and support, developing government policies,

providing co-sponsorship and participating in investment of PPP/PFI projects.

Due to the long history of PPP/PFI projects in the United Kingdom, Partnerships UK has

a very comprehensive collection of guidelines and policies on implementing PPP projects

for all sectors in many aspects. Case study reports can also be found on the public

domain. Amongst the projects conducted by Partnerships UK it was noticed that the

majority included projects for schools, hospitals and transportation. Other projects which

have also been conducted include environment ones, leisure facilities, prisons and

detention centers, housing etc. (Partnerships UK, 2008). The extent to which PFI could

be used and the advantages created were the main drivers attracting other countries to

start adopting or improve their practice in PPP.

A more specific term used more commonly decades ago in Hong Kong is Build Operate

and Transfer (BOT). This arrangement was commonly adopted for transportation

projects. This is because transportation projects tend to be larger in size and also because

their long physical lives fit well into the procurement model. Early types of public

infrastructure projects that involved the private sector include the turnpikes built in the

United Kingdom and The United States, and also the water facilities that the French

delivered through the concession approach (Grimsey and Lewis, 2004). Although water

projects tend not to be particularly large in project sum, it was noticed early on the

advantages of introducing private expertise to deal with tasks that the public sector was


41

probably not as efficient or experienced in carrying out the works. On the other hand,

PPP also plays a significant role in the infrastructure development of developing

countries. Figure 3.4 presents the annual private investment between 1990 and 2006 in

the public services of developing countries (World Bank, 2008).

Figure 3.4 Annual investment of infrastructure projects with private participation in

developing countries between 1990-2006 (World Bank, 2008)

halla

This figure is not available online. Please consult the hardcopy thesis available from the QUT Library


42

3.3.2 Types of PPP

There are many types of PPP used around the world. Most of them operate in similar

ways and the name is differed depending on the country it is used in, whereas in some

cases there are major differences to the approach. Some of the commonly mentioned

different types of PPP have been listed as follows.

Design Build Finance Operate (DBFO) – similar to BTO, the government will

retain title of the land and lease it to the private consortium over the life of the

concessionary agreement (Levy 1996).

Operation and Maintenance (O&M) – the private company operates and

maintains a publicly owned asset. This is especially common in Mainland

China as traditionally the majority of assets are state owned. The large number

of state owned facilities and services have meant that the Chinese government

has held a heavy burden, and by adopting PPP this financial commitment can

be released. This type of PPP is sometimes not as favourable compared to ones

that start from scratch. For new projects the benefits of employment are

obvious, but on the other hand for existing facilities and services a consortium

taking over can cause change to the existing employees.

Private Finance Initiative (PFI) – commonly used in the United Kingdom, there

is a large emphasis on private financing.

Build Operate Transfer (BOT) – one of the most traditional types of PPP used

in the early days mainly for transport economic infrastructure projects. This


43

has also been the traditional option used in Hong Kong. BOT involves the

construction of the facility as well as the operation of it. At the end of the

contract period it will be transferred back into the hands of the government.

Build Own Operate (BOO) – commonly used in Australia at the beginning.

Build Own Operate Transfer (BOOT) - commonly used in Australia at the

beginning. Similar to BOT but a larger emphasis on the ownership.

Build Transfer Operate (BTO) – a method of relieving the consortium of

furnishing high cost insurance required by the project during operation of the

facility (Levy, 1996).

Joint Ventures (JV) – public and private sector jointly finance, own and operate

the facility (Grimsey and Lewis, 2004).

Leasing – where all or a substantial part of all risks associated with funding,

developing and operating the facility are assumed by the private sector, with the

public sector entity taking the facility on lease (Sapte, 1997).


44

3.3.3 The PPP process

Section 3.2.2 in this chapter has already mentioned the process of conducting PPP

projects in Hong Kong, but this section takes a further look at the process adopted in

general. In a typical PPP project the government will invite private consortia to bid by

submitting a project proposal. The successful bidder will need to design, construct and

manage the facility/service for the agreed concessionary period which is typically 10 to

30 years. Over the concessionary period the private consortium will need to maintain and

operate the facility/service according to the contract terms defined by the government.

Normally certain quality standards or performance targets must be achieved. Part of the

profit made from the project will be used to repay the loan that the consortium took out to

cover the design and construction costs. The remaining proportion becomes their profit,

so obviously it is to their benefit to manage the project well. At the end of the

concessionary period the private consortium will normally hand back the facility/service

into the hands of the government.

In general, the typical processes for delivering PPP projects in New South Wales (NSW)

include five major steps (Figure 3.2): (1) Project identification; (2) Project approval; (3)

Planning assessment; (4) Project delivery; and (5) Project implementation (Infrastructure

Implementation Group, 2005). Before a project is even considered going through the

PPP path it will go through a series of governmental in-house procedures to decide

whether it is a public facility or service that is needed. If decided to be necessary the

project will have to be approved via the Gateway review process and to see which


45

procurement option it should adopt. Planning assessment via a number of different line

agencies would be necessary. Finally the project will be offered to the market, consortia

will bid for it and the government will select the most suitable candidate after a long

series of negotiations. The project will be designed and constructed over typically 3-5

years. It will then be operated and maintained for a further 25-30 years as the concession

period. Thereafter, the project will normally be returned to the government, completely

ending its life as a PPP project.

Figure 3.5 Typical processes for delivering PPP projects in New South Wales,

Australia (adapted from Infrastructure Implementation Group, 2005)

Project identification and early consideration

Project approval

Planning assessment

Project delivery

Project implementation


46

3.3.4 The parties involved in a PPP project∗

In a PPP project there are usually four key parties involved: the local government

department / public sector, the consortium / the private sector, the employees of the

project and also the public and end-users of the facility or service.

In traditional PPP projects the government is usually more concerned with transferring

their risks associated with design, construction, management, operation etc. on to the

private sector and satisfying the needs of the general public. On the other hand, the

consortium is usually willing to accept some risk but in return expect a more satisfactory

financial profit. In the traditional practice the government and the consortium are more

self-centered focusing on their own benefits rather than trying to achieve a win-win

scenario. Recent years has shown a change to this practice, the parties are more willing

to share responsibility, communication is increased and the partnership apart from being

based on finance is also concerned with maximising the benefits that can be adopted from

the private sector and bringing in skills and innovations that the public sector do not

possess.

The employees of a PPP project benefit through employment. For this group of people a

successful PPP project often indicates job security. The general public end-users have

been known to have a large effect towards the success of a PPP project. Often it is not

whether a PPP project is finished ahead of time or is making a huge profit that determines

∗ Information contained in this section is according to the author’s own interpretation, analysis and observation of existing theory and cases studies


47

it to be successful. In many cases it is often its image perceived by the general public

from the media that is its key to success. Public opinion is important hence a successful

PPP project must consider its overall image. For example, a project that needs to cut

down forestry for construction maybe perceived to fail at the beginning due to its lack of

environmental awareness. Therefore a strategic plan must be considered at the start even

before possibly the drawing board.

3.3.5 Research conducted in PPP

With the increasing popularity of adopting PPP projects around the world, research in this

field has also become more important to both researchers and practitioners (Al-Sharif and

Kaka, 2004). A comprehensive literature review of PPP research was previously

conducted by Ke et al. (2008). A total of 148 recent publications from renowned journals

were studied. The findings showed that the researchers from the United Kingdom were

found to be the originators of most PPP papers, followed by the United States, Singapore,

Hong Kong, China, Australia and Germany. It was assumed that construction education,

national economics and mother language were all factors affecting which countries

published more PPP papers.

In academic institutions, Nanyang Technological University in Singapore, The University

of Hong Kong, National University of Singapore, and Glasgow Caledonian University

were all identified as active in pursuing PPP research. It was also found that various


48

modes of PPP have been applied in different parts of the world, and the diverse concept

of PPP has been publicly accepted instead of the more traditional BOT scheme alone.

PPP topics that were found to be of particular interest to the researchers included “Risk”,

“Procurement” and “Finance”. In which seven more specific categories were derived

from these topics including (a) Investment environment; (b) Procurement; (c) Economics

viability; (d) Financial package; (e) Risk management; (f) Governance issue; and (g)

Integration research. For these research studies, the techniques adopted vary from

qualitative to quantitative analyses, some of which have included more vigorous

techniques / theories in researching.


49

3.4 Attractive Factors of Adopting PPP

The attractive factors of PPP have been discussed by many previous researchers. This

section looks briefly at some of these. So why are governments across the world

favouring the approach of PPP to provide for their public services and facilities? The

very first PPP projects that opted for this approach were simply to bring in private

investment for public services and facilities. These services and facilities were often

essential for the public but to provide for them using the government’s capital would put

pressure on the government’s financial status. Therefore, it was an ideal situation that the

public had what they want provided for without the government having to pay, and also

business opportunities were widened for the private sector.

As PPP has developed over the years the advantages associated have become more

obvious. Walker and Smith (1995) suggested three main reasons for using the PPP

approach:

In general, the private sector possesses better mobility than the public sector.

For example, the private sector is not only able to save the costs of project in

planning, design, construction and operation, but also avoid the bureaucracy

and to relieve the administrative burden.

The private sector can provide better service to the public sector and establish a

good partnership so that a balanced risk-return structure can be maintained.

The government lacks the ability of raising massive funds for the large-scale

infrastructure projects, but private participation can mitigate the government’s


50

financial burden.

In addition, Walker et al. (1995) supported that PPP is a win-win solution and a number

of benefits to the general public and government are recognised:

Relief of financial burden;

Relief of administrative burden;

Reduction in size of (inefficient) bureaucracy;

Better services to the public;

Encouragement of growth; and

Government can better focus and fund social issues such as health, education,

pensions and arts.

It is anticipated that there will be more PPP projects due to two main reasons according to

Ghobadian et al. (2004). Firstly, the private sector will get to know the needs of the

public sector client over time. Secondly, the private sector has more to give than the

public sector in terms of skills, technology and knowledge therefore providing better

quality facilities.

Askar and Gab-Allah (2002) summarised eight advantages of PPP in their paper:

The use of private sector financing to provide new sources of capital, thus

reducing public borrowing and improving the host government’s credit rating;

The ability to accelerate the development of projects that would otherwise have

to wait for scarce sovereign resources;


51

The use of private-sector capital, initiative, and know-how to reduce project

construction costs and schedules and to improve operating efficiency;

The allocation of project risk and burden to the private sector that would

otherwise have to be undertaken by the public sector;

The involvement of private sponsors and experienced commercial lenders,

providing an in-depth review and additional assurance of project feasibility;

Technology transfer, training of local personal, and development of national

capital markets;

In contrast to full privatisation, the government’s retention of strategic control

over the project, which is transferred back at the end of the contractual period;

and

The opportunity to establish a private benchmark to measure the efficiency of

similar public sector projects and thereby offer opportunities for the

enhancement of public management of infrastructure facilities.

Risk transfer is one of the main reasons for adopting the PPP approach. The private

sector is in general more efficient in asset procurement and service delivery and as a

result it is to the government’s advantage to share the associated risks with the private

sector. In line with widely accepted principles, Hong Kong government’s Efficiency Unit

(2003a) advocated that the most ideal situation is to allocate the risk to the party most

able to manage/control that risk. For example, the contractor would take up the

construction risk, the designer would take up the design risk, the government would take

up environmental approval risks, land acquisition risks etc. (Corbett and Smith, 2006;


52

Chan et al., 2006; Grimsey and Lewis, 2004; Boussabaine, 2007; Akintoye et al., 2003;

Li et al., 2005a; So et al., 2007; Li, 2003; Efficiency Unit, 2003a; Ingall, 1997; New

South Wales Government, 2006; European Commission Directorate, 2003; Efficiency

Unit, 2002; United Nations Economic Commission for Europe, 2004; British Columbia,

1999).

Cost certainty is more easily achieved in PPP projects as financial terms are identified

and included within the contract. Since the private consortium will normally be

responsible for financing, designing, constructing and operating the facility over an

extended period, any cost saving can naturally result in a better chance of securing profit.

Hence they are keen to control their spending tightly (Corbett and Smith, 2006; Chan et

al., 2006; Environment, Transport and Works Bureau, 2004; Boussabaine, 2007).

Innovation is another important advantage that the private sector can bring to public

services. Generally speaking, the public sector may not be as innovative as the private

sector. The private sector on the other hand is continuously searching for new products

and services to increase their competitive edge and to save costs (Chan et al., 2006;

Environment, Transport and Works Bureau, 2004; Akintoye et al., 2003; Li et al., 2005b;

Li, 2003; Efficiency Unit, 2003a; New South Wales Government, 2006; Efficiency Unit,

2002; British Columbia, 1999).

The private sector is made responsible for ensuring that the asset and service delivered

meet pre-agreed quality benchmarks/standards throughout the life of the contract.


53

Sometimes, the private consortium would only receive payment upon meeting certain

requirements of the project; or it is motivated by the incentive payments to reward the

high quality of service to be provided.

In a PPP project the consortium is also responsible for the long-term maintenance of the

facility/service. The concession period may range from a few years to decades.

Therefore the consortium is keen to design and construct the service/facility to ensure

better maintainability (Chan et al., 2006; Environment, Transport and Works Bureau,

2004; Grimsey and Lewis, 2004; Boussabaine, 2007; So et al., 2007; Li, 2003; Efficiency

Unit, 2003a), at least within the concession period if not beyond.

Public sector projects delivered by the PPP model can often be completed on time and

even with time savings because the consortium would start receiving revenue once the

facilities/services are up and running. Therefore, the project team is keen to complete

design and construct as quickly as possible. Once it starts to accrue revenue it can begin

to pay off the initial costs and build up profits, whereas in a traditionally procured project

there are no extra financial incentives for public servants to deliver projects faster. As a

result, projects can best be proceeded along as scheduled (Environment, Transport and

Works Bureau, 2004; Grimsey and Lewis, 2004; Akintoye et al., 2003; Li, 2003;

Efficiency Unit, 2003a).

Time certainty is found to be more easily achieved in PPP projects. The consortium is

often paid according to milestones of the project schedule and any delay might be subject


54

to liquidated damages. Therefore the consortium is often motivated to reach these

milestones on time, if not earlier. This is a common behavior observed in the private

sector but it may not be the case in the public sector (Chan et al., 2006).

To the government, PPP frees up fiscal funds for other areas of public service, and

improves cash flow management as high upfront capital expenditure is replaced by

periodic service payments and provides cost certainty in place of uncertain calls for asset

maintenance and replacement. Public sector projects delivered via the private sector

normally involve private sector funding. Consequently, the public funding required for

public services can be reduced and redirected to support sectors of higher priority, e.g.

education, healthcare, community services, etc. (Li et al., 2005b; Efficiency Unit, 2002).

To the private sector participants, PPP provides access to public sector markets. If priced

accurately and costs managed effectively, the projects can provide reasonable profits and

investment returns on a long-term basis. Also, these projects tend to be large and

therefore expertise from many areas is required. Hence co-operation among different

collaborating parties is encouraged (Environment, Transport and Works Bureau, 2004;

Grimsey and Lewis, 2004; Boussabaine, 2007; European Commission Directorate, 2003;

United Nations Economic Commission for Europe, 2004).

Business opportunities are also created, due to the large scope of works that can benefit

different sectors (So et al., 2007; Li, 2003; Efficiency Unit, 2003a; United Nations

Economic Commission for Europe, 2004; British Columbia, 1999).


55

3.5 Negative Factors of Adopting PPP

Similarly the negative factors for PPP were also reviewed and a summary has been given

in this section. Berg et al. (2002) also summarised some disadvantages of PPP projects:

Lengthy bidding process – from initial phase of public sector assessment to

signing of contract takes up to two years. The process of inviting, preparing,

assessing and refining bids and negotiating contracts is complex and procedural.

High bidding costs – the detailed and lengthy nature of the bidding process

implies increased transaction costs.

Small number of bidders

Cost overruns – considerable scope for cost inflation through the bidding

process.

Excessive risks – not clear to what extent the government can shift risk.

The impact of risks to project objectives in completing a PPP project is usually

significant, and these risks arise from multiple sources including the political, social,

technical, economic and environmental factors, due mainly to the complexity and nature

of the disciplines, public agencies and stakeholders involved. Both the private and public

sectors need to have a better understanding of these risks in order to achieve an equitable

risk allocation and enable the project to generate better outcomes (Chan et al., 2006;

Environment Transport and Works Bureau, 2004; Gunnigan and Eaton, 2006; Koppenjan,

2005; Li, 2003; Merna and Owen, 1998; Mustafa, 1999; Ng and Wong, 2006; Satpathy

and Das, 2007; Xenidis and Angelides, 2005; Zhang, 2001; Zhang and AbouRisk, 2006).


56

In fact, a fair and reasonable allocation of various risks is vital to PPP success. If risks

are inequitably or wrongly allocated beyond the capacity of the parties concerned, PPP

projects would fail (e.g. demand risk resulting from town planning falling on private

consortium).

PPP projects may fall apart due to failure on the part of the private sector participants. In

contracting out the PPP projects, the government should ensure that the parties in the

private sector consortium are sufficiently competent and financially capable of taking up

the projects. Due to a lack of relevant skills and experience of project partners, PPP

projects are more complex to procure and implement (e.g. London Underground).

One common problem encountered in PPP projects is the high bidding costs, which is

owing to increasing project complexity and protracted procurement process. The private

sector incurs high bidding costs partly due to the consideration of the client’s and their

financiers’ objectives. Lengthy negotiations and especially the cost of professional

services may increase the bidding costs further (Chan et al., 2006; Corbett and Smith,

2006; Environment Transport and Works Bureau, 2004; Li, 2003; Li et al., 2005b;

Mustafa, 1999; Xenidis and Angelides, 2005; Zhang, 2001).

The PPP bidding process is also regarded as lengthy and complicated. For example,

bidders are required to prepare tender proposals attached with a bundle of additional

materials. Such a process may take three to four months. Besides, another several

lengthy negotiations will be required for the formation of the contract. Clearly, setting up


57

a complicated agreement framework for successful PPP implementation can slow down

the bidding process (Chan et al., 2006; Environment Transport and Works Bureau, 2004;

Grimsey and Lewis, 2004; Li, 2003; Li et al., 2005b; Merna and Owen, 1998; Mustafa,

1999; Zhang, 2001).

One other reason for failure is the stakeholders’ opposition and general public opposition.

Whether the proposed project is consonant with the interest of the public is important as

public opposition can adversely affect the funding for the project from the public sector

(El-Gohary et al., 2006; Grimsey and Lewis, 2004; Zhang and AbouRisk, 2006). PPP in

public projects typically incur political and social issues like land resumption, town

planning, employment, heritage and environmental protection. These could result in

public opposition, over-blown costs and delays to the projects.

Another common complaint by the public is the high tariff charged for the services

provided. More often, the private sector would face political uphill in raising tariff to a

level sufficient to cover its costs and earn reasonable profits and returns on investment.

The participation of the private sector to provide public service will undoubtedly bring

innovations and efficiencies in the operation, but may produce a fear of downsizing in the

public sector. To a certain extent, there would be fewer employment opportunities if no

regulatory measures were implemented (Li, 2003; Li et al., 2005b; Zhang and AbouRisk,

2006).

The introduction of PPP exerts unprecedented pressure on the legal framework as it plays


58

an important role in economic development, regeneration and mechanism for developing

infrastructure. Still, some countries do not have a well established legal framework for

PPP projects and the current legal framework is only supposed to deal with the traditional

command and control model. Although PPP involves a great deal of legal structuring and

documentation to deal with potential disputes amongst PPP parties, a “water-tight” legal

framework is still lacking (e.g. protection of public interests versus legitimate rights of

private sector). Without a well-established legal framework, disputes are inevitable

(Grimsey and Lewis, 2004; Li et al., 2005b; Satpathy and Das, 2007).

Private sector investors bear financial risks in funding of the investment. Seeking

financially strong partners in a PPP project is regarded as difficult. In most PPP

arrangements, the debt is limited-recourse or non-recourse, where financiers need to bear

risks. In fact, most stakeholders are not willing to accept excessive risks. The lack of

mature financial engineering techniques on the part of the host countries can also be

another problem (Grimsey and Lewis, 2004; Zhang, 2001). Unattractive financial market

(e.g. politically unstable or high interest rate) is often a negative factor to PPP success.

Therefore, a conducive financial market is important for the private parties to drive PPP

projects.


59

3.6 Value for Money in PPP Projects

One of the main reasons that projects are procured by PPP is to enhance Value for Money

(VFM) by inviting the private sector to handle public works projects. As a result there

has been much literature on how VFM in PPP projects can be achieved. This section

reports only a few examples of how VFM can be achieved in PPP projects.

VFM, defined by Grimsey and Lewis (2004) as the optimum combination of whole life

cycle costs, risks, completion time and quality in order to meet public requirements, is

another important consideration when deciding whether to proceed with the PPP option,

especially for the public sector (Chan et al. 2006; Boussabaine 2007; Li et al. 2005b; Li

2003; Efficiency Unit 2003a; Ingall 1997; New South Wales Government 2006;

European Commission Directorate 2003; Efficiency Unit 2002). "Public Sector

Comparator" is the most common tool used by the public sector to show how much it

would cost the Government to build the asset through public funding, which is then used

to compare with how much it would cost to build it as a PPP (Farrah 2007). In the case

of the University College London Hospital Redevelopment in the United Kingdom, the

PPP option cost 6.7% less than the Public Sector Comparator, while maintaining the same

output and user requirements as demanded (Efficiency Unit 2003b).

Cost savings refer to the reduction in price as a result of delivering a project by PPP

instead of traditional methods. The saving could be a result of the private sector’s

innovation and efficiency which the public sector may not be able to achieve (Corbett and


60

Smith 2006; Environment, Transport and Works Bureau 2004; Grimsey and Lewis 2004;

Akintoye et al. 2003; Li et al. 2005b; So et al. 2007, Li 2003; Efficiency Unit 2003a;

European Commission Directorate 2003; United Nations Economic Commission for

Europe 2004; British Columbia 1999). Private sector generally achieves higher

operational efficiency in asset procurement and service delivery by applying their

expertise, experience, innovative ideas/technology (e.g. using durable materials to reduce

future maintenance cost) and continuous improvements. Overall cost savings to the

project can be achieved by striving for the lowest possible total life cycle costs while

maximising profits.

PPP project arrangements are complex and involve many parties with conflicting

objectives and interests. Hence, PPP projects often require extensive expertise input and

high costs and take lengthy time in deal negotiation. The high transaction costs and

lengthy time may not represent good value to all parties and as a result the deal may not

materialise in the beginning or may falter in the end. PPP projects may incur higher

transaction costs than those under the conventional public sector procurement. The legal

and other advisory fees would be included as lawyers are involved in all stages of a PPP

project, as well as the cost of private sector finance, and the price premium for single

point responsibility arrangement. The potential high transaction costs may have a

negative impact on the objective of securing the best value (Corbett and Smith 2006;

Environment, Transport and Works Bureau 2004; Grimsey and Lewis 2004; Li 2003; Li

et al. 2005b; Merna and Owen 1998; Zhang 2001; Zhang and AbouRisk 2006). Complex

PPP projects require inputs from many parties of different expertise. Therefore, the


61

projects should be economically viable to cover such costs.

3.7 Achieving Successful PPP Projects

In order to achieve successful PPP projects, some suggestions have previously been

reported in literature. This section reports only a few examples of how successful PPP

projects can be achieved.

Under PPP contracts the government should be concerned that the assets are procured and

services are delivered on-time with good quality and meet the pre-agreed service

benchmarks or requirements throughout the life of the contract. However, the

government should be less concerned with “how” these are achieved and should not

impose undue restrictions and constraints on the private sector participants. The

government should be relegated to the primary role of industry and service regulation;

should be flexible in adopting innovations and new technology; should provide strong

support and make incentive payments to the private sector where appropriate. On the

other hand, the government should retain controls in case of default and be prepared to

step in and re-provide the service if necessary (Abdul-Rashid et al. 2006; Corbett and

Smith 2006; El-Gohary et al. 2006; Jamali 2004; Kanter 1999; Li et al. 2005c; Tam et al.

1994; Tiong 1999; Zhang 2005).

A transparent and efficient procurement process is essential in lowering the transaction

costs and shortening the time in negotiation and completing the deal. Clear project brief


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and client requirements should help to achieve these in the bidding process. In most

cases, competitive bidding solely on price may not help to secure a strong private

consortium and obtain value for money for the public. The government should take a

long-term view in seeking the right partner (Corbett and Smith 2006; Gentry and

Fernandez 1997; Jefferies et al. 2002; Jefferies 2006; Li et al. 2005c; Qiao et al. 2001;

Zhang 2005a).

Successful PPP implementation requires a stable political and social environment, which

in turn relies on the stability and capability of the host government (Wong 2007).

Political and social issues that go beyond private sector’s domain should be handled by

the government. If unduly victimised, it is legitimate that the private sector participants

should be adequately compensated. Unstable political and social environments have

resulted in some failed rail projects (e.g. frequent change in government premiers in

Bangkok leading to the cancellation of many new public infrastructure projects originally

procured under the PPP approach (Khang 1998; Cobb 2005)).

Many researchers (Akintoye et al. 2001; Corbett and Smith 2006; Jefferies et al. 2002; Li

et al. 2005c, Zhang 2005a) have found that project financing is a key success factor for

private sector investment in public infrastructure projects. The availability of an efficient

and mature financial market with the benefits of low financing costs and diversified range

of financial products would be an incentive for private sector taking up PPP projects.


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This chapter has provided the results of a comprehensive literature review conducted to

provide background knowledge on the research topic. The traditional practice of

procuring public works projects was reviewed to highlight the difference compared to the

PPP method. It was found that there are some clear procedures prepared by the local

government explaining the process of implementing PPP projects. Although the

procedures were explained clearly and illustrated by a step by step process, there are no

exact instructions on how to carry out these activities. Furthermore a comprehensive

review was conducted to study the attractive factors, negative factors, value for money

measures and success factors of PPP. These findings should be further verified with a

population before generalization can be reached.

Chapter 4 Procuring Infrastructure Projects in Hong Kong

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CHAPTER 4

PROCURING INFRASTRUCTURE

PROJECTS IN HONG KONG


4.2 BOT/PPP Experience in Hong Kong

4.3 BOT/PPP Case Studies

4.4 Is BOT the Best Financing Model to

Procure Infrastructure Projects?



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Hong Kong has seen a long history of adopting the Build Operate Transfer (BOT)

arrangement for its public works projects. The famous channel tunnel projects have been

amongst some of the earliest projects in the world to adopt this arrangement.

Unfortunately, the development of this procurement arrangement was not continued until

more recently. Overseas experience demonstrating the benefits of PPP has re-initiated

the interest of some local governmental departments, to develop the traditional BOT

arrangement into a more appropriate, refined and internationally recognised successful

approach. This paper examines the development of PPP projects in Hong Kong by

looking at a number of cases which have contributed to this change.

4.2 BOT/PPP Experience in Hong Kong

Hong Kong is not completely new to the idea of PPP. In actual fact the city was probably

one of the first to utilise resources from the private sector. The term PPP may sound

revolutionary to Hong Kong, whereas a more familiar term is BOT. The concept of BOT

has been used since the late sixties. Although Hong Kong has had experience in adopting

quite a number of BOT projects, the approach of PPP has never really been studied

extensively in the local context. The traditional practice of these projects was for the

government to directly award a concession to the potential bidder. This practice of

awarding concessions is common in Hong Kong, but the gestation period spent in

formulating the enabling legislation is lengthy (Zhang 2001).


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Hong Kong being the international gateway to China and possibly even Asia represents a

huge business market filled with opportunities and attractions. As a result of the profits

foreseeable Hong Kong has the potential to draw companies from across the world.

Money coming in from outside is beneficial to the local government. The local

government having seen the success stories experienced by others is keen to bring

innovation and efficiency into their public works projects.

In recent years the Efficiency Unit of the Hong Kong Special Administrative Region

(HKSAR) government has been heavily involved in PPP research. The local

government’s interest in utilising PPP is obvious. The approaches that they have taken

mainly involve gaining international experience from particularly Europe and Australia.

One of the early documents produced by the Efficiency Unit on private sector

involvement was a guideline to help governmental bureaus and departments to familiarise

with private sector engagement (Efficiency Unit, 2001). These guidelines were published

in 2001 and showed the government’s interest in adopting the idea of PPP. Only two

years later they also produced a comprehensive introductory guide to PPP (Efficiency

Unit, 2003a). This guide was aimed for the use of the civil servants but is also made

available for the public’s interest to understand the government’s approach. After the

publication of this report much interest was drawn from the construction industry due to

the possibility of the increased business opportunities available.

More recently, the Efficiency Unit published two more guidelines on PPP (Efficiency

Unit, 2007; 2008b). The first of these publications shows how more knowledge on the


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issues of PPP have been learnt, it also identifies areas of concern to local practitioners as

well as civil servants, and it tries to provide some insights into these areas. The second

publication is much more specific on how to establish a PPP project. The guideline is

aimed at coaching civil servants on how to conduct a PPP project by looking at the

business case, dealing with the private sector, managing the risks, funding and payment

issues, managing performance etc.

4.3 BOT/PPP Case Studies

4.3.1 Cross Harbour Tunnel (CHT)

In September 1969 the construction for the first BOT project in Hong Kong commenced

(Mak and Mo, 2005). The Cross Harbour Tunnel (CHT) is a two lane tunnel in each

direction (Figure 4.1 shows a photograph of the CHT (Kowloon Motor Bus 30X/230X,

2008)). It took only 36 months to complete and was eleven months ahead of schedule.

The CHT was an instant success when it came in operation in August 1972. It was the

first tunnel linking Hong Kong Island to Kowloon Peninsula. Before the tunnel was

constructed traveling between the two places was by ferry for passengers and vehicles.

There were more reasons for its success, it was well situated in the centre and provided

the shortest route across the harbour of only 1,852 m. More importantly it was

constructed at the right time. During the late sixties and seventies, Hong Kong’s

economy was developing at a high speed, and with good economy the number of vehicles

on the street had also increased dramatically. Within three and a half years of operation


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the tunnel had already collected enough tolls to pay back for the construction cost. The

franchise period for the project was thirty years the tunnel was therefore handed back to

the local Government on 31 August 1999. The tunnel is probably the most successful

BOT project in Hong Kong. The tunnel is still one of the most important and profitable

pieces of infrastructure locally.

Figure 4.1 Photograph of the Cross Harbour Tunnel entrance and exit on Kowloon

Peninsula (Kowloon Motor Bus 30X/230X, 2008)

Tam (1999) documented some lessons learnt in Asian projects through a selection of case

studies. From his analysis on the CHT project he concluded that BOT would be a good

solution to overcome the shortage in public money and the lack of technology. The BOT

model allows the government to transfer technical and financial risks to the project

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concessionaire. He further suggested that to ensure the commitments from the

government and the concessionaire, the government should hold a stake in the project as

in the CHT case. The result meant that the parties cooperated to limit competing projects

and the construction process was faster.

4.3.2 Western Harbour Crossing (WHC)

The success of the CHT introduced around a dozen more BOT projects in Hong Kong.

Other examples of local BOT projects include the Chemical Waste Treatment Plant on

Tsing Yi Island, the Tate’s Cairn Tunnel, and the Route 3 Country Park Section. But not

all these projects were equally as successful. A typical example is the Western Harbour

Crossing (WHC) opened in 1993 (Figure 4.2 shows a photograph of the WHC (Forum

Sara, 2008)).

This project was the third underwater roadway tunnel to connect Hong Kong Island with

the Kowloon Peninsula. This project was constructed as part of a giant infrastructure

improvement project reaching HK$160 billion in scale, centered on Hong Kong’s new

airport (Nishimatsu, 2006). Under the contract agreement of a 30 year period, the

consortium can adjust the toll depending on the performance of the revenue. If the

revenue is underestimated the toll can be increased to meet targets, on the other hand the

toll can also be lowered if the toll exceeds the expected revenue. When the tunnel came

into operation in April 1997 (Mak and Mo, 2005), Hong Kong was experiencing an

economic downturn which in turn reduced the traffic volume. Another problem was that


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the WHC was very expensive to build. It cost approximately HK$7,500 million, which

was over 23 times more than that for the CHT (Li, 2003). Therefore, in order to reach

target revenue the WHC increased the toll causing drivers to use the other two cross

harbour tunnels linking Hong Kong Island to Kowloon (Kwan, 2005).

WHC can therefore be discussed as a less successful project. The project investors have

not made their target revenue, the general public has a negative perception of the project

due to some adverse media reporting and the local government has had to take up critique

from the general public.

Figure 4.2 Photograph of the Western Harbour Crossing entrance and exit on

Kowloon Peninsula (Forum Sara, 2008)

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Analysis conducted by Tam (1999) showed that although the WHC was also completed

earlier and effectively managed, the project performance was destroyed by the delay in

toll rise applications. The applications were held up by the elected members of the

Legislative Council of the HKSAR when the government introduced more democracies

into the political system from 1990 onwards. The importance of a well defined toll rise

mechanism was crucial in this case. Political influence was also a major factor towards

the end performance. As a result an arbitration clause and a legal system were

established to resolve the dispute. Another possible factor affecting the difference in

performance between the CHT and the WHC could be due to the lower government stake

in the WHC. As mentioned previously government stake in projects could further ensure

the commitment from all parties.

4.3.3 Asia World Expo (AWE)

A recently completed project is the Asia World Expo (AWE) opened in December 2005

(Figure 4.3 shows an aerial photograph of the exhibition centre (Asia World Expo,

2008a)). The project has been touted as a model PPP scheme by the HKSAR government

(Tam, 2006). Some may consider AWE to even be the first proper PPP project in Hong

Kong. The project was initiated to increase competition in the exhibition sector, and as a

result to make Hong Kong more attractive to the outside world. Therefore, PPP seemed

to be the innovative way to tackle the project. The exhibition centre is located right next

to the Hong Kong International Airport and provides 70,000 square meters of rentable


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space, including 10 exhibition halls and meeting rooms. The exhibition hall also claims

to be capable of holding a 13,500 seat entertainment arena (Asia World Expo, 2008b).

Figure 4.3 Photograph of the Asia World Expo (Asia World Expo, 2008a)

An obvious difference between this project and other previous projects delivered by this

approach was that AWE was highly driven by the Financial Secretary’s Office. One of

the problems that Hong Kong has experienced in the development of PPP is the lack of

driving force or champion at senior level of the government. In other countries it has

often been seen that in jurisdictions where PPP have developed well and rapidly are those

where someone in government with authority has been behind the driving force. AWE

has therefore been fortunate enough to have this driving force.

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During the collection of case study information an interview was conducted with a

member of the AWE project, who described that:

“An existing convention and exhibition centre in Hong Kong has 62,000 square metres of

usable space and 900 permanent staff recruited. In comparison, the AWE is a lot larger

providing 70,000 square metres of usable space but only recruits 50 permanent staff.

Temporary services are called upon when needed. This shows that AWE is a cost

effective model. In addition, AWE cost HK$2.5 billion to deliver the asset which included

a railway station and the infrastructure. On the other hand, the quasi-public operator of

the existing convention facilities is reacting to the new competition and expanding its

premises, creating 15,000 square metres of additional space at a cost of over HK$1

billion. If the job was left to the concessionaire it would be much cheaper. If AWE was

delivered the traditional way it would have cost a lot more and would have taken a lot

longer. The speed of the project was down to the drive of the people behind it and their

desire to make it happen. By making the operator and contractor stakeholders they

ensure that the cost is kept in track as they do not want to create cost overruns. This

project was delivered without any significant overruns since the private sector has to

bear the excess over the government’s injection. It was the desire of the operator to have

the facility designed to be readily manageable and easily maintained.”


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4.3.4 West Kowloon Cultural District (WKCD)

The proposed West Kowloon Cultural District (WKCD) project is located West of Yau

Ma Tei on the Kowloon Peninsula of Hong Kong (Figure 4.4 shows an artist’s

impression of the project (Home Affairs Bureau, 2008)). The project had been long

awaited due to repeated delays and controversies (South Morning China Post, 2008).

Back in April 2001, the HKSAR government invited the private sector to submit

conceptual plans for the 40 hectare waterfront site at the southern tip of the Western

Kowloon reclamation into an integrated arts, cultural and entertainment district under the

mode of PPP (Mok, 2005). Since, there has been continuous debate over the best suitable

financing modality which should be adopted. A number of uncertainties in this project

doomed it to be highly criticised. These problems included:

Initially the government was unclear of what they wanted and their objectives

were unknown;

Government did not notify or seek advice from relevant parties at the beginning

e.g. art and culture groups;

There is no timeframe or schedule to be met and no milestones to be achieved;

The private sector has been kept in the process for too long causing loss in

terms of time and resources; and

The project may not be able to proceed if private financing is not involved.

Media reports have also highly publicised the dissatisfaction heard from local Legislative

Councilors towards the government’s indecisiveness and delay in delivering this project


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(Leong, 2008). Due to the large number of uncertainties involved, the local government

has needed to handle the project more cautiously. As a result a decision to the project

design, timeframe and the delivery method took a long time to be decided. A number of

public consultations were conducted. And a special task force was established to monitor

the progress of this project.

The debate over the financing modalities finally came to a halt when the Legislative

Council of the HKSAR government approved HK$21.6 billion to fund this project (Wu,

2008). The agreement was reached after thirty-two Legislative Councilors agreed to this

arrangement against ten that opposed.

Figure 4.4 Artist’s impression of the proposed West Kowloon Cultural District

project (Home Affairs Bureau, 2008)

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4.3.5 Findings from the case studies

This section has looked into four case studies in Hong Kong. Two of these appear to be a

failure or less successful and the other two are seen to be highly successful or at least

most of the project stakeholders are happy with their performance.

The CHT and the WHC were delivered by the more traditional BOT approach which

Hong Kong has gained abundant experience in. Although experience has been developed

for these types of projects, WHC has still been regarded as relatively unsuccessful,

especially when compared to the CHT which is one of the most profitable public services

that the local Government now owns.

AWE and WKCD are two more recent projects. AWE is classified by some as the first

proper PPP project to be delivered in Hong Kong. The satisfied stakeholders involved in

this project have reflected its success. On the other hand, the WKCD took a long while

to decide on the delivery approach of whether or not using the PPP route; and finally the

government decided that they should fund the project out of their own money. The

lengthy decision process and the uncertainty of the local government, has doomed it to

become an unsuccessful PPP venture. Its consideration to go down the PPP path has

given PPP a highly bad profile in Hong Kong.

The cases discussed in this section have shown both successful and unsuccessful

experiences of the more traditional BOT projects and the more recent PPP projects in


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Hong Kong. Table 4.1 shows a summary of some of the project information for the cases

presented.


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Table 4.1 Summary of the analysed case studies (Asia World Expo, 2008; Bouygues-Asia, 2008; Hong Kong Engineers, 2006; Li,

2003; Nishimatsu, 2006)

Project Name Abbreviation Delivery

Approach

Concession

Period

(years)

Construction

Start Date

Opening

Date

Approximate

Project Cost

(HK$ million

)

Planned

Construction

Period

(months)

Actual

Construction

Period

(months)

Cross Harbour Tunnel CHT BOT 30 Sep 1969 Aug 1972 320 47 36

Western Harbour Crossing WHC BOT 30 2 Aug 1993 1 Apr 1997 7,500 48 44

Asia World Expo AWE PPP 25 Sep 2003 21 Dec 2005 2,350 28 27

West Kowloon Cultural District WKCD Traditional On-going: to be confirmed


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4.3.6 Section 4.3 summary

Although Hong Kong has had experience in adopting quite a number of BOT projects,

the approach of PPP has yet to be studied extensively on a local scale. Often the

traditional practice of these projects was to directly form a contract agreement with the

potential bidder. By doing so it was possible that essential items for success were

neglected and risks were not avoided. Some of the BOT projects conducted in Hong

Kong have often jumped straight into the project agreement neglecting important

foundation work. This practice of securing contracts quickly is common in Hong Kong,

but the risks which maybe associated are unpredictable. Therefore, it is important to

adopt the experiences of others and to develop a suitable model to fit Hong Kong bearing

in mind the differences in location, culture, experiences and practices.

Some of the lessons learnt which can be derived from the Hong Kong case studies

include:

Timing of the project is important, this will effect whether there is a demand;

The PPP method can help to resolve technical and financial problems by

bringing in more able parties to work with/for the government;

Ensure that value for money is achievable by adopting PPP;

Ensure a reasonable toll adjustment mechanism;

Keep the general public satisfied by sufficient consultations and transparency in

the process;

Projects that attract a lot of political debates are less likely to be successful;


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A project champion is necessary;

PPP projects can also be delivered via public funding;

Set clear objectives and timeline; and

Streamline the procurement process.

Presently, PPP projects are conducted without thorough investigation into the feasibility

of using the model in Hong Kong. The only information available is the experiences that

Hong Kong has derived. Some recent projects have been adopted appropriately by

integrating international best practice. It is anticipated that future PPP projects in Hong

Kong will be adopted well if the local Government can integrate the lessons learnt from

other jurisdictions and integrate these with Hong Kong’s own experiences to overcome

the differences in practice and location.


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4.4 Is BOT the Best Financing Model to Procure Infrastructure

Projects?

This section aims to study the feasibility of implementing BOT projects in Hong Kong by

looking at the recent highly profiled Hong Kong – Macau – Zhuhai Bridge (HMZB)

project. The three governments that are going to deliver the HMZB, have decided to

finance the project themselves rather than to seek private financing as previously planned.

Additionally, the objectives of this analysis will include:

Study the background of the HMZB to discover the reasons why it will not be

delivered by the BOT model;

Analyse the process in which the HMZB changed from being delivered by

BOT to being funded solely by the host governments;

Study the underlying problems of the HMZB and why the BOT model could

not be applied; and

Analyse the government’s motives for not opting for the BOT model in the

case of the HMZB.

The aim and objectives of this study were achieved by conducting an in-depth analysis of

the HZMB case via published materials such as newspapers, magazine articles, websites,

journal papers, government releases etc. A large range of materials were firstly collected.

Then materials that were believed to show a true reflection of the HZMB situation were

retrieved and analysed thoroughly. This process was conducted using the “WiseNews”

search engine. WiseNews is a database of news and magazine articles that are published


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in more than 500 sources including all major newspapers in Hong Kong, press release

from the Information Services Department of the HKSAR government, ATV Internet

news, Xinhua News Agency and many magazines from Hong Kong, Macau, China and

Taiwan (The Hong Kong Polytechnic University, 2009).

4.4.1 Background of the Hong Kong – Zhuhai – Macau Bridge

4.4.1.1 Background

The idea for the HZMB was first proposed by Mr. Gordon Wu of the Hong Kong listed

Hopewell Holdings Limited in the eighties (Kwok, 2009). Mr. Wu had observed the

added advantages towards industry with improved infrastructure network in the Pearl

River Delta Region. But no further actions were taken by the HKSAR government hence

the project was put on hold for over two decades (Oriental Newspaper, 2008).

It was not until September 2002 that the project was rethought. At the “Third Meeting of

the Mainland / Hong Kong Conference on the Co-ordination of Major Infrastructure

Projects” it was agreed that a study would be conducted on the transportation between

Hong Kong and Pearl River West. This was the first proper study conducted to analyse

the feasibility of the HZMB. Furthermore, in January 2003, the National Development

and Reform Commission (NDRC) and the HKSAR government commissioned the

Institute of Comprehensive Transportation to conduct this study. The study was

completed in July 2003. The report entitled “Transport Linkage between Hong Kong and


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Pearl River West” highlights that transportation between Hong Kong and the Pearl River

West is insufficient. A point which was mentioned over twenty years ago but only

verified till now. The current transport between theses jurisdictions via the Humen

Bridge is costly and time consuming. Therefore, the report concluded that the HZMB

would be advantageous to overcome the problems (Transport and Housing Bureau 2008a).

With the project back on track the Advance Work Co-ordination Group (AWCG) was

setup in August 2003 for the bridge. The AWCG is comprised of representatives from

each of the governments. In February 2004, the AWCG commissioned the China

Highway Planning and Design Institute (HPDI) to conduct a feasibility study for the

HZMB. In doing so the HPDI also set up an office in Guangzhou to specifically monitor

the works conducted by HPDI. The study looked at all aspects of the project including

hydrology, environment, landscape, marine, ship impact protection, traffic, wind speed

assessment and financial viability (Transport and Housing Bureau, 2008a). The report

proposed several alignment options which were presented at a meeting organised by the

NDRC in April 2005. It was approved by the AWCG that the Northern bridge-cum-

tunnel alignment would be adopted (Transport and Housing Bureau, 2008a). The HPDI

were further commissioned to conduct studies on the locations of boundary crossing

facilities of the bridge after the “Ninth Plenary of the Hong Kong-Guangdong

Cooperation Joint Conference” held in August 2006 (Transport and Housing Bureau,

2008a).


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With the technical side of the project underway, the financial arrangement and

responsibilities needed to be confirmed. These details are discussed in later sections of

this chapter.

4.4.1.2 The proposed design

The three governments have claimed that the HZMB will further enhance the economy

development of Hong Kong, Macau and the Western Pearl River Delta region (Hong

Kong Special Administrative Region Government, 2008). The new bridge is expected to

significantly reduce the cost and time for both people and goods transportation between

the regions. At the same time it is hoped that the project will increase the region’s

competitiveness. The construction of the bridge is expected to commence no later than

2010 (Hong Kong Special Administrative Region Government, 2008). And the estimated

completion date is set for year 2015 to 2016 (Chen and Lee, 2008).

The initial estimated time of travel is believed to be within 15 to 20 minutes and the total

cost of the bridge will be approximately RMB37.4 billion (Mak, 2008). The main bridge

will be a 29.6 kilometres dual 3-lane carriageway in the form of bridge tunnel structure

comprising an immersed tunnel of about 6.7 kilometres. Vehicle speeds are anticipated

to be 100 kilometres per hour. A traffic flow of approximately 12000 – 16000 vehicles

are expected per day (Hung, 2008). The bridge will land on an artificial island off

Gongbei on the west side, and another artificial island on the east which would be west of

the HKSAR boundary. According to the current proposed construction option, the


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connecting roads are about 12.6 kilometres on the Hong Kong side and 13.9 kilometres

on the Mainland side. As shown in Figure 4.5 the bridge will run across the Lingding

Channel, the Tonggu Channel, the Qingzhou Channel, the Jiuzhou Port Channel, and the

Jianghai Channel etc. (Transport and Housing Bureau, 2008a). A summary of the project

details is also shown in Table 4.2.

Figure 4.5. Alignment of the HKZMB (Transport and Housing Bureau, 2008a)

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Table 4.2 Summary of the HZMB Details (Mak, 2008; Hong Kong Special

Administrative Region Government, 2008; Chen and Lee 2008; Hung,

2008; Transport and Housing Bureau, 2008a)

Route Joining Lantau Island in Hong Kong to Perola

in Macau and Gongbei in Xhuhai

Length 29.6 kilometres (main body)

Vehicle speed limit 100 kilometres per hour

Journey duration 15 to 20 minutes

Toll fee $HK150 per vehicle

Construction cost RMB37.4 billion

Traffic Flow (Hung, 2008) 12000 – 16000 vehicles per day

Estimated Date of Construction

Commencement

2010

Estimated Date of Completion 2015/ 2016

4.4.1.3 The original BOT decision

The HZMB project was originally suggested by the private sector hence BOT was the

assumed delivery method from the very beginning. A BOT plan was originally drawn up

in early 2008 for the bridge. This plan was officially initiated by the three governments

from Guangdong, Hong Kong and Macau in 2002. Under the BOT scheme, the three

governments would be only responsible for construction of ports and connective parts of

the bridge within the three sides and its main part will be constructed by bids (Qiu, 2008).


87

Under the BOT arrangement the bridge was to have a 50 year concession period

(Legislative Council, 2008).

Another reason for the HZMB to be delivered by the BOT model was the high project

costs. By involving the private sector the governments would not need to take up the

financial risks involved (Apple Daily, 2008). Although this was appealing the extended

duration of the tendering and negotiation process due to the project being a BOT was

foreseeable. Also the differences in legislation between the three jurisdictions, made it

even more difficult to come up with a unique agreement on aspects such as vehicle flow

and sharing of risks between the public and private sectors. As a result to continue with

the BOT plan would mean that the timeframe for the project would be more

unpredictable and a lot further away (Apple Daily, 2008).

4.4.1.4 Underlying problems of the project

Originally calculations showed that if the bridge was procured by the BOT model the toll

fares would be approximately $150 for each vehicle crossing the bridge (Mak, 2008), but

whether this price will be lowered due to public financing is still unknown (Hong Kong

Special Administrative Region Government, 2008). Chairman of the Container

Transportation Employees General Union, Mr. Chiu spoke publicly that the toll fees

should be lowered between the range HK$80 to HK$100 to be reasonable for the general

public (Mak, 2008). Another local Hong Kong car rental enterpriser believed that for

such a short journey the fare should not be beyond HK$100 to HK$120. The responses


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show that the proposed toll prices would be far too high for the general public to benefit

from the project.

Also as mentioned previously a major reason why the WHC was so unsuccessful

compared to the CHT was because it was built 30 years later and at a cost of twenty-three

times more. Similarly it has been 25 years since the idea for the HZMB was first

mentioned, the cost of construction and the necessity for the bridge has definitely

changed. The lack of interest from the private sector maybe an indication that the bridge

is not as important as it once was. The original intention was that the bridge could serve

the industrial development of the area rather than the general public. But since the idea

was first proposed undoubtedly there has been a large change and movement to the

industries in the region.

4.4.2 Change from private financing to public financing

4.4.2.1 The process of change

Mr. Wu’s original initiation of the project led minds to think that Hopewell Holdings

would definitely be interested to participate in this mega infrastructure project but it has

been reported that over twenty years after the idea was first proposed, the company no

longer saw a business opportunity in the plan (Lam and Chan, 2008). Similarly, other

private sector companies felt the same. The private sector was no longer interested in this

project as the business potential for them was not attractive.


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Therefore, the decision for the financing model of the bridge was changed dramatically.

In the “8th AWCG Meeting” held in February 2008 it was still assumed that the project

would be procured by BOT. The three governments agreed to take up the responsibility

for construction and operation of the boundary crossing facilities and the link roads to the

bridge within their own territory. It was discussed that private investment would be

invited for the main body of the bridge with the funding gap shared by the three

governments according to construction needed in their own territories. In this

arrangement Hong Kong would have covered 50% of the difference, Guangdong 35%

and Macau 15%. The decision showed that the governments were in favour of the PPP

arrangement at the time (Transport and Housing Bureau, 2008b).

But in an interview conducted with the Secretary for Transport and Housing Bureau also

in February 2008, she was asked by reporters whether the BOT method would be adopted

for the HZMB. The Secretary responded that the project would be considered as a whole

amongst the governments. Her response did not directly answer whether the project

would be financed by the private sector or not (Transport and Housing Bureau, 2008c).

Under some discussion and reviews of the studies that have been carried out such as on

the traffic flow and bid price, it was realised that the governments would not be able to

come up with an attractive economic package for the private sector to be interested (Ming

Pao Newspaper, 2008a). Finally a decision was made at the “11th Plenary of Hong

Kong-Guangdong Co-operation Joint Conference” in August 2008. It was announced

that the HZMB would be funded jointly by the governments (Hong Kong Special


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Administrative Region Government, 2008). It was confirmed that the bridge would be

conducted using public money rather than private sector resources.

The preliminary proposed contribution from each government will be RMB6.75 billion

from the HKSAR government, RMB7 billion from the Guangdong-Central government,

and RMB1.98 billion from the Macau Special Administrative Region government. The

total contribution from the three governments will be RMB15.73 billion, which will be

equal to 43% of the bridge's construction cost. The remainder will be financed by bank

loans (Information Services Department, 2008a).

The new arrangement has meant that the Guangdong government has become the largest

stakeholder of the project (Hong Kong, Guangdong and central government and Macau

government will take up approximately 43%, 45% and 13% respectively of the upfront

payments (Lam and Lai, 2008)). In the original proposal the HKSAR government would

have taken this role. The move for this change can be an indication that the Chinese

government has high desire to push the project ahead. But there has been no

comprehensive answer from the governments why the BOT arrangement was not opted

for the bridge. (Chen and Lee 2008)


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4.4.2.2 Government motives for not opting for the BOT model

Faster project delivery

Undoubtedly there are benefits to paying for the HZMB with public money otherwise the

governments would not have come to this conclusion. The Chief Executive of Hong

Kong, Donald Tsang spoke publicly at the “11th Plenary of Hong Kong-Guangdong Co-

operation Joint Conference” in Guangzhou during August 2008 on the advantages for the

HZMB to be funded jointly by the governments. He explained that for the governments

to take up the financing responsibility would speed up the construction works of the

bridge. This argument was also agreed by Chen (2008) who claimed that the project

would be delivered two years earlier than the BOT approach which normally would

require a lengthy consultation period and complicated legislative requirements.

Government control in tolls

Furthermore, Mr. Tsang added that the governments would be left with more allowance

to adjust the toll fee of the bridge without economic pressure (Information Services

Department, 2008a). Ng (2008) also agreed that paying for the bridge with public money

would mean that the governments would have more authority to adjust the tolls. Also,

the governments being willing to undertake the project’s financial risk gives certainty that

they are committed to the project (Hong Kong Special Administrative Region

Government, 2008).


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4.4.2.3 Other underlying reasons for using public finance

Time and cost certainty

The governments’ decision in this project has also been supported by some of the media.

If the project continued as a BOT, the private sector would need to prepare a bid based on

their financial benefits in which they will take in to account their expenditure for the

project, the traffic forecast and the toll price. Bid preparation is a lengthy and costly

process in BOT type projects (Zhang, 2001). If the governments are to find that their

proposals are unsuitable, the process for the project would be further extended. Similar

situations as the Kai Tak Cruise Terminal could arise.

In this case the package offered by the HKSAR government was not attractive enough to

seek private investors hence the government has had to repackage the project and re-

invite the private sector for bids. The HKSAR government believed that the private

sector would be interested in this project but reality has shown that this was not the

situation (Oriental Newspaper, 2008) (More information on the Kai Tak cruise terminal

project is given in Section 7.3.4 of Chapter 7).

Cheaper tolls

Another problem foreseeable if the project was to be delivered by the BOT model would

be the high toll fees that may be imposed. The private sector are profit making


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organisations, hence they would adjust the toll fees so that they can cover their

expenditure acquired during the delivery and maintenance of the project. In addition,

they will hope to seek reasonable financial rewards. In doing so there is a risk that the

project would follow in the footsteps of the East and West Harbour Crossings in Hong

Kong (Apple Daily, 2008). These projects were procured under the BOT model,

controversy to the CHT (Hong Kong’s first and probably most successful BOT project)

they suffered much bad publicity due to the high and continuously increasing toll prices.

As a result, the general public has tended to use the cheaper CHT more frequently than

the other two tunnels for the crossing between Hong Kong Island and Kowloon Peninsula.

In the case of the HZMB, the general public could also choose to travel on cheaper routes

if the prices were to be too high. Studies showed that the HZMB would not be

commercially viable hence that would mean that the governments would have to cover

the financial costs if the bridge was to be delivered by BOT (Brown, 2008). If the

private sector was to be involved they would be left with no choice but to raise the toll

process incredibly to compensate for their expenses acquired as in the case of the East

and West Harbour Crossings (Apple Daily, 2008).

So (cited in Ming Pao, 2008b) conducted an analysis on the probable toll fees under

different financing models. As shown in Table 4.3, three different scenarios are

considered. The first and second scenarios estimates the toll fee for crossing the HZMB,

with the project financed by the host governments according to a 120 year and 60 year

investment return period respectively. Other factors considered in the estimation include


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the savings from the private investor’s profits if the project was to be financed by the

BOT model, and also the estimated annual usage of the bridge. The toll fees estimated

per trip were RMB$193 and RMB$387 for the first and second scenarios respectively.

The third scenario considers the project under the BOT model. The investment return

period was set at 30 years which is also a typical concession period for BOT type projects

(Howes and Robinson, 2005). Other factors considered in the estimation also included

the estimated annual usage of the bridge. Under this scenario the toll fee was calculated

to peak RMB$830 per trip. Analyses of these scenarios have illustrated that the use of

the BOT financial model (Scenario 3) may be 2 (Scenario 2) to 4 times (Scenario 1) more

expensive than if it is funded primarily by the government.


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Table 4.3 Comparison of estimated toll fees to be charged under different financial models (Ming Pao, 2008b)

Scenario 1: Funded by the host governments with an investment return period equal to the bridge life of 120 years Total Investment RMB72.7 billion Savings from private investor’s profits RMB4.95 billion (under the BOT model, with a private investment of RMB30

billion calculated at a 16.5% return rate) Usage per year 292 0000 (8000 per day) Investment return period 120 years Estimated cost per trip (daily maintenance cost not included) (RMB72.7 billion – RMB4.95 billion) / RMB2.92 billion / 120 years = RMB$193 Scenario 2: Funded by the host governments with an investment return period of 60 years Total Investment RMB72.7 billion Savings from private investor’s profits RMB4.95 billion (under the BOT model, with a private investment of RMB30

billion calculated at a 16.5% return rate) Usage per year 292 0000 (8000 per day) Investment return period 60 years Estimated cost per trip (daily maintenance cost not included) (RMB72.7 billion – RMB4.95 billion) / RMB2.92 billion / 60 years = RMB$387 Scenario 3: Adopting the BOT model (financed, constructed and operated by private investors) with a return period of 30 years (typical BOT concession period in transportation projects) Total Investment RMB72.7 billion Usage per year 292 0000 (8000 per day) Investment return period 30 years Estimated cost per trip (daily maintenance cost not included) RMB72.7 billion / RMB2.92 billion / 30 years = RMB$830 Note: 1 RMB = 0.1464 US$ (Yahoo, 2008)


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User satisfaction

A similar problem was also observed in the Cross City Tunnel project of Sydney which

was delivered by the PPP model. Due to the inaccurate traffic forecasts and the high toll

prices which were applied to overcome the low traffic volume, both the consortium and

the New South Wales Government were highly criticised for this project (Jean, 2006)

(Refer to Chapter 4 Section 4.4 for more details). Similarly if high tolls and low usage

are experienced by the HZMB, the situation would in turn limit the cooperation between

the three jurisdictions and also demean the objective of the bridge. As a result the

governments may be reluctant to deliver large infrastructures jointly again.

Lack of private sector interest

The governments were also aware that the private sector lacked motivation for this

project. As the bridge was found to be highly costly and uneconomic, the appeal to the

private sector even with compensation would be difficult to attract (Van der Kamp, 2008).

With the comfortable reserve from all three governments there has been less drive to

force the project as a BOT. Although the project may not be economically feasible when

all costs are considered, experts believe that the collected tolls would sufficiently cover

the expenses of maintenance and operation hence the financial risks involved for the

government would be minimal.


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Reduce allegation of collusion between the public and private sectors

There are also other advantages that have been perceived of the new arrangement. Chen

and Lee (2008) quoted from a Hong Kong academic that the new arrangement will

minimise the chance of negotiation between developers and the governments; hence will

reduce allegation of collusion between business and the government. Hong Kong has

previously been criticised for favouring certain developers and giving developers high

financial returns through delivering public projects. An example is the Cyberport project

a technological centre and the West Kowloon Cultural District a proposed cultural hub

(Wong, 2005).


This section has studied the much speculated case of the HZMB from Hong Kong’s angle.

The findings showed that there were several reasons that led to the case being financed by

the governments rather than involving the private sector as originally planned. Firstly,

Hong Kong had previously experienced a lack of interest from the private sector in the

bid of the Kai Tak Cruise Terminal hence causing the project to be delayed for

repackaging. Therefore, the governments did not want the HZMB to experience a similar

situation causing it to be further delayed. Also, the project was first proposed twenty-five

years ago, hence to proceed with the BOT model would mean that the project would be

further delayed due to the long tendering and negotiation processes that would be

involved if it was to go along with the BOT model.


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Secondly, the legal differences between the three jurisdictions would mean that an

agreement unifying and compromising all legal systems would be difficult. Thirdly, with

private sector involvement there would be a lack of government control over the toll

prices. Again the HKSAR government has had some bad experiences in the West and

East Harbour Tunnels where the private consortia have charged tolls much higher than

the government owned tunnels. Fourthly, the private sector was no longer as interested in

the project as they were when the idea was first proposed due to changes and movements

in industries over time. Also, studies carried out by the governments showed that the

business model would not be economically attractive enough for the private sector to be

interested. The fifth reason for financing the project with public money is to avoid the

public perception of collusion between business and the government. And finally the

most important reason of all is that the three governments have comfortable financial

reserves, meaning they could deliver the project themselves with ease.


This chapter has studied Hong Kong’s experience in BOT/PPP projects by looking at

different cases. Projects conducted by the BOT and the PPP approach have been studied

to compare the differences. Both dated and recent projects have been considered to

analyse the development trend. As a result some lessons learnt were derived from this

analysis. It was found that timing can be a very important aspect affecting the success of

projects as the demand will differ over time. Also, the PPP method can help to resolve

technical and financial problems by bringing in more able parties to work with/for the


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government. Value for money should be achievable by adopting PPP. For transportation

projects a reasonable toll adjustment mechanism should be in place. Often the success of

a project can affect the satisfaction level of the general public hence there should be

sufficient consultations and transparency in the process. Projects that have complicated

political issues should be avoided. Successful projects are those that have had a project

champion. PPP projects do not necessarily have to be funded by the private sector. PPP

projects should have clear objectives and a timeline. Lastly the procurement process

should be streamlined to avoid unnecessary delays and expenses.

This chapter has also considered whether BOT is the best option for public works

projects in Hong Kong by analyzing the HZMB. There were six main reasons leading to

the governments’ decision to fund the project themselves. These include: 1) To avoid

delay due to the foreseeable long procurement process; 2) Complicated legal differences

between the three jurisdictions; 3) Private sector involvement would mean less control

over the toll prices for the governments; 4) Lack of interest from the private sector; 5)

Avoid perception of collusion between public and private sectors; and 6) The

governments all have a comfortable financial reserve.

Chapter 5 The Australian PPP Experience

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CHAPTER 5

THE AUSTRALIAN PPP EXPERIENCE


5.2 PPP in Australia

5.3 A New Era of PPP in Australia – The Southbank

Education and Training Precinct Case Study

5.4. Risk Sharing Mechanism for PPP Projects

– The Sydney Cross City Tunnel Case Study



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Public Private Partnership (PPP) has been an increasingly popular choice for delivering

public works projects in Australia. Although for decades there have been known to be

public works projects delivered in Australia by similar partnership arrangements, it has

only been since the early nineties that PPP was first properly introduced. PPP has been a

growing alternative to procuring public projects across the world. Especially with the

success seen from the Victoria state, the other Australian states are eager to get a taste.

This chapter looks at two highly profiled case studies: The Southbank Education and

Training Precinct in Brisbane and the Cross City Tunnel in Sydney. From these

experiences it is hoped that some lessons learnt can be drawn for future PPP projects.

5.2 PPP in Australia

The practice for delivering public works projects across Australia is quite different

depending on the state. Each state government will have its own set of guidelines, rules,

preference and practice to go by. Political decisions are crucial in deciding procurement

processes.


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5.2.1 The Victoria practice

The Victoria government released the Partnerships Victoria policy in June 2000

providing a framework for developing contractual partnerships between the public and

the private sector for public infrastructure and services (Partnerships Victoria, 2000).

This bought about the change to the traditional practice of using Build Own Operate

(BOO) and Build Own Operate Transfer (BOOT). The traditional practice focused more

on bringing in the private sector’s financial input and also having the risk transferred

from the public sector to the private sector. But since the Partnerships Victoria policy the

focus moved more towards delivering better projects as a result of bringing in the private

sector expertise and also the government would regain direct control over the service or

facility after the concession period.

The Partnerships Victoria team is part of the Commercial Division in the Department of

Treasury and Finance of the Victoria state. The team is mainly responsible for

overseeing projects implemented via the PPP practice and also developing guidelines and

policies for PPP projects. Up to present, seventeen projects have already been

implemented under Partnerships Victoria totaling AUD$5.5 billion (Partnerships Victoria

2008a). The team has also produced four policies, four guidelines, three technical notes

and four advisory notes for the implementation of PPP projects in Victoria. These

publications are targeted for the use of both the private and public sectors, and cover

areas including the public sector comparator, risk allocation, standard commercial

principles, tender process, interest rates etc. (Partnerships Victoria, 2008b).


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5.2.2 The Queensland practice

In the past, Queensland has always been historically a conservative state (Townsend,

2004). The conservativeness of the Queensland government has meant that alternative

procurement methods have not been considered until recently. Queensland is a very

unique state, for example it is the only state that has elected a communist member into its

parliament. Another example more relevant to procuring projects is that unlike other

states such as New South Wales and Victoria, Queensland has its own public works

department to deal with their projects. In other states those services tend to be outsourced

to the private sector. The Queensland government still runs their own toll roads and

some of the electricity. This may also be one of the reasons that other states have been

more comfortable and quicker in adopting PPP.

Another major factor is that Queensland has never had a huge budgetary crisis. The

traditional practice of how the state has operated has meant that it is a state which has the

ability to control almost every function within itself, such as marketing functions,

agricultural functions etc. The approach in general is therefore a very socialist one.

Queensland has therefore adopted PPP much slower than other states in Australia.

Taking Victoria for example, PPP projects were introduced over a decade beforehand.

PPP although not called by this term 20 years ago was first utilised in Queensland even

before other states. The project was a toll way built in Sunshine Coast. The short lived

procurement alternative came to a hold after the Queensland government changed from


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being conservative to labour. As a result public infrastructure was basically nationalised.

This was a typical intervention. The new Queensland government was not keen with

adopting PPP. In other jurisdictions PPP projects have been driven by either the Premier

or the Treasurer. And the previous Queensland Treasurer did not take any actions to

encourage PPP projects.

Another major reason that the Queensland government has not been keen to jump into

using PPP at first, is because it does not see the delivery method as value for money when

compared to conventional options. The Queensland government’s state budget is in a

much more robust situation compared to Victoria when they first adopted PPP. Therefore

there has never been any economic pressure for them to try out alternatives. Similar to

other governments around the world, PPP was often first adopted due to budgetary crisis

for delivering public infrastructure and services.

Queensland government’s recent interest in PPP has also been due to changes in their

economic situation. The state is required to pay approximately AUD50 billion over the

next four years to uplift their infrastructure. Therefore, there has been a lot more pressure

in the state to turn up the cash with ease. PPP has therefore become an attractive option

to draw in cash from the private sector. Obviously, with the amount of experience and

research done on PPP in other parts of Australia the Queensland government are clearly

aware that PPP should be driven by value for money. The reason there have not been

many PPP projects in Queensland is because some people in the state government believe

that they may not be value for money. They see no reason for the private sector to


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finance and build public projects when they can borrow the money themselves at a lower

financial cost.

The Queensland government has also been careful to ensure that they do not follow in the

same footsteps as the Sydney government. Although the Sydney government has

delivered many successful PPP projects in the past, a very high profile project has caused

negative views on PPP. The Cross City Tunnel faced problems associated to traffic

forecasts and toll fare (Chan et al, 2008). The result was that the private consortium

made a total loss. The risks associated with PPP projects were therefore highly profiled

at the time causing the government unwanted attention from the media. Governments in

general are concerned about similar criticism. Therefore the Queensland government has

been careful with every step they take on the PPP path in order to avoid the trap holes

(The Cross City Tunnel case is discussed further in later sections of this chapter).

Many of the Queensland government’s PPP guidelines have been based on those of

neighboring states, especially Victoria. Victoria’s PPP process published by Partnerships

Victoria (Partnership Victoria, 2000) has been undoubtedly the most advance in Australia.

The Victoria government has handled the most PPP projects in Australia in terms of

number and variation. The publications produced are renowned worldwide and

compared to those of Partnerships UK. Many players in the private sector have also

tended to follow the rules in these publications, as often what is written by the Victorian

government on PPP is believed to be the “Bible of PPP” across Australia. Undoubtedly,

the private sector may not even challenge the appropriateness of the guidelines, but often


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the governments will expect the private sector to go by these “rules”, as it has become the

expected. The Queensland government has moved one step forward by producing their

own guidelines for PPP projects. Although based on the Victorian model, they have

added some further steps in the process to suit Queensland’s situation and needs.

5.3 A New Era of PPP - The Southbank Education and Training

Precinct Case Study

5.3.1 Background

Queensland is no exception and together with the demand for public infrastructure, the

private sector’s economic support is much more welcome. This section looks at the

obstacles faced by the Queensland government, from the case of the South Bank

Education and Training Precinct (SETP) in Brisbane, Australia. From the obstacles

highlighted by this case study it is hoped that jurisdictions elsewhere in the world can

learn from these and avoid them, in order to deliver successful PPP projects.

The first proper PPP project conducted by the Queensland government was the SETP. In

September 2002 the development of the SETP was announced. The goal was to develop

a multi-sectoral campus that built on developing greater links between schools, Technical

and Further Education (TAFE), universities, community groups and industry.


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The private sector was invited for expression of interest from February 2003 to 11 April

2003. Three consortia were shortlisted by August 2003. In the end only two bids were

received and Axiom Education Queensland Proprietary Limited was selected as the more

favourable consortium in December 2004. The parties within the consortium consisted of

ABN Amro, John Holland Proprietary Limited and Spotless Services Australia Limited.

After further rounds of reviews especially on the value for money aspect the consortium

was announced successful on 19 April 2005, to plan, design, construct, finance and

maintain the AUD550 million facility. The construction of this four hectare site is

currently still undergoing and aims to be completed by the end of year 2008 (Figure 5.1

shows an aerial photograph of the project under construction). The concession period

will be for 34 years (Queensland Government, 2008).

The SETP was initiated by the then Department of Employment and Training in

consultation and collaboration with the Department of Education and central agencies,

including the Premiers and Treasury. As the SETP represented the Queensland

government’s first project to be commenced under PPP guidelines, there were no state-

based or local examples to go by. Therefore in order to aid the concessionaire, they were

given access to policy material form the Department of State Development and

Innovation and also the opportunity to interview interstate government agencies which

had direct experience on the development and procurement of PPP projects. It was by

this way the concessionaire of SETP learnt to conduct PPP projects. On top the selected

consortium already had experience in PPP projects elsewhere beforehand.


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Figure 5.1 Ariel photograph of the Southbank Education and Training Precinct

project in October 2007 (Department of Education, Training and the Arts;

2008)

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5.3.2 The obstacles

Being the first PPP project in Queensland, SETP faced a number of problems early on.

Firstly the government’s design of the project was very conceptual. Therefore the actual

validity of the public sector comparator was highly questionable and hence so was the

debate of value for money. Although so the public sector comparator was still conducted

just as a governmental process to justify the project for being a PPP. Another worry for

the private consortium was the Queensland government’s commitment to proceeding

with the project. It is known that some organisations and companies in the private sector

were reluctant to participate in this project as the state government has had a previous

track record of pulling out a proposed PPP project. With the large project sum and the

complexity of PPP projects, the risks that they bear are immensely high. Therefore, the

private sector needs to be sure that they have the government’s full support throughout

the project to overcome potential obstacles.

In addition, many experts in the field believed that the Queensland government should

not have chosen such a complex project for its first PPP project. Social projects are often

considered more difficult to handle compared to economic ones where income is obvious.

In addition, partnership projects between the public and private sectors have always

traditionally been economic ones hence the experience and knowledge in this field is

much more advanced. This was another reason that drew away potential bidders due to

their lack of confidence that the project would succeed. In the end there were only two

bidders for this project. The lack of potential bidders is another issue thought to limit the


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competition in a PPP project. The lack of competition can be linked to the lack of quality,

innovation and price delivered. In order to boost up the number of potential bidders in

future, not only does the first project need to be a success, the Queensland government

has also proposed a small amount of compensation to the losing bidder. In the SETP case

the losing bidder was compensated AUD3 - 4 million. Although this is not the full

amount that they would have spent during the tendering stage it was more comforting to

get a partial return of the investment.

For the SETP project many of the protocols were already set out in the project deed

issued by the Queensland government. In terms of management practice there was little

difference to conventional methods. But a more rigorous risk management practice and a

better management practice overall was incorporated. Being a PPP project the other

issues that the consortium needed to deal with was the management of publicity and

media issues. In addition, the initial phase of this project took a long time. Much longer

than it should have, the government also noticed this and has stated that for future

projects they would definitely need to streamline the timeframe.

5.3.3 Other projects in Queensland

Following SETP, the Queensland government has already announced a further eight more

public projects which will be conducted by PPP also. These projects include: Airport

Link/Northern Busway; Gold Coast Rapid Transit; Gold Coast University Hospital; New

Queensland Driver Licence; Project Vista; South East Queensland Schools Project;


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Sunshine Coast Hospital and Toowoomba Bypass. The projects selected are all relatively

large projects of both social and economic nature.


Similar to other large projects, PPP projects also have specific obstacles to overcome. It

is hoped that the obstacles highlighted for the SETP case have informed practitioners of

the things that should be avoided and how PPP projects can be conducted better. Apart

from financing the private sector obviously has other added advantages to offer such as

efficiency, skills, innovation, expertise, risk sharing etc. But at the end of the day

governments opt to utilise PPP because it provides value for money in the long run for

them. Therefore before adopting PPP, governments should consider their drive for

utilising this approach. Public projects should be conducted by the method that is best

suited for their needs.


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5.4 Risk Sharing Mechanism for PPP Projects – The Sydney Cross

City Tunnel Case Study

5.4.1 Background

The Cross City Tunnel (CCT) in Sydney, Australia is a good example of how improper

allocation of risks could affect the success of a PPP project (Figure 5.2 shows a

photograph of the CCT). It is not incorrect for risks to be passed on to the private sector,

especially when they are capable to. But maybe there should be a “partnership” in place

when the private sector is unable to manage all the risks themselves. Some critiques

considered this project as an unsuccessful PPP as the local state government has had to

cope with handling many public opinions and criticisms for their inaccurate traffic

forecasts, leading to the investor making a financial loss.

The primary objectives of the CCT project were to reduce “through” traffic in central

Sydney, and as a result easing traffic congestion and improving environmental amenity in

the central business district and on streets approaching the central business district, and to

improve the east to west traffic flows (Roads Traffic Authority, 2003).


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Figure 5.2 Photograph of the Cross City Tunnel (Traffman, 2008)

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The CCT is a 2.1 kilometre twin two-lane motorway that runs east and west underneath

the busy central business district of Sydney. It opted for a Design Build Operate (DBO)

arrangement under a 30-year concession agreement. The project was part of a network of

new transportation infrastructure plan of the Roads and Traffic Authority of the New

South Wales Government. Its large project sum of AUD680 million meant that PPP was

an attractive option to the New South Wales Government.

The initial concept of the tunnel was mooted in 1998 (Cross City Tunnel Proprietary

Limited, 2007). After a series of complex consultations, exhibitions, modification and

approvals the private sector was finally asked for an expression of interest on 15

September 2000 (Roads Traffic Tunnel, 2003). In response, a total of eight consortia

expressed interest by 23 October 2000. Three consortia were shortlisted and asked to

submit detailed proposals for the project on 8 June 2001. All three consortia submitted

their proposals by the closing date of 24 October 2001. It was announced on 27 February

2002 that Cross City Motorway Proprietary Limited was selected as the winning

consortium.

The project commenced construction on 28 January 2003. It was delivered ahead of

schedule and took only 31 months to construct (typical for PPP projects). The tunnel was

officially opened for service on 28 August 2005 to the public. Unsurprisingly the project

attracted private sector from within Australia and abroad. The selected consortium

included strong financiers, Cheung Kong Infrastructure of China, Bilfinger Berger of

Germany and RREEF Infrastructure of Australia. They would bring in equity and


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recover the cost of design, construction, operation and maintenance via the tolls collected.

Therefore the project company Cross City Motorway Proprietary Limited was allocated

all the demand risk for the project. Innovation was introduced by the contractor. The

tunnel was the first motorway in Sydney to have full electronic tolling. There were high

levels of expectations for all the parties, the traffic forecast for the project was predicted

to be 90,000 vehicles per day.

A number of benefits were sourced from materials published and released from the

project company Cross City Motorway Proprietary Limited (Cross City Tunnel, 2007)

and the government agency client the Roads and Traffic Authority of New South Wales

(Government Roads Traffic Authority, 2007). These parties claimed that as a result of

the Cross City Tunnel project the following benefits would be experienced:

34 traffic signals avoided (16 sets westbound and 18 sets eastbound);

Major reduction of traffic across the central business district;

Improved quality of life for pedestrians and cyclists in the central business

district;

Higher reliability of bus services in the central business district;

Cut trips across the city to approximately 2 minutes, from up to 20 minutes by

avoiding traffic lights;

Improved access and movement within the city for taxis, delivery vehicles,

cyclists and pedestrians;


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Make city streets safer and more pleasant for pedestrians, residents and

business people by removing intrusive through traffic and providing more

footpath space in some streets;

Reduced traffic noise levels; and

Better air quality by taking cars off surface streets.

Despite the benefits of PPP which have been highly publicised, some may consider that

there are also many “failures” from the project. The next sub-section takes a closer look

into these “failures”.

5.4.2 Underlying causes leading to failure

CCT has been perceived as an unsuccessful case by the general public and as a result the

government’s image has suffered (Jean, 2006). To illustrate some of the negative

portrayals of the project, some headlines related to the project were sought and shown in

Figure 5.3. Amongst these seven headlines, three are related to the toll. This can show

that the toll is probably one of the key factors affecting the satisfaction level of the

general public towards CCT, and also one of the issues that is highly sensitive amongst

them.


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Figure 5.3 Examples of newspaper headlines relating to the CCT when it opened



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PPP has been given a bad name and investors have been driven away from New South

Wales, at least temporarily (AAP General News Wire, 2006a). CCT encountered severe

difficulties in reaching the predicted traffic volume. Motorists have expressed their

unhappiness towards the high toll levels (AAP General News Wire, 2006b) and the

government closing off the surface roads to direct the traffic into CCT (AAP General

News Wire, 2006c). These sufferings have been the result of inaccurate traffic forecast

and flawed concession agreement. Currently, CCT has entered into receivership and the

concessionaire has written off their equity (Project Finance, 2007).

In this project it has been unfortunate that the public client and the private consortium

have openly argued in public. Newspapers have reported them criticising each other for

their faults (Field, 2006a). The Premier publicly spoke out expressing his frustration that

motorists were able to use the toll road without paying. He criticised the operators for

not enforcing the charge and how it was unfair for the motorists who did pay (AAP

General News Wire, 2006d; Field, 2006b). On the other hand the consortium also

criticised the Premier for failing to demonstrate leadership (AAP General News Wire,

2006e). It can be seen how the media has portrayed a tense battle between the public and

private sectors. This is an image that nobody wants to create for any project whether it is

delivered by PPP or not. But being a PPP project creates an even higher sensitivity, as

tax payers will query whether they are actually getting value for money from the

government’s decision.


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Following the unfortunate events experienced, the private consortium requested the local

state government to pay them a toll subsidy and compensation for the road changes.

Unfortunately the two parties were unable to come to a satisfactory agreement (AAP

General News Wire, 2006f). But in order for the CCT case not to be repeated the local

state government considered to pay the consortium compensation for the Lane Cove

Tunnel, which is also in Sydney, if unfortunately traffic forecasts are also predicted

inaccurately (Cratchley and Jean, 2006a; 2006b). This action from the government was

positive as it showed that they were aware that there were problems in the CCT project,

and that they should share the responsibilities by undertaking more of the risks rather

than passing the pressure solely to the private consortium.

In 2005 the New South Wales government produced a report titled “Review of Future

Provision of Motorways in NSW” (Infrastructure Implementation Group, 2005). The

report reviews recent road projects including the CCT in order to improve future similar

projects. It is unfortunate to see that more barricades are set up to protect the government,

as a result of which risks are further passed on to the private sector. For example, in the

document they expressed their preference to bidders with the “lowest” toll. This line of

thinking is similar to selecting the lowest cost bidder, which should not be the only way

to select the consortium. Instead, value for money for the project overall should be their

main concern. By focusing on the toll only, other important features adding to value may

be neglected such as innovative techniques and skills used in the project to make it more

efficient and as a result creating value for money. Quality of the works may also suffer.


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In the report it was also mentioned that in Victoria all the main variables which would

affect the commercial outcome of the project for all parties would be negotiated at the

bidding stage. But in New South Wales the toll level or the possibility of government

contribution would not be open to negotiation. Therefore whether value for money for

the taxpayers is achieved is questionable. The report has indicated that the New South

Wales government is clearly aware of their faults, but whether they actually rectify the

situation is to be observed.

To consolidate the findings reported by the press discussed previously, the underlying

causes leading to the “failure” of the CCT project include:

Inaccurate traffic forecast;

High toll levels;

Government closing off the surface roads to direct the traffic into CCT;

Flawed concession agreement;

The public client and the private consortium arguing openly in public;

No toll subsidy and / or compensation from the government;

The toll level or the possibility of government contribution was not open to

negotiation.


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5.4.3 Appropriate risk allocation

Grimsey and Lewis (2002) identified nine main risks affecting all types of infrastructure

projects. These included technical risk, construction risk, operating risk, revenue risk,

financial risk, force majeure risk, regulatory/political risk, environmental risk, and project

default. On the other hand (Lam et al., 2007) identified seven key risk allocation criteria:

Whether the party is able to foresee the risk;

Whether the party is able to assess the possible magnitude of consequences for

the risk;

Whether the party is able to control the chance of the risk occurring;

Whether the party is able to manage the risk in case of occurring;

Whether the party is able to sustain the consequences if the risk occurs;

Whether the party will benefit from bearing the risk; and

Whether the premium charged by the risk receiving party is considered

reasonable and acceptable for the owner.

According to the terms and conditions set out in the Project Deed of CCT, the private

consortium accepted more or less all the risks associated with the project. The private

sector is often willing to take up large proportions of risk to gamble for their desired

returns. The government is also concerned about the consortium's readiness to accept

risk (Ahadzi and Bowles, 2004). But it is a surprise that the government is willing to

allow the private sector to take up such a large proportion of the risks. However in the

arrangement the social responsibility will always be the public sector’s. Therefore the


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government should consider whether the consortium is able to handle the risk effectively.

In an ideal situation the risks should be shared equitably so that the party best able to

manage that risk will take up the role. The risks that the consortium agreed to take on

board in the Project Deed included (Roads Traffic Authority, 2003):

All risks associated with the financing, design, construction, operation,

maintenance and repair costs of the project;

The risks that traffic volumes or project revenues may be less than expected;

Income tax risks; and

The risks that their works or operational and maintenance activities might be

disrupted by the lawful actions of other government and local government

authorities or a court or tribunal.

Clifton and Duffield (2006) undertook a study where they looked into the risk allocation

structure for several recent PPP projects in Australia. One of these cases included the

CCT and realised that the risks for each party were quite evenly spread. But further study

showed that the intensity of the risks allocated to the private sector were actually much

more intense compared to those allocated to the local state government, as shown in

Table 5.1.


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Table 5.1 Risk allocation structure for CCT (Clifton and Duffield, 2006)

Risk Allocated to Government Risk Allocated to Consortium

Native title risks Design, construction and commissioning

risks

Force majeure Delay and completion risks

Uninsurable risks Ground/geotechnical conditions risks

Legislative and Government Policy Operation and maintenance/facility

management risks

Shen et al. (2006) studied the risk allocation for public sector projects in Hong Kong.

From literature they identified a number of major risks affecting public sector projects.

In their analysis they selected the Hong Kong Disneyland as a case study. This case

study demonstrated which risks would be most suitably allocated to each party. The

study concluded that the public sector should be allocated the site acquisition risks,

inexperienced private partner risk and legal and policy risks. On the other hand, the

private party should be allocated the design and construction risks, operation risks and

industrial action risks. Lastly, Shen et al. (2006) advocated the importance that there are

some risks which both parties should share, these include development risks, market risks,

financial risks and force majeure. Although Shen et al.’s (2006) study was conducted for

a project in another country and of a different nature; it is believed that these shared risks

as mentioned could also apply to other PPP projects such as the CCT. CCT suffered

immensely due to the market and financial risks. If these were shared risks as suggested


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by Shen et al. (2006), the intensity of the damage to the consortium could have been

minimised.

Traffic revenue risk has been identified as one of the most critical risks impacting the

commercial success of road projects delivered by PPP (Singh and Kalidindi, 2006). In

order to overcome traffic revenue risk, the annuity-based Build Operate Transfer (BOT)

model1 has been presented as a good solution. Unlike the traditional BOT type road

economic projects, the concessionaire will be paid by the governmental client a fixed

semi-annual annuity. This approach is similar to that used for the social infrastructure

PPP projects such as hospitals and schools which are paid by a regular fixed payment.

Similarly the annuity-based BOT model will require the concessionaire to achieve certain

milestones and standards. The payment will be used to cover the design, construction,

maintenance and operation of the road and its facilities. As a result the concessionaire

does not undertake any of the traffic revenue risk. This approach ensures that the

governmental client must also undertake their fair share of risks.

The risk allocation framework shown in Table 5.2 shows the appropriate risk allocation

for each party under the annuity-based BOT model. Amongst the sixteen risks listed,

over half or nine are undertaken by governmental clients. In general the concessionaire is

responsible for the risks related to the construction and operational performance of the

facility. Other risks which are less predictable and controllable are taken by

governmental clients. By adopting this approach the business case may not be as

1 Annuity-based BOT model – a fixed amount of payment is made by the public sector to the private sector for running the project.


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attractive to the private sector. The private sector is often willing to take up more risks in

return for the possibility of financial benefits. The private sector should not be solely

responsible for taking these decisions. Instead the government should also consider

whether they should allow the private sector to take up large risk.

Table 5.2 Risk allocation framework for the annuity-based BOT model (Singh and

Kalidindi, 2006)

Risk Allocated to Government Risk Allocated to Consortium

Pre-investment Delay in financial closure

Resettlement and rehabilitation Time and cost overrun during construction

Permit/approval Time and cost overrun during operation

and maintenance

Delay in land acquisition Non-political force majeure

Delay in payment of annuity Performance standards

Change of scope Lane availability

Traffic revenue risk Interest rate risk

Change in law

Political risk

Another payment mechanism similar to the annuity-based BOT model was proposed, in

that the patronage risk stays with the government (Aziz, 2007). The shadow-toll Design


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Build Finance Operate (DBFO) system2 is similar to the BOT system except shadow tolls

are used instead of real tolls. The government will pay a toll per vehicle per road

kilometre instead of the end users paying the toll. Another option is the performance-

based DBFO system3. For this payment mechanism the services and the operational

performance of the contractor are emphasised rather than the usage of the facility.

From the experience of several road projects including the CCT, the New South Wales

government identified some lessons learnt (Infrastructure Implementation Group, 2005):

Need for consultation and communication over the life of project procurement;

Need for improved community consultations and messages;

Responsibility of government client over procurement life of project; and

Greater onus on the consortium to accept full responsibility over the whole life

of the concession period.

The fourth lesson learnt indicates that the Government feels they have accepted too much

of the project risks. Therefore they appear to be keen to ensure that the consortium will

take a larger responsibility for risks in future.

2 Shadow-toll DBFO system - payment is made by the public sector to the private sector based on the number of vehicles using the road. 3 Performance-based DBFO system - payment is based on the service and operational performance rather than the usage.


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5.4.4 Risk sharing mechanism

PPP should be adopted primarily based on value for money. Obviously the package is

accompanied by various other advantages which are attractive to the government such as

private financing and transfer of risks. But the decision to adopt PPP should not be solely

based on these additional advantages.

As discussed previously risks should always be allocated to the party best able to handle

them. The party allocated the risk should be the one most able to prevent it from

occurring. And if the risk does occur the allocated party should be the one most able to

minimise the consequences.

The inaccurate traffic forecast was the main reason that led to the collapse of the project

company. As a result of this fault other actions were taken by the concessionaire to

overcome the reduced traffic flow. These actions led to further complications which in

turn ruined the partnership agreement between the public and private sectors.

In the case of CCT the inappropriate allocation of risks was believed to be the root cause.

In some cases the government may subsidise or compensate the concessionaire if the

project revenue is less than expectation or if the contract is terminated. But often there is

much argument as to the amount which this subsidy or compensation should be. For

example, railways in Hong Kong have been implemented very successfully by MTR

Corporation using the “Railway plus Property Model” (Asian Development Bank, 2009).


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The cost of constructing and operating railways is often very high. The R+P model uses

the surrounding development rights to compensate for the losses encountered for

delivering the railway. Public transport is particularly important to the development of a

city but as they are often expensive to deliver, private parties will not be interested unless

there are other means they can profit or there is subsidy available, like in the case of the

R+P model.

To prevent similar cases from occurring, an optimal risk sharing mechanism is presented.

The risk sharing mechanism can be adopted in projects of high risk nature. CCT was a

project of high risk due to its scale and significance. In this risk sharing mechanism,

projects which are traditionally economic infrastructure projects such as transportation

projects can adopt a regular fee payment from the government instead of bearing the

revenue risk. This approach is similar to social infrastructure projects. As mentioned

previously in this paper other researchers have also reported the possibility and feasibility

of this arrangement for economic infrastructure projects.

Under this mechanism, the consortium of high risk economic infrastructure projects will

be paid via a regular fee payment. In this way the payment will be based on project

performance rather than usage. As in social infrastructure projects certain risks are still

taken by the concessionaire, such as those associated with the design, construction,

operation and maintenance. But the other risks should be dealt with by the government

including revenue risk.


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Although the economic package for projects paid by a regular fee may not be as attractive

to the private sector, this type of mechanism for high risk projects can help to protect the

private sector. By protecting the private sector the government will also benefit, since as

always the ultimate responsibility lies with them. The government may be able to pass

on most of the financial risks but for social responsibility they cannot avoid. Hence this

proposed mechanism is believed to benefit all parties involved.

The details of the proposed risk allocation mechanism will vary depending on the project

itself. But it is likely that the payment will be a regular fee paid to the concessionaire

based on performance and activity milestones. Under the agreed payment the

concessionaire will deliver a service to the public according to standards as agreed to in

the contract. If the concessionaire under performs then they will be penalised by a

deduction of their fees. In this way the concessionaire is monitored by the project’s

performance rather than usage of the facility. In the CCT project the concessionaire had

to bear the revenue risk, hence their main priority was to generate revenue. They used

toll prices and redirecting traffic to bring in revenue which just caused public frustration.

Although the local state government could have prevented these actions, they did not step

in. If the consortium had not needed to worry about the revenue, the public would have

been more satisfied. As a result the public perception of the facility, the project company

and the local state government would have been very different!


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CCT was designed as part of a large infrastructure network plan for New South Wales,

Australia. Due to its complexity and size, PPP appeared to be an attractive delivery

method. Under PPP procurement the financing would be provided by the private sector.

Also expertise and innovation which would otherwise be unavailable within the local

state government could be sought. As a result the local state government managed to

pass on many of the project risks to the private sector. Obviously for a project of this size

there would be abundant financial opportunities for the private sector, hence they were

readily willing to take up the associated risks for the chance to be involved. The situation

could have been a win-win case but unfortunately this was not actually what happened.

Media reports have reflected CCT as an unsuccessful PPP project. For the consortium

this may have been the case. For the local state government, although they have received

some negative critiques, at the end of the day they have still constructed a world class

infrastructure facility. For the general public, the scandal may have been more amusing

to them rather than affecting! It is not easy and probably impossible to distinguish

whether any case is either solely successful or a failure. Instead it is believed that lessons

learnt from each case can be sought.

This section has looked into a highly profiled case and tried to recommend solutions to

overcome the potential obstacles. As a result a more suitable risk sharing mechanism for

projects similar to the CCT has been presented to achieve win-win service outcomes.


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This chapter has studied the development of PPP in Australia by analysing two highly

profiled cases: The Southbank Education and Training Precinct in Brisbane and the Cross

City Tunnel in Sydney. The obstacles encountered in these cases have been highlighted,

and measures have been suggested for future projects that may encounter similar

problems. It was found that projects should be delivered by the most suitable

procurement method. And value for money should be a key reason for delivering

projects by PPP. It was also found that risk is sometimes unfairly allocated amongst

parties. Instead equitable risk allocation should be achieved. In theory, the risk should

go to the party best able to handle it. It is believed that through valuable previous

experiences, PPP projects can be better implemented in future.

Chapter 6 Different Perspectives on Procuring Public Works Projects in Hong Kong and Australia

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CHAPTER 6

DIFFERENT PERSPECTIVES ON PROCURING PUBLIC

WORKS PROJECTS IN HONG KONG AND AUSTRALIA


6.2 The Public Sector’s Perspective

6.3 The Private Sector’s Perspective

6.4 The Researcher’s Perspective



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This chapter presents the findings from thirty-five interviews conducted in Hong Kong

and Australia with experts involved with Public Private Partnership (PPP) projects. The

findings from these interviews were analysed according to the perspectives of the public

sector, private sector and researchers. Within each of these categories, the findings from

Hong Kong and Australian interviewees were further compared.

6.2 The Public Sector’s Perspective

6.2.1 Selecting respondents

The target public sector respondents of the interviews were practitioners with experience

in PPP of senior level and authority who have had experience. A total of fourteen

interviews were conducted with experts from the public sector. Seven interviews were

conducted in each jurisdiction. Amongst the seven interviews conducted in Hong Kong,

two were from Administration Departments (one of the interviewees previously

represented a Works Department), three were from Works Departments (one of which

previously represented an Administration Department and the other also holds a position

at a local institute), two of the interviewees were from Non Governmental Organisations

(NGO) (both had previously acted for different Works Departments).


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The Australian interviewees consisted of three government officials and four specialist

advisers from the private sector. The government officials interviewed are from local

state education and treasury departments. When arranging the interviews in Australia, it

was found that the state governments tended to employ advisers from the private sector to

act on their behalf in providing advice and expertise for selecting and monitoring the PPP

project consortia. Therefore four advisers from the private sector were also selected for

interview. Their roles were solely on behalf of the public sector hence their responses can

also be regarded as the public sector’s view. Background details of these experts are

shown in Tables 6.1 and 6.2 for Hong Kong and Australian interviewees respectively.


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Table 6.1 List of interviewees from the public sector in Hong Kong

No. Position of Interviewee Organisation of Interviewee Experience of Interviewee

PU1 Assistant Director Administration Department Produced many PPP guidelines and conducted research.

PU2 Permanent Secretary

Administration Bureau

(previously Works Department)

Involved with initiating PPP projects in a works

department he previously worked for.

PU3 Director

Works Department

(previously Administration Bureau)

Involved with on-going PPP projects.

PU4 Assistant Director Works Department

Involved with on-going PPP projects.

PU5 Senior Quantity Surveyor Works Department / Local

Professional Institute

Founder of a PPP research working group for his

institute.

PU6 Executive Board Member NGO (previously Works

Department)



PU7 Executive Director NGO (previously Works

Department)




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Table 6.2 List of interviewees from the public sector in Australia


PU8 Executive Director

Education Department His department initiated a social PPP project of which he

was responsible for the overall delivery.

PU9 Director

Treasury Department Involved with delivering many PPP projects, producing

guidelines, training, courses and research.

PU10 Executive Manager

Treasury Department Involved with delivering many PPP projects, producing

guidelines, training, courses and research.

PU11 Executive Director

Transaction Adviser Acted as governments’ adviser for many PPP projects,

managing the tender, evaluation, negotiation and award.

PU12 Partner

Legal Adviser Acted as the governments’ legal adviser for many PPP

projects.

PU13 Head

Finance Adviser Acted as the governments’ financial adviser for many

PPP projects.

PU14 Director

Finance Adviser Acted as the governments’ financial adviser for many

PPP projects.


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6.2.2 Interview findings

Table 6.3 shows a summary of the responses to each question given by the fourteen

interviewees. The number of times that each response was given was tallied. Where the

response was only given once it was believed to be insignificant for further analysis. For

the responses given more than once, these were tabulated and further analysed as shown

in Tables 6.4 to 6.9. The numbers in brackets represent the number of times the response

was mentioned by interviewees.


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Table 6.3 Summary of responses from public sector interviewees

Hong Kong Interviewees Australian Interviewees PU1 PU2 PU3 PU4 PU5 PU6 PU7 Total PU8 PU9 PU10 PU11 PU12 PU13 PU14 Total 1. Have you conducted any research looking at local case studies? And if so, could you share your insights? Local case studies 1 4 International case studies 3 2 Other research conducted 5 5 Not mentioned 2 2 2. How would you compare PPP with traditional procurement methods? Using a Public Sector Comparator 2 0 Longer tendering/negotiation for PPP 1 1 Government act as supervisor in PPP 1 0 Traditional method accepted as norm 1 0 Each project is unique 2 0 Difference in payment mechanism 1 0 PPP projects gain private sector’s added efficiency/expertise/management skills

2 2

PPP projects delivered faster 1 0 PPP utilises private sector finance/difference in finance structure

1 4

PPP tend to be large project sums 1 0 Difference in risk profile 0 1 Operational differences 0 1 Management differences 0 1 PPP projects have a more transparent process

0 1

PPP considers whole life cycle cost 0 1


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More parties involved in PPP 0 1

3. Which type of project do you feel is best suited to use PPP? Link between performance and payment 1 0 Each project unique 1 0 Economically viable 3 3 Value for Money 1 0 Large operating element/cost 2 0 Performance easily measured 1 2 Mutual benefits for all parties 1 0 Economic infrastructure 0 1 Scope for innovation 0 3 High project costs 0 2 Any nature 0 2 Sufficient risk transfer 0 2 4. What do you feel are the key performance indicators in a PPP project? Project performance 1 2 Resources saved 2 0 Contractor’s performance 2 2 Traditional KPIs: Cost, time, quality 3 1 Risk Management 1 2 Public acceptance 1 0 Value for money achieved 0 1 Service outcomes 0 1 Contract terms 0 4 Client satisfaction 0 1 Payment mechanism performed 0 1


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5. In general, what do you think are the critical success factors leading to successful PPP projects? Champion 1 3 Large project capital value 1 0 Well prepared contract/document 2 1 Partnership spirit/commitment/trust 2 2 Transparent process 2 1 Project objectives well defined 3 3 Public consultation 3 1 Appropriate risk allocation 4 1 Large operating element 1 0 Development potential 1 0 Economically viable 1 2 Effective negotiations between parties 0 1 Competitive procurement process 0 5 Government support 0 2 Skilled and experienced parties 0 4 Clear milestones 0 3 Initiate project 0 1 Value for money 0 2 6. Does your organisation have any in-house guidance/practice notes? Yes 3 6 No 4 0 Refer to others 2 1


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6.2.2.1 Research on local case studies

Table 6.4 shows the responses of Question 1 “Have you conducted any research looking

at local case studies?” that were given more than once. The findings show that three

different responses were given by Hong Kong interviewees and four were given by the

Australians. Amongst the four responses given by the Australian interviewees, three were

the same as those given by the Hong Kong interviewees. The response which was given

most by both groups of interviewees was “Other research conducted”, mentioned five

times for each. This finding showed that irrespective of geographical locations the

interviewees tended to conduct other research besides case studies on PPP.

The response “Local case studies” was mentioned four times by the Australians. It is

possible that because Australia has had much experience in conducting PPP projects, they

do not need to look else where to learn from the experience of others, instead they can

refer to their own projects as reference material. As mentioned previously the Victoria

state in Australia for example has a large range of guidance materials on the public

domain which other states can refer to when conducting PPP projects (Partnerships

Victoria, 2008b).

On the other hand the Hong Kong interviewees mentioned “International case studies”

three times showing there need to learn from the experience of others. The Efficiency

Unit of the Hong Kong Special Administrative Region (HKSAR) government has also

been known to be interested in international case studies. They have also published a


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number of case study reports for PPP projects in the United Kingdom and Australia

(Efficiency Unit, 2008c). The Australians also mentioned this response two times. From

the interviews it was found that the involvement in research was “Not mentioned” twice

by each group of interviewees.

Table 6.4 Question 1 - Have you conducted any research looking at local case

studies?

Hong Kong Interviewees Australian Interviewees

Other research conducted (5) Other research conducted (5)

International case studies (3) Local case studies (4)

Not mentioned (2) Not mentioned (2)

International case studies (2)

6.2.2.2 Comparing PPP with traditional procurement methods

Table 6.5 shows the responses mentioned more than once by both groups of interviewees

for Question 2 “How would you compare PPP with traditional procurement methods?”

Three and two different responses were mentioned more than once by the Hong Kong

and Australian interviewees respectively. For all three responses mentioned by the Hong

Kong interviewees each was mentioned twice.

Mentioned the most by Australian interviewees was “PPP utilises private sector

finance/difference in finance structure” which was mentioned four times. This finding


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shows the importance of the different financing structure provided by PPP projects.

Although finance should not be the main reason for adopting PPP projects, undoubtedly,

financial drive is still an attractive factor to governments, hence this response was

unsurprising.

Mentioned by both groups of interviewees was the response “PPP projects gain private

sector’s added efficiency/expertise/management skills”. This response was also

mentioned twice by the Australian interviewees. From previous literature it has also been

recorded that one of the main advantages of involving the private sector is to add value to

public projects in terms of their efficiency, expertise and management skills when

compared to those of the public sector (Yescombe, 2008; Carrillo et al., 2007; Leiringer,

2006).

Other response mentioned by the Hong Kong interviewees included “Using a Public

Sector Comparator”, which was also mentioned by the Efficiency Unit (2003a) of the

HKSAR government as necessary whenever public money is involved. Also “Each

project is unique” was mentioned by the Hong Kong interviewees too.


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Table 6.5 Question 2 - How would you compare PPP with traditional procurement

methods?


Using a Public Sector Comparator (2)

PPP utilises private sector

finance/difference in finance structure

(4)

PPP projects gain private sector’s

added efficiency/expertise/

management skills (2)

PPP projects gain private sector’s

added efficiency/expertise/

management skills (2)

Each project is unique (2)

6.2.2.3 Projects best suited to use PPP

The Interviewees were asked to answer “Which type of project do you feel is best suited

to use PPP?” in Question 3. Table 6.6 shows their responses that were mentioned more

than once. The results showed that only one similar response was mentioned by both

groups of interviewees. This was “Economically vaible” which was mentioned three

times by both groups of interviewees and also mentioned the most. The private sector

parties are businessmen, so for them to participate in PPP projects there must be

reasonable financial benefits foreseeable for them. Partnerships Victoria (2001) explains

how developing a business case is a key step in the decision-making process. This is

where the project is fully scoped and the risks and costs are identified to develop a cost-

benefit analysis, as well as to test the net benefit of the proposal.


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The Hong Kong interviewees suggested only one more criteria for PPP projects, which

was “Large operating element/cost” mentioned twice. One typical feature of PPP projects

is that the consortium is normally responsible for the operation and maintenance of the

project. Without this element PPP projects would be similar to projects procured

traditionally. Therefore the operation part must constitute a reasonable proportion of the

project. Grimsey and Lewis (2004) listed a number of public private business models

prior to the more general term PPP, many of these emphasised the operation element of

the structure within its name, showing the highly important role in these arrangements

including: Operate and Maintain (O&M); Operate Maintain and Manage (OM&M); Build

Transfer Operate (BTO); Build Operate Transfer (BOT); Build Own Operate Remove

(BOOR); Build Own Operate Transfer (BOOT); Lease Renovate Operate Transfer

(LROT); Design Build Finance Operate (DBFO); Design Build Finance Operate Manage

(DBFOM); Build Own Operate (BOO) etc.

Other response given by the Australian interviewees included “Scope for innovation”

(Eaton et al. 2006) which was mentioned three times. Also, mentioned twice each by the

Australians included “Performance easily measured” (Partnerships Victoria 2001), “High

project value” (HM Treasury 2003), “Any nature” and “Sufficient risk transfer” (Jin and

Doloi 2008). These features forming suitable PPP projects have been previously recorded

by other researchers as well.


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Table 6.6 Question 3 - Which type of project do you feel is best to use PPP?


Economically viable (3) Economically viable (3)

Large operating element/cost (2) Scope for innovation (3)

Performance easily measured (2)

High project value (2)

Any nature (2)

Sufficient risk transfer (2)

6.2.2.4 Key performance indicators in PPP projects

The interviewees were also asked to answer Question 4 “What do you feel are the key

performance indicators in a PPP project?” (Table 6.7). Amongst the responses received,

three were mentioned more than once by the Hong Kong interviewees and four by the

Australian interviewees.

The response “Contract terms” was mentioned the most at four times by the Australian

interviewees. In Australia high priority is given to the contract component of projects

procured by PPP. Guidelines have also been published on this aspect (Partnerships

Victoria 2008c). The response mentioned the most by Hong Kong interviewees was

“Traditional KPIs: Cost, time, quality”. Probably due to the lack of experience in PPP

projects (not including BOT type projects), the Hong Kong interviewees did not

commonly come up with any responses that were specifically related to PPP projects


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solely. Only one response was raised by both groups of interviewees, this was

“Contractor’s performance” which was mentioned twice by each group of the

interviewees.

Also mentioned twice by the Australian interviewees were the responses “Project

performance” and “Risk Management”. The performance of the contractor and project

are items which would definitely be mentioned in the contract documents, these again

confirm the importance of the contract to the Australian interviewees. Many studies have

been conducted on the importance of risks in PPP projects (Akbiyikli and Eaton, 2004; Li

et al., 2004; Li et al., 2005a; Shen and Wu, 2005). One of the main reasons for

implementing public projects by PPP is also for risk transfer, therefore to classify the risk

management as a performance indicator is also reasonable.

Another response mentioned by Hong Kong interviewees was “Resources saved”. PPP

projects are normally only conducted after they have been proved to be a cheaper

alternative to traditionally procured projects. This is normally conducted via the Public

Sector Comparator (Efficiency Unit, 2003a; Partnerships Victoria, 2008b).


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project?


Traditional KPIs: Cost, time, quality

(3)

Contract terms (4)

Contractor’s performance (2) Contractor’s performance (2)

Resources saved (2) Project performance (2)

Risk Management (2)

6.2.2.5 Critical success factors leading to successful PPP projects

Question 5 “In general, what do you think are the critical success factors leading to

successful PPP projects?” received the most variation of responses from the interviewees

(Table 6.8). This probably indicated that there are many ways for PPP projects to achieve

success.

For responses that were mentioned more than once, there were six from the Hong Kong

interviewees and nine for the Australian interviewees. Amongst these only two were

similar for both groups of interviewees, these included “Project objectives well defined”

which was mentioned three times by each group of respondents and “Partnership

spirit/commitment/trust” mentioned twice by each group of interviewees. As mentioned

by the Efficiency Unit (2008d) and the Queensland Government (2008b) the

objectives/output specification of a PPP project must be well defined. The importance of


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partnership spirit was also identified by Gunnigan and Eaton (2006).

Mentioned the most frequently by Australian interviewees was “Competitive procurement

process” (Jefferies et al., 2002) at five times, followed by “Skilled and experienced

parties” (Drew, 2005) at four times, “Champion” (Efficiency Unit, 2008b) and “Clear

milestones” (Civic Exchange et al., 2005) both three times and “Economically viable”

(Chege, 2001), “Government support” (Qiao et al., 2001) and “Value for money” (Heald,

2003) all twice.

Mentioned the most by Hong Kong interviewees was “Appropriate risk allocation” (Li et

al., 2005a) at four times, “Public consultation” (Kanakoudis et al., 2007) at three times

and “Well prepared contract/document” (Partnerships Victoria, 2008c) and “Transparent

process” (United Nations Economic Commission for Europe, 2004) both at two times.


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Appropriate risk allocation (4) Competitive procurement process (5)

Public consultation (3) Skilled and experienced parties (4)

Project objectives well defined (3) Project objectives well defined (3)

Well prepared contract/document (2) Champion (3)

Transparent process (2) Clear milestones (3)

Partnership spirit/commitment/trust

(2)

Partnership spirit/commitment/trust

(2)

Economically viable (2)

Government support (2)

Value for money (2)

6.2.2.6 In-house guidance/practice notes

For Question 6 “Does your organisation have any in-house guidance/practice notes?” it

was found that the majority of the interviewees (six out of seven) in Australia responded

“Yes”, whereas only three interviewees in Hong Kong agreed (Table 6.9).

Four Hong Kong interviewees responded “No” and two responded “Refer to others”.

This finding has shown that the Australians were much more likely to have their own

guidance materials, whereas for the Hong Kong interviewees the responses varied.


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Australia has implemented many more PPP projects compared to Hong Kong; hence they

can also be regarded as much more experienced. The Victoria state in Australia alone has

implemented seventeen projects under the Partnerships Victoria arrangement

(Partnerships Victoria, 2008a) as mentioned previously. On the other hand, not

considering the previous projects conducted by BOT, Hong Kong has only completed a

couple of PPP projects.

Table 6.9 Question 6 - Does your organisation have any in-house guidance/practice

notes?


No (4) Yes (6)

Yes (3)

Refer to others (2)


This section has studied the public sector’s perspective on procuring public works

projects via findings from fourteen interviews conducted in Hong Kong and Australia.

Government officials and advisers with experience in PPP projects and research were

invited to answer six questions related to the implementation.

The results found that interviewees from both jurisdictions had conducted some kind of

research in the area and had looked at international cases. This finding has shown that


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governments in both jurisdictions have shown an interest in other sources of information

besides real cases and also both are keen to learn from international experiences.

Therefore other governments can also consider using a similar approach if they have not

already done so.

Both groups of interviewees also found that the main difference between PPP and

traditional projects is that in a PPP project there is the added advantage of the private

sector’s efficiency/expertise/management skills involved. Therefore other governments

could consider whether this added advantage is required from the private sector when

they consider whether or not to opt for the PPP model in their public work projects. The

interviewees from Hong Kong also suggested using the Public Sector Comparator as an

indicator to determine the preference between the methods. Other criteria recommended

by the Australian interviewees were the private sector financing and finance structure of

the project. Again these could be used as indications to which method to opt for.

The interviewees were asked which projects would be suitable to use PPP; both groups

suggested that an economically viable project would be crucial. Another important

feature according to the Australian interviewees is scope for innovation.

It was suggested by both groups of interviewees that the contractor’s performance would

be the key performance indicator in a PPP project. The Hong Kong interviewees also

suggested that the traditional key performance indicators such as cost, time and quality

are also important. The Australian interviewees suggested that the contract terms should


153

be considered. These findings are valuable for measuring the performance of a PPP

project for both the public and private sectors.

Common critical success factors mentioned by both groups of interviewees included the

project objectives being well defined and a partnering spirit/commitment/trust. These

factors should be considered by all parties before the project begins to ensure that they

are achieved. The Hong Kong interviewees also felt strongly that an appropriate risk

allocation would achieve success in the project. For the Australian interviewees a

competitive procurement process was the most important success factor.

Lastly it was found that all the interviewees from Australia and some of the ones from

Hong Kong had a practice of having their own organisation guidance/practice notes. This

practice is highly recommended and especially useful for individuals and companies that

are inexperienced with the PPP practice.

A large number of differences were observed between the findings from the two

jurisdictions. This result is logical as each jurisdiction will differ in practice, culture,

geographical location, experience, tradition, politically, economically, socially etc.

Hence it is of interest to compare these differences.


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6.3 The Private Sector’s Perspective


The target private sector respondents of the interviews were practitioners with experience

in PPP of senior level and authority within the private sector. A total of fourteen

interviews were conducted, with seven interviews conducted in each jurisdiction.

Interviewees of different backgrounds were purposely selected to compare the similarities

and differences within the private sector. This would make the findings even more

representable if common findings are derived even though their backgrounds are so

diverse.

Amongst the seven interviews conducted in Hong Kong, four of the interviewees work

for local companies whereas the other interviewees each work for a Japanese, French and

Australian company respectively. These companies comprise of a property developer,

three construction companies, an exhibition company, a law firm and a service provider.

Most of the Australian interviewees work for companies of their own country. Again the

majority (four out of seven) of these are construction companies. The other three

companies include a project management company, a bank and a credit rating company.

Details of these experts are shown in Tables 6.10 and 6.11 for Hong Kong and Australian

interviewees respectively.


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Table 6.10 List of Interviewees from the private sector in Hong Kong


PR1 Project Advisor Local Property Developer

Strong interest in PPP, previously bid for several PPP

projects but unsuccessful.

PR2 Deputy General Manager Japanese Construction Company

working in Hong Kong

Involved with the design and construction of several PPP

projects.

PR3 General Manager Local Exhibition Company

Previously a general manager for a social PPP project.

PR4 Engineering Director French Construction Company

working in Hong Kong

Involved with the design and construction of several PPP

projects.

PR5 Executive Director Local Construction Company

Conducted PPP projects in other countries.

PR6 Managing Partner Australian Law Firm working in

Hong Kong

Acted as legal adviser for PPP projects in other countries.

PR7 Commercial Manager Local Service Provider

Involved with an on-going PPP project.


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Table 6.11 List of Interviewees from the private sector in Australia


PR8 Executive Manager

Local Construction Company Involved with the design and construction of many PPP

projects.

PR9 Manager


projects.

PR10 Manager


projects.

PR11 Manager


projects.

PR12 Director Local Project Management

Company

Acted as the project director for many PPP projects.

PR13 Head

Local Bank One of the main financiers of PPP projects globally.

PR14 Managing Director

American Credit Rating Company Advised bidders on PPP projects.


157


Table 6.12 shows a summary of the responses to each question given by the fourteen



the responses given more than once, these were tabulated and further analysed as shown

in Tables 6.13 to 6.14. The numbers in brackets represent the number of times the

response was mentioned by interviewees.


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Table 6.12 Summary of responses from private sector interviewees

Hong Kong Interviewees

Australian Interviewees

PR1 PR2 PR3 PR4 PR5 PR6 PR7 Total PR8 PR9 PR10 PR11 PR12 PR13 PR14 Total

1. Which PPP projects has your company been involved in? Local projects 3 5 Local and international projects 4 2

2. Please describe the implementation process in these projects. Increase competition 1 0 Reduce competition 0 2

Refer to Efficiency Unit Guidelines 1 0 Government and authority co-promoted 1 0 Consultations before project start 1 0 Not initiated by Treasury Department 1 0 Pre-qualification exercise 1 0 Government focus on administration 1 0 Based on Victoria Partnerships projects 0 1 Costly bidding process 0 1 Banks take lead in project transaction 0 1 Same as traditional 0 1 Consist of specialists 0 1

3. What were the major reasons for adopting PPP in these projects? Private sector expertise 5 1 Developing countries 1 0 Private sector’s cost and time certainty 1 1 Win-win situation 1 0 Value for money 3 0 Private sector efficiency 2 1 Transfer of risks 1 2 Large projects 0 1 Government need 2 4


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4. How do you think PPP compares with traditional procurement methods? Better integration 2 0 Private sector involvement 1 0 Benefits for early completion 1 0 Better value for money 2 1 Performance based 2 0 Consider project life 1 0 Differentiated product 1 1 Larger projects 0 3 Increased efficiency and speed 2 2

More rigorous tendering process 1 2

Paid according to schedule 0 1

Different risk profiles 0 3

Large emphasis on relationships 0 1

No difference in terms of rating 0 1

More complex 0 1

More politically challenging 0 1

5. Which type of project would your company be most interested in applying PPP? All 5 1 Any except transportation 1 0 Projects with subsidy 1 0 Projects with appropriate risk allocation 1 1 Projects with prospect of success 2 1 Where land is not issue 1 0 No staffing issues 1 0 Recurrent expenditure already budgeted 1 0 Projects with business case 1 1


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Economic infrastructure 0 3 Projects with clear objectives 0 1 Social infrastructure 0 3

6. What do you feel are the key performance indicators in a PPP project? Economics 4 5 Risk 1 3 Control 1 0 Refer to Efficiency Unit guide 1 0 Contract terms (operating parameters) 2 1 Traditional KPIs (time, cost and quality) 1 0 Public sector comparator 1 0 Service 1 0 Time 0 2

7. In general, what do you think are the critical success factors leading to successful PPP projects? Economically viable 2 2 No Legislative Council interference 1 0 Good relationships / partnering spirit 2 2 Clear project objectives / timeline 3 2 Private party possess expertise 1 1 Appropriate allocation of risks 2 1 Government support (champion) 2 1 Transparent process 1 0

Flexibility for innovation 0 1

Robust contract 0 1

Positive media 0 2

8. Does your company have any in-house guidance/practice notes on PPP implementation?


161

Yes 0 1 Other materials available 4 4 No 3 2


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6.3.2.1 Local and international experience in conducting PPP projects

Table 6.13 presents the findings that were mentioned more than once by the interviewees

for Question 1 “Which PPP projects has your company been involved in?” The results

showed that interviewees from both jurisdictions mentioned two responses more than once.

Four interviewees from Hong Kong and two interviewees from Australia mentioned that

they had participated in both “Local and international projects”. On the other hand five

and two interviewees in Australia and Hong Kong respectively mentioned that they had

been involved with “Local projects” only.

The findings showed that the majority of Hong Kong interviewees had participated in

projects both locally and abroad, whereas most of the Australian interviewees had

participated in local projects only. Another observation is that none of the interviewees

had participated in international projects only. Although Hong Kong has had a long

history in BOT projects it has still conducted far fewer of these types of projects compared

to Australia. Therefore most of the PPP expertise utilised in Hong Kong today has been

sourced from overseas rather than trained locally. On the other hand in Australia, their

extensive use of PPP has meant that they have built up resources of their own to cater for

these projects (Infranews, 2006).


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Table 6.13 Question 1 - Which PPP projects has your company been involved in?


Local and international projects (4) Local projects (5)

Local projects (3) Local and international projects (2)

6.3.2.2 Implementation process of PPP projects

Thirteen aspects related to the implementation of PPP projects were mentioned by the

interviewees. Only one of these was mentioned twice by the Australian interviewees:

“Reduce competition” (Table 6.14). The two Australian interviewees described that there

has been too much competition in the procurement process of PPP projects. They further

suggested that the number of competitors involved in the process should be reduced. The

transaction process for PPP projects can be a costly and lengthy process. Hence the

competitors need certainty that they have a high chance of winning the bid before they

enter the process. Fewer competitors will assure them of their chances of success.

Publications have also reported the problems related to the transaction process of PPP

projects causing the private sector to become reluctant to continue participating in them

(Ahadzi and Bowles, 2004).

Table 6.14 Question 2 - Please describe the implementation process in these projects.


Reduce competition (2)


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6.3.2.3 Major reasons for adopting PPP projects

As shown in Table 6.15 four and two reasons were mentioned more than once by the

Hong Kong and Australian interviewees respectively. Amongst these reasons one was

mentioned by both groups of interviewees: “Government need”. This reason was

mentioned the most at four times by the Australian interviewees, whereas only twice by

the Hong Kong interviewees. PPP in Australia were originally initiated due to financial

shortages for the state governments to deliver public infrastructure and services (English

and Guthrie, 2003). The findings from the interviews have shown that many of the

experts still regard this as an important reason to adopt PPP.

Mentioned the most by Hong Kong interviewees was “Private sector expertise” at five

times. The Hong Kong government has been able to enjoy a comfortable financial

reserve. Hence other advantages such as the added benefits of the private sector’s

expertise and efficiency have been motivators to adopt PPP projects (Borzel and Risse,

2005). Therefore “Private sector efficiency” was also mentioned by the Hong Kong

interviewees twice. Other reasons mentioned by the Hong Kong interviewees include

“Value for money”, which has also been studied by previous researchers (Grimsey and

Lewis, 2005; Heald, 2003).

In Australia “Transfer of risks” was also mentioned twice by the interviewees. Risk is

probably the most extensively studied aspect of the PPP method. Numerous studies have

already been conducted on risk identification, allocation, treatment etc. (Akbiyikli and


165

Eaton, 2004; Chan et al., 2008; Hodge, 2004; Jin and Doloi, 2008; Li et al., 2004; Li et al.,

2005b; Ng and Loosemore, 2007; Shen et al., 2006; Shen and Wu, 2005; Sun et al., 2008;

Thomas et al., 2003; Thomas et al., 2006; Wibowo and Kochendörfer, 2005)

Table 6.15 Question 3 - What were the major reasons for adopting PPP in these

projects?


Private sector expertise (5) Government need (4)

Value for money (3) Transfer of risks (2)

Private sector efficiency (2)

Government need (2)


Four differences mentioned more than once between PPP and traditional procurement

methods were suggested by each group of interviewees (Table 6.16). Only one of these

was similar for both groups of interviewees: “Increased efficiency and speed”. Efficiency

and speed have been known as reasons for implementing public works projects by PPP

(Borzel and Risse, 2005; Bovaird, 2004). The public sector tends to be more laid back

compared to the private sector that tends to be more motivated due to commercial reasons

(Sharma, 2007).


166

Other differences mentioned more than once by the Hong Kong interviewees include

“Better integration”, “Better value for money” and “Performance based”. Again these

features have been highlighted by previous researchers. Nisar (2007) also agreed that a

key aspect of PPP is the integration between partners. Many studies have also been

conducted in the topic of value for money, as technically public projects are procured by

the PPP model only when value for money can be achieved (Grimsey and Lewis, 2005;

Heald, 2003; Nisar, 2007). A key feature of PPP projects is that there is a heavy emphasis

on project and private sector performance (Dhaene, 2008).

The Australian interviewees also mentioned three other differences. Mentioned three

times include “Larger projects” and “Different risk profiles”. Shen et al. (2006)

mentioned that the best PPP projects should be ones that are mega-scale. As mentioned

previously in this paper, risks are an important part of PPP projects throughout the

lifecycle. The last difference mentioned twice was a “More rigorous tendering process”,

which is another key feature of PPP projects (Ahadzi and Bowles, 2004).

Table 6.16 Question 4 - How do you think PPP compares with traditional procurement

methods?


Better integration (2) Larger projects (3)

Better value for money (2) Different risk profiles (3)

Performance based (2) More rigorous tendering process (2)

Increased efficiency and speed (2) Increased efficiency and speed (2)


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6.3.2.5 Projects of interest to the private sector

Table 6.17 shows the types of PPP projects that the interviewees would be most interested

in. Five of the Hong Kong interviewees mentioned “All”. And two suggested “Projects

with prospect of success”. The private sector participates in PPP projects not because

they have to but for commercial benefits hence it is logical that they expect the project to

be successful.

Three Australian interviewees mentioned that they would be interested in “Transportation

projects” and “Social infrastructure”. Public works projects normally comprise of either

economic or social infrastructure. Economic projects are normally those where the

income is collected directly from the end-user, for example toll roads, railways etc. On

the other hand social infrastructure projects are normally supported by a regular fee paid

by the government, for example schools, hospitals etc. Both of these were mentioned by

the Australian interviewees indicating that most types of public works projects are

supported by the private sector.

Similarly the findings found that the Hong Kong interviewees were interested in all PPP

projects. The main difference is probably that Hong Kong’s experience in PPP projects

has mainly been in economic infrastructure (Mak and Mo, 2005), hence they did not

further break public works projects up into categories. Whereas, Australia has conducted

a larger range of different natured PPP projects hence they tend to split them to into

categories.


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Table 6.17 Question 5 - Which type of project would your company be most interested

in applying PPP?


All (5) Economic infrastructure (3)

Projects with prospect of success (2) Social infrastructure (3)

6.3.2.6 Key performance indicators of PPP projects

Table 6.18 shows the key performance indicators mentioned by the interviewees. The top

key performance indicator identified by both groups of interviewees was “Economics”.

This key performance indicator was mentioned four times by the Hong Kong

interviewees and five times by the Australian interviewees. Money has often been used

as a measure to quantify performance. Especially for the private sector their motives for

participating in PPP projects are related often to commercial aspects (Sharma, 2007).

Other key performance indicators mentioned by the Hong Kong interviewees include

“Contract terms (operating parameters)” which was mentioned twice. Contracts can be

used to measure the outputs of a project (Entwistle and Martin, 2005).

The Australian interviewees mentioned “Risk” three times and “Time” twice. Again as

mentioned before risk is an important aspect of the PPP arrangement. On the other hand

time is also a key performance indicator for traditional projects and highly related to the

commercial aspects of the project.


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project?


Economics (4) Economics (5)

Contract terms (operating parameters) (2) Risk (3)

Time (2)


Table 6.19 shows that the Hong Kong interviewees mentioned five critical success factors

more than once whereas the Australian interviewees mentioned four. Three of these

critical success factors were similar, including “Clear project objectives / timeline”

mentioned three times by the Hong Kong interviewees and twice by the Australian

interviewees, “Economically viable” and “Good relationships / partnering spirit”

mentioned twice by both groups of interviewees. The importance of clear project

objectives and timeline has also been incorporated in to governmental guidance notes

(Efficiency Unit, 2003a). In Zhang’s (2005a) study he looked at several groups of

potential critical success factors, one of these was identified as economic viability.

Partnering spirit between the parties is a vital aspect of PPP projects (Gunnigan and Eaton,

2006).

Other critical success factors also mentioned twice by the Hong Kong interviewees

include “Appropriate allocation of risks” and “Government support (champion)”. Again


170

risks are mentioned as being highly important in the PPP arrangement. In addition,

Zhang (2005a) derived from his study that government support is the second most

significant critical success factor under the group of “Favourable investment

environment”.

The Australian interviewees also mentioned “Positive media” twice. The effect of

positive media is incredibly important for the success of a PPP project. In the case of the

Cross City Tunnel in Sydney, Australia the negative portrayal of the media caused the

effects of its faults to intensify (Chan et al., 2008).




Clear project objectives / timeline (3) Clear project objectives / timeline (2)

Economically viable (2) Economically viable (2)

Good relationships / partnering spirit (2) Good relationships / partnering spirit (2)

Appropriate allocation of risks (2) Positive media (2)

Government support (champion) (2)

6.3.2.8 In-house guidance/practice notes

Table 6.20 shows that both groups of interviewees had mentioned “Other materials

available” instead of in-house guidelines/practice notes for PPP implementation. This


171

finding is probably because the private sector tends to follow the guidelines of their client

the public sector hence there is no need for them to derive their own guidance materials.

Governmental guidance notes are readily available for the general public’s use

(Efficiency Unit, 2008e; Partnerships Victoria, 2008d). Although so it was found that the

organisations of most of the interviewees had conducted some kind of research in the

topic of PPP to broaden their knowledge on the process. Some of the interviewees

mentioned “No” to this final question (three in Hong Kong and two in Australia) showing

the lack of need for in-house guidance/practice notes.

Table 6.20 Question 8 - Does your company have any in-house guidance/practice

notes on PPP implementation?


Other materials available (4) Other materials available (4)

No (3) No (2)


This section has studied the private sector’s perspective on procuring public works

projects via findings from fourteen interviews conducted in Hong Kong and Australia.

Experts with experience in PPP projects and research were invited to answer eight

questions related to the implementation. The results found that interviewees from Hong

Kong had participated in projects both locally and internationally, whereas the Australian

interviewees had participated in local projects mainly. Australia has conducted many


172

more PPP projects compared to Hong Kong hence they have built up and trained their

own resources and expertise of time. Hong Kong, on the other hand, may not have the

necessary talents hence it is important for them to either gain overseas experience or

import their expertise. With the increasing number of PPP projects conducted in Hong

Kong there is a need to start training their own people.

The implementation process of PPP projects can vary depending on the project itself,

hence a large range of descriptions were given by the interviewees. Only reduce

competition was repeatedly mentioned. Reducing competition in the tendering process

would mean that the chance of winning would be greater for the bidding party. Hence in

future projects the government should consider a suitable number of competitors in the

tendering process to avoid the private sector’s loss in terms of time, money and especially

lack of confidence in conducting future PPP projects.

Only one reason for adopting PPP projects was mentioned by both groups of interviewees

which was government need. Other reasons mentioned by the Hong Kong respondents

included private sector expertise, value for money and private sector efficiency. All these

reasons have been mentioned in many literature pieces for being typical features and

attractions of the PPP model hence the findings have further verified previous studies.

Another major reason for adopting PPP is for risk transfer as mentioned by the Australian

interviewees; this topic is probably the most discussed. It is likely that Hong Kong is

familiar with delivering public works projects themselves hence are comfortable with the


173

practice. Therefore they did not highlight risk transfer as a reason for adopting PPP

projects as they are less aware of the risks. But according to previous cases around the

word, the HKSAR government should consider an appropriate risk allocation in order for

public projects to be delivered more effectively.

The common difference between PPP and traditional methods highlighted by both groups

of interviewees was the increased efficiency and speed in PPP projects. Added value has

become the foremost reason to apply PPP projects these days. Governments have

realised that the private sector tends to be more motivated and driven due to commercial

reasons. Other differences highlighted by the Hong Kong interviewees include: better

integration; better value for money; and performance based. Mentioned by the Australian

interviewees include: larger projects; different risk profiles; and more rigorous tendering

process.

The findings also showed that the interviewees were interested in all sorts of projects. In

Hong Kong the interviewees did not further categorise PPP projects, probably because

there have been few PPP projects in Hong Kong and they have tended to be

transportation related hence the variation has not been large. In Australia, on the other

hand there have been various types of PPP projects conducted; hence the interviewees

categorised them into social or economic types of projects. The preference for

conducting these two groups of projects was similar.


174

Both groups of interviewees agreed that economic performance indicators were the most

appropriate. The Hong Kong interviewees also recommended that the contract terms

could be used to measure performance. The Australian interviewees also mentioned risk

and time as key performance indicators. Therefore the key performance indicators for

PPP projects should focus heavily on the economics.

Five critical success factors were mentioned more than once by Hong Kong interviewees

and four by the Australian interviewees. Amongst these three were mentioned by both

groups of interviewees: clear project objectives/timeline; economically viable; and good

relationship / partnering spirit. Clear objectives and timeline allows the private sector to

keep on track over such a long project period. In PPP projects typically the consortium’s

responsibility is over 30 years instead of a normal design and construct contract which

will span over maybe just 5 years. Hence clear objectives and timeline are particularly

important. These should be well defined before the project commences. An

economically viable project is also vital as the private sector is driven by commercial

motives. In order to sustain such a long term relationship over the project period good

relations / partnering spirit is also vital. The parties involved could consider utilising

tools such as partnering workshops to increase their communication and understanding.

Other critical success factors mentioned by Hong Kong interviewees include appropriate

allocation of risks and government support (champion). The Australian interviewees also

mentioned positive media as a critical success factor. Finally, it was realised that the

interviewees all had access to some kind of PPP guidance materials.


175

6.4 The Researcher’s Perspective


The target respondents of the interviews were researchers with experience in PPP who

neither belonged to nor acted for the public or private sectors. A total of seven interviews

were conducted, with three in Hong Kong and four in Australia.

Amongst the three interviewees from Hong Kong, two were members of the Legislative

Council in Hong Kong (one with a law background and the other with an engineering

background). The third interviewee was an academic and researcher in PPP from a local

university. Similarly the Australian interviewees were all active researchers of the PPP

topic from local universities. Due to the limited number of PPP projects conducted in

Hong Kong (not including BOT type), fewer academics are involved with PPP related

research, hence two legislative councilors were selected, both have been known to

publicly mention their interests in PPP. As their role tends to represent the general public

rather than the public or private sector, it was believed that their position would be similar

to the academics interviewed. Background details of these experts are shown in Tables

6.21.


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Table 6.21 List of researcher interviewees

No. Jurisdiction Position of Interviewee Organisation of Interviewee Experience of Interviewee

R1 Hong Kong Member of Legislative Council

(Legal background)

Legislative Council of the

HKSAR Government

Commissioned a working group to

analyse the feasibility of PPP.

R2 Hong Kong Member of Legislative Council

(Engineering background)

Legislative Council of the

HKSAR Government

Supporter of PPP and included in his

campaign to push the development.

R3 Hong Kong Professor

Local University Conducted his own PhD in the area of

PPP and active researcher.

R4 Australia Professor

Local University Active researcher.


Local University Involved with producing

governmental guidelines, training,

courses and research for PPP.


Local University Active researcher.


Local University Involved with producing

governmental guidelines, training,

courses and research for PPP.


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Table 6.22 shows a summary of the responses to each question given by the seven



the responses given more than once, these were tabulated and further analysed.


178

Table 6.22 Summary of interview findings with researchers from Hong Kong and Australia

Hong Kong Interviewees

Australian Interviewees

R1 R2 R3 R4 R5 R6 R7 Total 1. Have you conducted any research looking at local case studies? Yes 7 2. How would you compare PPP with traditional procurement methods? Clear project objectives 1 PPP utilises public resources 1 PPP is a partnership arrangement 2 PPP projects have high tendering / transaction costs 2 PPP projects tend to be completed on-time 1 Income of PPP projects can be dependent on market 1 Construction costs of PPP projects are more expensive 1 PPP considers maintenance 1 Different risk profiles 2 More expensive for private sector to borrow money 1 Private sector more innovative / efficient 2 PPP focuses on service delivery 1 PPP improves public procurement 1

3. Which type of project do you feel is best suited to use PPP? Government lacks funding 2 Project dependent 2 Projects with few competitors 1 Large projects 2 Expensive projects 1 Quantifiable income stream 1 Scope for innovation 1


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Toll ways 1 4. What do you feel are the key performance indicators in a PPP project? Profits 1 Project dependant 2 Traditional KPIs: Quality, time and cost 1 Should be defined by private sector 1 Service outcomes 1 Contract compliance 1 Proactive managers 1 5. In general, what do you think are the critical success factors leading to successful PPP projects? Clear project objectives 2 Timeline and milestones foreseeable 1 Transparent process 2 Public consultation 1 Project dependent 2 Clear legal structure and regulation mechanism 1 Market need 2 Technical and financial capability of concessionaire 1 Champion with authority 1 Roles clearly defined and related to each other 1 Need to budget money for project amount 1 Right timing 1 Strong and robust contract 1 Commitment of partners 1


180


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6.4.2.1 Research on local case studies

The first question that the interviewees were asked to answer was “Have you conducted

any research looking at local case studies?” All interviewees responded that they had

conducted PPP case studies and research both locally and overseas. In general, it can be

summarised that the interviewees are active experienced researchers in the field of PPP.


The interviewees were further asked “How would you compare PPP with traditional

procurement methods?” Thirteen different responses were given, but only four of these

were mentioned more than once. These responses which were each mentioned twice

included: “PPP is a partnership arrangement”; “PPP projects have high tendering /

transaction costs”; “Different risk profiles”; and “Private sector more innovative /

efficient”.

Mentioned by the Hong Kong interviewees only was “PPP is a partnership arrangement”

and “PPP projects have high tendering / transaction costs”. The Efficiency Unit of the

HKSAR government has been actively involved in pushing the movement of PPP in

Hong Kong. In one of their latest guidelines they mention the importance of the

partnership arrangement “A PPP is a contractual arrangement involving the private sector

in the delivery of public services. As the name suggests, this is based on a partnership

approach, where the responsibility for the delivery of services is shared between the


182

public and private sectors, both of which bring their complementary skills to the

enterprise” (Efficiency Unit, 2008a).

A common feature which is found in PPP projects is the high costs of tendering and

transaction (Zhang, 2005). Hughes et al. (2001) reported that the costs associated with

tendering are seen by the construction industry in the United Kingdom to be significant,

typically quoted as ½ – 1% of turnover; and 2 – 3% of bid price for PPP bids.

Furthermore results from their study showed that building services contractors had

calculated that up to 15% of their turnover could be accounted for by “unnecessary”

tendering processes.

For the other two responses which were mentioned more than once (“Different risk

profiles” and “Private sector more innovative / efficient”), these were mentioned by

interviewees from both jurisdictions. As mentioned previously in this section one of the

main reasons for implementing public projects by PPP is also for risk transfer. The

National Stadium for the Beijing 2008 Olympic Games in China is an example of how

key risk factors were appropriately passed to the private sector via the PPP model (Liu et

al., 2007). Without doubt this project has been highly profiled hence the pressure to

perform well increased the risks associated. The four most critical risks of this project

included 1) The irrational construction schedule for a project of this size and complexity;

2) Possible cost overruns due to inexperience in delivering similar previous projects in

China; 3) Small and limited market for large scale sporting events in China; and 4) Lack

of operational experience in similar previous projects in China. These factors were all


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related to the management, design, construction and operation of the project, which are

also aspects that are considered to be best handled by the private sector; whereas the

public sector’s expertise lies in the area of public administration.

Another major difference observed between traditionally procured projects and PPP

projects is the added innovation and efficiency from the private sector in PPP projects.

The private sector in general tends to be more motivated due to financial drive, whereas

the public sector parties are experts in policy making rather than innovation and

efficiency. Studies have shown that by adopting PPP in public works projects, innovation

and efficiency is achieved due to the private sector’s contribution (Leiringer, 2006)

6.4.2.3 Projects best suited to use PPP

The interviewees were asked “Which type of project do you feel is best suited to use

PPP?” in Question 3. Three out of the eight responses were mentioned twice by the

interviewees, these included “Government lacks funding” and “Project dependent” which

were mentioned by the Hong Kong interviewees and “Large projects” mentioned by the

Australian interviewees. In many jurisdictions which first started to adopt PPP, private

financing was a major incentive for governments to adopt PPP, such as the United

Kingdom and the Victoria state of Australia. Therefore there has been a common

association that PPP projects are about financing.

An example, showing that Hong Kong does not need private sector financing can be


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shown by the recent Hong Kong Zhuhai Macau bridge project where the governments of

these three jurisdictions have agreed to undertake the project costs without private sector

input. The HKSAR government alone has agreed to cover approximately 50% of the

costs, approximately HK$15.3 billion (South China Morning Post, 2008).

The Hong Kong interviewees also mentioned that the suitability criteria of projects to be

procured by PPP would be unique depending on the project. The Australian interviewees

mentioned that large projects would be suitable for the PPP model. Similarly, Price (2002)

suggested that for some types of projects, especially those that are large or complex, a

joint venture between the public and private sectors may prove advantageous.

6.4.2.4 Key performance indicators in PPP projects

Only one response was mentioned more than once at twice by the interviewees for

Question 4 “What do you feel are the key performance indicators in a PPP project?” This

was “Project dependant” which was mentioned by interviewees from both jurisdictions.

Six other responses were given by the interviewees for this question.


For the final question, interviewees were asked “In general, what do you think are the

critical success factors leading to successful PPP projects?” This question received the

most number of responses probably indicating that there are many critical success factors


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that could lead to successful PPP projects. But amongst these responses only four were

mentioned more than once by the interviewees, these included “Clear project objectives”

which was mentioned by the Hong Kong interviewees only and “Transparent process”,

“Project dependent” and “Market need” which were all mentioned by interviewees from

both jurisdictions.

Zhang (2006) mentioned in his study that the public client often does not have clear

objectives and priorities in infrastructure development through PPP. This often impairs

the project development process. The client should clearly define its objectives and

establish their relative importance and make sure the private sector shares these

objectives. The probability of successful project delivery increases dramatically when

both sectors have a common vision of the project to be developed. In the Partnerships

Victoria Policy (2000), it mentions that where there is private sector involvement in

major public infrastructure projects, the choice of contractors should be through a

rigorous and transparent system of public tendering.

Similar to the responses for Questions 3 and 4, the interviewees also mentioned that the

critical success factors for PPP projects would be dependent on the project due to their

uniqueness. Lastly, Partnerships Victoria (2001) also mentioned that a key characteristic

of Partnership Victoria projects (i.e. PPP projects conducted under the Partnership

Victoria’s supervision) includes market appetite. This implies that the project creates a

genuine business opportunity which is likely to attract a sufficient number of private

parties and create an effective and competitive bidding process.


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This section has presented the findings of seven interviews conducted by experienced

researchers in the field of PPP from Hong Kong and Australia. The interviewees were

asked to answer five questions related to the implementation of PPP. It was found that

both groups of interviewees had conducted case studies and research in the field of PPP

locally and internationally.

When considering the differences between traditionally procured projects and PPP

projects, both groups of interviewees agreed that “Different risk profiles” and “Private

sector more innovative / efficient” were the main differences. Other major differences

between the two approaches mentioned by the Hong Kong interviewees included “PPP is

a partnership arrangement” and “PPP projects have high tendering / transaction costs”.

The types of project best suited to use PPP were not the same according to the two groups

of researchers.

The Hong Kong interviewees recommended that “Government lacks funding” and

“Project dependent” are suitable criteria for PPP projects, whereas, the Australian

researchers believed that “Large projects” would be more ideal.

Amongst the key performance indicators highlighted by the interviewees “Project

dependant” was the only response given by both groups of interviewees.


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From the large number of critical success factors suggested “Transparent process”,

“Project dependent” and “Market need” were the common ones highlighted by both

groups of interviewees. Hong Kong interviewees also believed that “Clear project

objectives” would be an important critical success factor.


The findings presented in this chapter have summarised the views of experienced

practitioners from the public sector, private sector and renowned researchers from Hong

Kong and Australia.

It was found that the public sector and researcher interviewees from both jurisdictions

had conducted research in PPP and looked at international cases. From their experiences

other governments should also adopt a similar practice. Although both jurisdictions had

conducted research in PPP, the Australian private sector had conducted many more PPP

projects than those in Hong Kong.

Many of the private sector interviewees believed that competition in the tendering

process should be reduced. Hence governments should consider what the suitable

number of bidders for a project should be.

The public sector and researcher interviewees agreed that the main difference between

PPP and traditional projects is that in a PPP project there is the added advantage of the


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private sector’s efficiency/expertise/management skills involved. The researcher

interviewees also added that PPP projects and traditional projects differ in risk profiles.

On the other hand, the private sector highlighted that the main difference is that PPP can

increase the efficiency and speed of projects.

The public sector interviewees agreed that projects which are economically viable are

those suitable to be procured by PPP. Whereas the private sector believed that projects

are normally procured by PPP due to government need, but all types of projects should be

suitable.

The public sector interviewees believed that the contractor’s performance would be the

key performance indicator for PPP projects. Whereas, the private sector interviewees

believed that economic performance indicators are the most important. On the other hand,

the researcher interviewees believed that each project is dependent so the key

performance indicators would be as well.

The project objectives being well defined and a partnering spirit/commitment/trust were

the critical success factors mentioned by both the public and private sector interviewees.

The private sector interviewees also added that the project must be economically viable.

The researcher interviewees highlighted some further critical success factors including

projects having a transparent process and there being a market need (this factor is very

closely linked with the project being economically viable as mentioned by the private

sector interviewees).


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Most of the public and private sector interviewees had their own organisation

guidance/practice notes. This practice is highly recommended.

The views presented in this chapter are believed to be of interest to all practitioners

involved with PPP projects. The findings also form a comparative study between the

views of PPP practitioners in Hong Kong and Australia, and draw similarities irrespective

of the differences in jurisdictions.

Chapter 7 Suitability of Procuring Large Public Works by PPP

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CHAPTER 7

SUITABILITY OF PROCURING

LARGE PUBLIC WORKS BY PPP


7.2 Collection of Research Data

7.3 Survey Results



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This chapter will specifically consider whether Public Private Partnership (PPP) should

be used to procure public works projects in Hong Kong by studying the attractive and

negative factors for adopting PPP. A questionnaire survey was conducted with industrial

practitioners in Hong Kong and Australia, and compared to findings obtained by Li (2003)

in the United Kingdom. The respondents were requested to rank the importance of

fifteen attractive factors and thirteen negative factors for adopting PPP.

7.2 Collection of Research Data

An empirical questionnaire survey was undertaken in Hong Kong and Australia from

October 2007 to December 2007 to analyse the attractive and negative factors of adopting

PPP. The target survey respondents of the questionnaire included all industrial

practitioners from the public, private and other sectors. These respondents were

requested to rate their degree of agreement against each of the identified attractive and

negative factors according to a five-point Likert scale (1 = Least Important and 5 = Most

Important). The information collected regarding the attractive and negative factors will

help to achieve objective 1 “Identify the benefits, difficulties and critical success factors

of PPP” and objective 6 “Evaluate the findings collected to determine a best practice

framework for implementing PPP in Hong Kong” of this research study.


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Target respondents were selected based on two criteria: 1) They must possess adequate

knowledge in the area of PPP; and 2) They must have hands-on experience with PPP

projects, experience in conducting PPP research or have followed very closely with the

development of PPP. Survey questionnaires were sent to 95 target respondents in Hong

Kong and 80 target respondents in Australia. It was anticipated that some of these target

respondents would have colleagues and personal connections knowledgeable in the area

of PPP to participate in this research study as well; hence some of the respondents were

dispatched five blank copies of the survey form. A total of 34 completed questionnaires

from Hong Kong and 11 from Australia were returned representing response rates of 36%

and 9%, respectively. The lower response rate in Australia was expected as the

questionnaire was administered from Hong Kong, hence geographical complications

were perceived. But as this study mainly focuses on Hong Kong, the responses received

from Australia were used for reference only, similarly so were the results from Li’s

survey (2003).

It must be noted that the number of responses in the Kendall’s concordance analysis may

not always be 34 and 11 for Hong Kong and Australia respectively, as these respondents

may not have ranked all the factors. Therefore in some cases not all responses may have

been suitable for subsequent statistical analyses.

The questionnaire respondents comprised experienced practitioners from the industry. As

shown in Figures 7.1 and 7.2 approximately half of the respondents in Hong Kong and

Australia possessed twenty-one years or above of industrial experience. Figures 7.3 and


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7.4 provide a breakdown of questionnaire respondents who have been involved with PPP

projects.

Given the few Build Operate Transfer (BOT)/PPP projects conducted in Hong Kong, it

was a surprise to find that 33% of the respondents gained previous experience. Without

doubt some of these may have had experience with local BOT projects or PPP projects

overseas, but still the experience of these respondents confirmed the quality of the

responses from the survey conducted. In addition, amongst those respondents who have

acquired experience with PPP projects, 10% had previously been involved with at least

five projects.

In Australia, many more PPP projects have been conducted so it was unsurprising to find

that approximately 90% of the respondents have participated in PPP projects before, with

two thirds of these respondents having participated with at least five PPP projects. Once

again this reassures the value and reliability of the findings.


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7.3 Survey Results

The attractive and negative factors for adopting PPP were assessed from different

perspectives of the Hong Kong, Australia and the United Kingdom (results obtained by

Li (2003) from his survey) respondent groups. The means for each administrative system

were calculated and ranked in descending order of importance as shown in Tables 7.1 and

7.2. Although a large number of differences were observed between the findings of the

three jurisdictions. This result is logical as each jurisdiction will differ in practice,

culture, geographical location, experience, tradition, politically, economically, socially

etc. Hence it is of interest to compare these differences.

7.3.1 Ranking of attractive factors for adopting PPP

Fifteen attractive factors for adopting PPP were rated by the respondents (Table 7.1).

The findings showed that the top three attractive factors ranked in Hong Kong were:

(1) Provide an integrated solution (for public infrastructure / services);

(2) Facilitate creative and innovative approaches; and

(3) Solve the problem of public sector budget restraint.

The first and second attractive factors ranked by Hong Kong respondents were also

ranked identically by respondents in Australia. Ranked third in Australia was “Save time


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in delivering the project”. The results show that both Hong Kong and Australia ranked

efficiency-related attractive factors more importantly. Although financial drive in general

is a major reason for adopting PPP, these respondents did not rank it as the top attractive

factor.

Since Hong Kong has enjoyed abundant financial reserve in hand and budget surplus over

the past few years, these have allowed Hong Kong to pay for their public works projects

upfront. The government officials generally did not see the need to borrow money when

they could provide the cash cheaper. Hence efficiency was a more important attractive

factor that could really induce Hong Kong to adopt PPP.

Similarly in Australia, although financial reasons may have previously been the reason

for adopting PPP this is no longer the case. The Victoria State in Australia first utilised

PPP in order to deliver PPP projects using the private sectors’ money, but as the financial

situation has improved and more experience has been gained, the Australians have

realised other benefits of adopting PPP rather than for financial reasons alone.

On the contrary, in the United Kingdom economic related factors were ranked much

higher in year 2003. The top attractive factor ranked in the United Kingdom was

“Transfer risk to the private partner”. Ranked second was the same attractive factor that

came third in Hong Kong. And ranked third was “Non recourse or limited recourse to

public funding”. Similar to Australia’s Victoria State, the United Kingdom also


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introduced PPP initially due to financial reasons. But the situation today may also no

longer be the same. The results from Li’s (2003) study were obtained five years before

those presented in this study, hence certain changes in the adoption of PPP and the

attitude of practitioners are anticipated. Therefore as mentioned before the results in Li’s

(2003) study can only be used as a reference.

The first attractive factor ranked in Hong Kong “Provide an integrated solution (for

public infrastructure/services)” was also positioned first in the ranking for Australia. The

rankings have demonstrated that this attractive factor was regarded as equally important

to them irrespective of location.

PPP is an integrated solution in that a private consortium is responsible for all the

functions of design, building, financing, operation and maintenance. This bundling can

allow the partners to take advantage of a number of efficiencies and increase economies

of scale and scope (European Commission Directorate, 2003). For instance, the

contractor’s detailed knowledge of the project design and the materials utilised allows it

to develop a tailored maintenance plan over the project life that anticipates and addresses

needs as they occur, thereby reducing the risk that issues will go unnoticed or unattended

and then deteriorate into much more costly problems. In the United Kingdom, this factor

was ranked eighth showing a medium level of importance only.


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The second attractive factor ranked by respondents from Hong Kong and Australia was

“Facilitate creative and innovative approaches”. In the United Kingdom, Li (2003) found

that this attractive factor was rated seventh place amongst fifteen attractive factors for

PPP. This observation manifests that Hong Kong and Australia has a much larger urge

for having creativity and innovation in PPP projects compared to the United Kingdom. In

the United Kingdom there has been a tendency for the local government to deliver

packages of projects which are very similar, such as for schools. The creativity

difference between these projects is often minimal. Nevertheless, practitioners in Hong

Kong have expressed in public the need and importance for creativity and innovation in

PPP projects (Kwan, 2005; Ho, 2005).

The third attractive factor rated by respondents from Hong Kong “Solve the problem of

public sector budget restraint”, was also positioned highly at second place in the ranking

of respondents from the United Kingdom. Therefore, both administrative systems

perceived this attractive factor as highly important for launching PPP projects.

The financing of public sector projects has been recognised as one of the key initial

driving forces for implementing PPP schemes internationally. Many experienced

practitioners in PPP believe that PPP brings about many other attractions besides

financing, and that financial motivations should not be taken as the sole reason for

adopting PPP. However, financial reasons are frequently the initial attractive factors for

administrative systems adopting PPP. This financial attractive factor is undoubtedly very

appealing for governments across the world especially when public money is to be spent


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amongst competing needs. Therefore, it is not surprising that both groups of respondents

have rated this attractive factor highly, but with a subtle difference in emphasis.

Contrastingly, the Australian respondents ranked this factor thirteenth amongst the fifteen

attractive factors. This factor could imply that Australia currently does not face any

major restraints in public sector budget. But the views of more respondents from

Australia should be sought before confirming this conclusion as there were only eleven

respondents from the survey conducted in Australia.

The mean values for the attractive factors as rated by Hong Kong respondents ranged

from 2.94 to 3.79. This observation has reflected that the variation in their responses are

relatively small, only 0.85 for Hong Kong. In Australia and the United Kingdom the

means ranged from 2.36 to 4.45 and 1.82 to 3.98 respectively. The corresponding

differences in means were 2.09 and 2.16 respectively. The differences in means were

shown to be much higher for the survey conducted in Australia and the United Kingdom

compared to Hong Kong. This finding shows that the Hong Kong respondents rated the

fifteen attractive factors much more consistently, whereas in Australia and the United

Kingdom the respondents showed a much larger variation.

As the respondents were asked to rate the 15 attractive factors according to a Likert scale

from 1 to 5 (1 = Least Important and 5 = Most Important), a value above “3” would

represent that the attractive factor is of importance. Amongst the attractive factors only


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one was ranked below “3” in the Hong Kong rank. This attractive factor was

“Technology transfer to local enterprise” which scored “2.94” and was also ranked

bottom in Hong Kong. This is probably because the immediate results of this attractive

factor could not be seen and therefore the other fourteen attractive factors were relatively

more favourable. In Australia and the United Kingdom (Li, 2003) this attractive factor

was rated “3.18” and “1.82” respectively, showing that the first set of respondents

disagreed but the latter set of respondent agreed with those respondents from Hong Kong.

The other fourteen attractive factors in the Hong Kong rank were rated a score between

“3” and “4”.

In addition, on top of those factors the respondents were asked to rate, they were also

given the opportunity to add others which would be of importance, but they did not do so.


200

Table 7.1 Mean scores and rankings for the attractive factors of PPP Attractive Factors

Hong Kong Australia

United Kingdom

(Li, 2003)

N Mean Rank N Mean Rank N Mean Rank

a. Solve the problem of public sector budget restraint 34 3.65 3 11 2.73 13 61 3.86 2

b. Provide an integrated solution (for public infrastructure / services) 33 3.79 1 11 4.45 1 61 3.05 8

c. Reduce public money tied up in capital investment 33 3.48 6 11 2.36 15 61 3.58 4

d. Cap the final service costs 34 3.26 10 11 3.55 6 61 3.56 5

e. Facilitate creative and innovative approaches 34 3.74 2 11 4.36 2 61 3.36 7

f. Reduce the total project cost 33 3.09 14 11 3.45 7 61 2.97 10

g. Save time in delivering the project 34 3.21 13 11 4.18 3 61 2.75 12

h. Transfer risk to the private partner 34 3.65 4 11 3.36 9 61 3.98 1

i. Reduce public sector administration costs 33 3.39 8 11 2.82 12 61 2.53 14

j. Benefit to local economic development 34 3.56 5 11 3.18 11 61 2.62 13

k. Improve buildability 33 3.24 11 11 3.73 5 61 3.03 9

l. Improve maintainability 34 3.32 9 11 4.18 4 61 3.36 6

m. Technology transfer to local enterprise 34 2.94 15 11 3.18 10 61 1.82 15

n. Non recourse or limited recourse to public funding 34 3.21 12 11 2.64 14 61 3.61 3

o. Accelerate project development 34 3.47 7 11 3.36 8 61 2.95 11

N = Number of survey respondents


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7.3.2 Ranking of negative factors for adopting PPP

Thirteen negative factors for adopting PPP were rated by the survey respondents (Table

7.2). The top three negative factors ranked by Hong Kong respondents included:

(1) Lengthy delays because of political debate;

(2) Lengthy delays in negotiation; and

(3) Very few schemes have actually reached the contract stage (aborted before contract).

In Hong Kong, public works projects are often delayed and complicated by the need for

public consultation; hence it is not surprising that “Lengthy delays because of political

debate” was the highest negative factor ranked by the Hong Kong respondents. This

problem is well known for causing projects to be held back.

For example, the West Kowloon Cultural District project has been cited as a typical

example in Hong Kong where political interference has caused the project to be on hold

for many years (Chan et al., 2007a). Initially there was much political debate within the

Legislative Council as to whether this project should proceed as a PPP, especially

whether the whole project with an estimated cost of US$25 billion (So, 2007) should be

handled by one single consortium instead of half a dozen number of consortia each

sharing the pie. The local government was also alleged to be unclear of the long-term

policy and objectives for this cultural development project, causing much criticism from

the general public. In Australia and the United Kingdom (Li, 2003) this factor was


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ranked of mediocre importance only at seventh and sixth position respectively, showing

that they do not face the similar problem that Hong Kong does.

Ranked second by respondents in Hong Kong and the United Kingdom (Li, 2003) was

“Lengthy delays in negotiation”. Australia also ranked this factor relatively high at

fourth place. This finding has shown that “Lengthy delays in negotiation” are typical for

PPP projects irrespective of geographical locations. Due to the size and complexity of

PPP projects the procurement process has been know to be lengthy. This can be said to

be a typical feature of PPP projects, therefore only projects that are of appropriate value

and worthiness should consider PPP.

The third negative factor as ranked by Hong Kong respondents was “Very few schemes

have actually reached the contract stage (aborted before contract)”. The high ranking of

this factor coincides with the previous argument about political debate in Hong Kong. As

a result some projects had to be aborted due to political disagreement. This negative

factor was ranked last in Australia and Li’s (2003) survey. The experience of the

Australians and the British in conducting PPP projects is much more plentiful, in that the

respondents did not believe that few schemes would reach the contract stage. Without

doubt they are much more experienced and hence more confident in launching PPP

projects.


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Another observation manifested that “Less employment positions” and “Reduce the

project accountability” were both ranked within the bottom three of the rankings for all

three jurisdictions. The respondents shared the same views on the negative factors they

believed to be of less threat. The low ranking of “Less employment positions” has shown

that employment has not been affected irrespective of how projects are procured. The

main purpose of introducing PPP projects is not to “Reduce the project accountability”;

hence it was logical that all respondents perceived that this negative factor was less

significant. Therefore these two negative factors were thus common for PPP projects

irrespective of the geographical differences.

For the negative factors rated by respondents in Hong Kong the mean values ranged from

2.79 to 3.82. The variation in responses was 1.03. On the other hand, in Australia and

the United Kingdom it was found that the mean values obtained ranged from 1.36 to 3.45

and 1.71 to 3.86 respectively. The variations in responses were 2.09 for Australia and

2.15 for the United Kingdom. Both variations were higher than that for Hong Kong. It

was also found that in general these negative factors were rated higher by Hong Kong

respondents. It can thus be interpreted that the Australian and British respondents found

that these negative factors were less of a challenge. This finding is logical as discussed

previously Australia and the United Kingdom are much more experienced in delivering

PPP projects compared to Hong Kong.

Similarly to the rating of the attractive factors, the respondents were also asked to rate the

thirteen negative factors according to a Likert scale from 1 - 5 (1 = Least Important and 5


204

= Most Important), therefore a value above “3” would represent that the negative factor is

of importance. The results show that in Hong Kong there were two negative factors

below a score of “3”. On the other hand in Australia and the United Kingdom there were

ten and eleven respectively below “3”. Again this consolidates the fact that the

Australians and British are much more confident at conducting PPP projects, hence they

are less conservative. The two negative factors ranked below “3” for Hong Kong were

the ones discussed previously that were ranked low by all three sets of respondents.

These negative factors were “Less employment positions” and “Reduce the project

accountability”, which both scored only 2.79.




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Table 7.2 Mean scores and rankings for the negative factors of PPP

Negative Factors

Hong Kong Australia The United Kingdom

(Li, 2003)


a. Reduce the project accountability 34 2.79 12 11 2.00 11 61 1.90 11

b. High risk relying on private sector 34 3.09 10 11 2.27 8 61 2.22 10

c. Very few schemes have actually reached the contract stage (aborted before contract) 34 3.41 3 11 1.36 13 61 1.71 13

d. Lengthy delays because of political debate 34 3.82 1 11 2.55 7 61 2.48 6

e. Higher charge to the direct users 34 3.26 9 11 2.18 10 61 2.33 8

f. Less employment positions 34 2.79 13 11 1.64 12 61 1.81 12

g. High participation costs 34 3.35 5 11 3.27 2 61 3.53 3

h. High project costs 34 3.03 11 11 2.18 9 61 2.43 7

i. A great deal of management time spent in contract transaction 34 3.29 6 11 2.55 5 61 3.86 1

j. Lack of experience and appropriate skills 33 3.27 8 11 3.45 1 61 2.78 5

k. Confusion over government objectives and evaluation criteria 34 3.41 4 11 3.00 3 61 2.81 4

l. Excessive restrictions on participation 34 3.29 7 11 2.55 6 61 2.32 9

m. Lengthy delays in negotiation 33 3.45 2 11 2.91 4 61 3.68 2

*N = Number of survey respondents


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7.3.3 Agreement of the survey respondents

As shown in Table 7.3, the Kendall’s coefficient of concordance (W) for the rankings of

attractive factors was 0.071 and 0.325 for Hong Kong and Australia respectively. The

computed W’s were significant with p = 0.008 and 0.000 respectively. As the number of

attributes considered were above seven, as mentioned previously the Chi-square value

would be referred to rather than the W value. According to the degree of freedom, the

critical value of Chi-square was 23.680 for both groups (Hong Kong and Australia) the

computed Chi-square values were all above the critical value of Chi-square (29.907 and

50.076 respectively). Therefore the assessment by the respondents within each group on

their rankings of attractive factors is proved to be consistent. This finding ensures that

the completed questionnaires were valid for further analysis.

Table 7.3 Results of Kendall’s concordance analysis for the attractive factors of PPP

Hong Kong Australia

Number of survey respondents 30 11

Kendall's coefficient of concordance (W) 0.071 0.325

Chi-square value 29.907 50.076

Critical value of Chi-square 23.680 23.680

Degree of freedom (df) 14 14

Asymptotic significance 0.008 0.000

Note: Only 30 out of 34 responses from Hong Kong were suitable for subsequent


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statistical analyses.

Table 7.4 shows the Kendall’s concordance analysis for the negative factors of PPP. The

respective W for Hong Kong and Australia was 0.094 and 0.323. The number of

attributes were also above seven hence the Chi-square value was referred to. The critical

value of Chi-square was 21.030 for both groups. The computed Chi-square values were

both higher at 35.968 and 42.591 for Hong Kong and Australia respectively. Hence the

assessment by the respondents within each group on their rankings of negative factors is

proved to be consistent. And this finding also ensures that the completed questionnaires

were valid for further analysis.

Table 7.4 Results of Kendall’s concordance analysis for the negative factors of PPP

Hong Kong Australia










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7.3.4 The suitability of adopting PPP

With the identification of attractive and negative factors of PPP, these could be identified

as checklists for assessing the suitability/feasibility of using PPP. If the attractive factors

are prevailing in a given project scenario, the use of PPP will be more positive.

Conversely, if the negative factors are dominant PPP might be considered as unsuitable.

Taking the recent Kai Tak cruise terminal project as an example, the fifteen attractive

factors and thirteen negative factors were used as checklists to assess the suitability of

adopting PPP. The Kai Tak site in Hong Kong is the exact location that the old airport

had been for 73 years (Encyclopedia.com, 2009). With the construction of the new,

larger and more advanced airport at Chep Lap Kok on Lantau Island of Hong Kong, the

Kai Tak airport was replaced in 1998. Since the Kai Tak site has been vacant, there has

been on-going debate on how this valuable city centered piece of land could be utilised.

Obviously, in a populated city like Hong Kong, residential development is the foremost

attraction to the private sector developers. But due to previous criticisms from the

general public in projects such as the Cyberport, the local government has been keen to

avoid the interpretation that the public and private sectors show collusion. The Cyberport

project is a technological park on Hong Kong Island developed by a single developer on

condition that they were given the adjacent property rights. The developer concerned


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made unbelievably high profits from the selling of these properties. Unfortunately, less

attention has been given to the Cyberport project (Tsang, 2008).

The local government will be spending HK$7.2 billion to design and build the Kai Tak

cruise terminal. The facilities will be leased to a private operator whilst the local

government retains ownership of the site and terminal. The first berth is anticipated to be

in 2013 (Cheung et al., 2008). Although it has been confirmed that this project will be

delivered by more traditional methods, it’s suitability to adopt PPP is still analysed

according to the checklist of attractive and negative factors presented in this chapter.

Table 7.5 shows a checklist of the attractive and negative factors which can be recognised

from this project. The results show that nine out of the fifteen attractive factors were

observed for the Kai Tak cruise terminal project. This represents 60% of the attractive

factors which include:

b. Provide an integrated solution (for public infrastructure / services);

d. Cap the final service costs;

e. Facilitate creative and innovative approaches;

h. Transfer risk to the private partner;

i. Reduce public sector administration costs;

j. Benefit to local economic development;

k. Improve buildability;

l. Improve maintainability;


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m. Technology transfer to local enterprise; and

On the other hand, nine amongst the thirteen negative factors were observed for this

project representing 69%, these include:

b. High risk relying on private sector;

d. Lengthy delays because of political debate;

e. Higher charge to the direct users;

g. High participation costs;

h. High project costs;

i. A great deal of management time spent in contract transaction;

k. Confusion over government objectives and evaluation criteria;

l. Excessive restrictions on participation; and

m. Lengthy delays in negotiation.

In this case, percentage wise the results show that the negative factors of PPP are more

dominant than the attractive factors of PPP. Hence, the use of traditional procurement

methods could be regarded as more suitable than PPP for the Kai Tak cruise terminal

project. This analysis was conducted according to the author’s own perception of the

project only to demonstrate how the checklist could be used. The accuracy of this current

assessment needs further refinement before it can be relied on. For examples, further

study should be carried out to establish the relative weighting of each factor. The


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intensity of each factor may be different, this will in turn effect whether the attractive or

negative factors are more dominant. Hence it is important that these are identified before

the checklist is used in real life.


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Table 7.5 Checklist of attractive and negative factors for the Kai Tak cruise terminal project

Attractive Factors Negative Factors a. Solve the problem of public sector budget restraint a. Reduce the project accountability b. Provide an integrated solution (for public infrastructure / services)

b. High risk relying on private sector

c. Reduce public money tied up in capital investment

c. Very few schemes have actually reached the contract stage (aborted before contract)

d. Cap the final service costs d. Lengthy delays because of political debate e. Facilitate creative and innovative approaches e. Higher charge to the direct users f. Reduce the total project cost f. Less employment positions g. Save time in delivering the project g. High participation costs h. Transfer risk to the private partner h. High project costs i. Reduce public sector administration costs i. A great deal of management time spent in contract transaction j. Benefit to local economic development j. Lack of experience and appropriate skills k. Improve buildability k. Confusion over government objectives and evaluation criteria l. Improve maintainability l. Excessive restrictions on participation m. Technology transfer to local enterprise m. Lengthy delays in negotiation n. Non recourse or limited recourse to public funding o. Accelerate project development

Total count 9 Total count 9 Total % 60 Total % 69


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This chapter presents the findings of an empirical questionnaire survey undertaken in

Hong Kong, Australia and the United Kingdom to study the attractive and negative

factors of conducting PPP projects. The survey respondents were asked to rate fifteen

attractive factors and thirteen negative factors. The results gained from these three

administrative regions were analysed and compared.

The results found that the top three attractive factors in Hong Kong were (1) Provide an

integrated solution (for public infrastructure / services); (2) Facilitate creative and

innovative approaches; and (3) Solve the problem of public sector budget restraint.

These could be interpreted as situations where the use of PPP would be suitable. Similar

results were found in the survey conducted in Australia. Efficiency related factors

appeared to be more attractive to the respondents from Hong Kong and Australia,

whereas in the United Kingdom economic related factors were rated higher. The finding

for Hong Kong coincides with the fact that the local government has been enjoying a

budget surplus in recent years, and has therefore not been pressured for delivering public

projects with their own financial reserves.

The top three negative factors ranked by the respondents from Hong Kong were: (1)

Lengthy delays because of political debate; (2) Lengthy delays in negotiation; and (3)

Very few schemes have actually reached the contract stage (aborted before contract).


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These could be interpreted as situations where the use of PPP would be less desirable.

The top negative factor was ranked of mediocre importance by the Australians and

British, showing that they do not face the same concerns as Hong Kong. In Hong Kong

this negative factor has been shown to be a problem as demonstrated by the West

Kowloon Cultural District project which was delayed mainly due to political debate. The

second negative factor ranked in Hong Kong was also ranked high by the Australians and

British. This negative factor was therefore seen to be important irrespective of the

geographical differences and could be considered a negative factor specifically for PPP

projects. The third negative factor was ranked bottom by the Australians and British

showing a high level of controversy to the ranking in Hong Kong. This factor appears to

be more of a concern to the Hong Kong respondents. Some delayed projects as discussed

previously are causes towards the low confidence experienced. Whereas in Australia and

the United Kingdom, they are much more experienced at conducting PPP projects and

hence more confident with this type of procurement.

Chapter 8 Implementing Public Private Partnership Projects

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CHAPTER 8

IMPLEMENTING PUBLIC PRIVATE

PARTNERSHIP PROJECTS


8.2 Reasons for Implementing PPP Projects

8.3 Factors Contributing to Successful PPP Projects

8.4 Enhancing Value for Money in PPP Projects



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This chapter studies the reasons, success factors and value for money measures behind

Public Private Partnership (PPP) projects. The findings discussed were obtained from the

same questionnaire survey as described in Chapter 7.

8.2 Reasons for Implementing PPP Projects

This section presents the findings of a study to investigate the reasons for implementing

PPP projects. The same questionnaire survey described in Chapter 7 was used to obtain

data. The survey respondents were asked to rate the importance of nine identified reasons

for implementing PPP projects.

The reasons for implementing PPP projects were assessed from different perspectives of

the Hong Kong, Australia and the United Kingdom (results obtained by Li (2003) from

his survey) respondent groups. The means for each administrative system were

calculated and ranked in descending order of importance as shown in Table 8.1.


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Table 8.1 Mean scores and rankings of the reasons for implementing PPP projects

Reasons

Hong Kong Australia

United Kingdom

(Li, 2003)


a. Economic development pressure demanding more facilities 33 3.48 2 11 3.64 2 61 3.34 2

b. Political pressure 33 2.79 9 11 2.45 8 61 3.24 4

c. Social pressure of poor public facilities 33 2.88 8 11 3.09 5 61 3.12 5

d. Private incentive 32 3.56 1 11 3.09 4 61 2.57 9

e. Shortage of government funding 33 3.24 6 11 2.64 7 61 3.9 1

f. Inefficiency because of public monopoly and lack of competition 33 3.33 4 11 3.09 3 61 2.98 6

g. High quality of service required 33 3.42 3 11 3.91 1 61 2.7 7

h. Avoid public investment restriction 33 2.97 7 11 2.18 9 61 3.31 3

i. Lack of business and profit generating skill in the public sector 32 3.31 5 11 2.82 6 61 2.62 8

* N = Number of survey respondents


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As shown in Table 8.2, the Kendall’s coefficient of concordance (W) for the rankings of

reasons for implementing PPP projects was 0.076 and 0.239 for Hong Kong and Australia

respectively. The computed W’s for both were significant with p = 0.000. As the number

of attributes considered were above seven, as mentioned previously the Chi-square value


critical value of Chi-square was 15.510 for both groups (Hong Kong and Australia) the



their rankings of reasons for implementing PPP projects is proved to be consistent. This

finding ensures that the completed questionnaires were valid for further analysis.

Table 8.2 Results of Kendall’s concordance analysis of the reasons for implementing

PPP projects

Hong Kong Australia










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8.2.2 Ranking of the reasons for implementing PPP projects

As in Li’s questionnaire, a total of nine reasons for implementing PPP projects were rated

by the respondents. The top three reasons ranked in Hong Kong included:

(1) Private incentive;

(2) Economic development pressure demanding more facilities; and

(3) High quality of service required.

The top reason for implementing PPP projects ranked by respondents from Hong Kong

was “Private incentive”. Obviously practitioners round the world can foresee the

advantages of involving the private sector into conducting public works projects. The

private sector can add value to these projects in many ways such as financially, via

expertise, innovation, risk sharing and above all motivation. This finding has indicated

that the Hong Kong respondents felt that the main reason for implementing public works

projects by PPP is to acquire the added value from the private sector. In Australia and the

United Kingdom this reason for implementing PPP projects was ranked lower at fourth

and ninth place respectively, indicating that those respondents did not feel so strongly to

involve the private sector for their added value.

Ranked second by respondents in Hong Kong, Australia and the United Kingdom was

“Economic development pressure demanding more facilities”. The similar ranking

pattern across the three survey groups represents that the importance of this reason for

implementing PPP projects is applicable irrespective of geographical differences. Hence


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all survey respondents felt that PPP projects are implemented due to economic pressure to

provide more public facilities. The similar ranking pattern could also be a reflection of

the real life situation that the survey respondents have observed. In Hong Kong

particularly there has been a growing phase of rapid infrastructure development, which

the government has opted to use the PPP scheme. These projects include the Shatin to

Central rail link and the Kwun Tong rail extension. The new metro line will consist of

nine stations. Construction will start in 2010 and the two phases of the line will be

completed by 2015 and 2019 (Information Services Department, 2008b).

The third reason for implementing PPP projects ranked by respondents from Hong Kong

was “High quality of service required”. Being an international city, maintaining high

quality in services is important. This feeling was also reflected by the survey respondents,

as they felt that this is also a reason for implementing PPP projects. In Australia and the

United Kingdom this reason for implementing PPP projects was ranked first and seventh

respectively. The findings show that the Australians felt similarly but the British ranked

this reason for implementing PPP projects much lower. Although so, the survey with the

British respondents was conducted a few years ago, hence it is anticipated that with the

increasing projects due to be carried out before the Olympics in 2012, the respondents

might have a different view if this survey was conducted today.

In Australia, the respondents ranked “Inefficiency because of public monopoly and lack

of competition” third. Due to the size, complexity, challenges and long concession period

of PPP projects, they tend to be limited to be conducted by only those very large private


221

sector companies. These companies will normally possess sufficient finance, expertise

and skills to implement PPP projects. Therefore for those who are not involved with the

PPP process they may feel that public monopoly and lack of competition exists. This

occurrence is often partially true but then only those capable parties will possess the

power to participate with PPP projects.

Ranked first by British respondents was “Shortage of government funding”. One of the

main reasons for the rise of PPP/Private Finance Initiative (PFI) projects in the United

Kingdom was due to financial resources from the private sector. The PPP/PFI method

was first adopted at a time when the British government was struggling to provide for

public facilities and services (Zhang, 2001). By involving the private sector the

government was able to continue delivering public infrastructure. As a result a heavy

emphasis on finance has always been associated to PPP/PFI projects especially in the

early days of implementation. Along with other benefits as a result of involving the

private sector, finance is often not the only element considered when delivering public

projects these days though.

Third in the United Kingdom rank was “Avoid public investment restriction”. Similar to

the reason discussed previously, this reason holds a strong emphasis on the financial

element of the project. Again it must be considered that the survey conducted with

British respondents was carried out a few years ago. It is likely that when the British

government were still in a tight budgetary condition they would also be more likely to

enforce more budgetary restrictions before approving projects. Hence it is unsurprising


222

for this reason to be ranked highly by the British respondents.

The mean values of the reasons for implementing PPP projects as rated by Hong Kong

respondents ranged from 2.79 to 3.56. This observation has reflected that the variation in

their responses are relatively small, only 0.77 for Hong Kong. In Australia and the

United Kingdom the means ranged from 2.18 to 3.91 and 2.57 to 3.90 respectively. The

corresponding differences in means were 1.73 and 1.33 respectively. The differences in

means were much higher for the survey conducted in Australia and the United Kingdom

compared to Hong Kong.

As the respondents were asked to rate the nine reasons for implementing PPP projects

according to a Likert scale from 1 to 5 (1 = Least Important and 5 = Most Important), a

value above “3” would represent that the reason for implementing PPP projects is of

importance. Amongst the reasons for implementing PPP projects only three were ranked

below “3” in the Hong Kong rank. These reasons for implementing PPP projects were

“Political pressure”, “Social pressure of poor public facilities” and “Avoid public

investment restriction” which scored 2.79, 2.88 and 2.97 respectively.

For Australia and the United Kingdom, each had four reasons for implementing PPP

projects rated below “3”. In Australia, two of these were the same as those for Hong

Kong (“Political pressure” and “Avoid public investment restriction” with scores of 2.45

and 2.18 respectively). The other two in Australia were “Shortage of government

funding” and “Lack of business and profit generating skill in the public sector” which


223

scored 2.64 and 2.82 respectively. On the other hand in the United Kingdom none were

the same as those in Hong Kong but one was the same as Australia (“Lack of business

and profit generating skill in the public sector” which scored 2.62). The other three

reasons in the United Kingdom were “Private incentive”, “Inefficiency because of public

monopoly and lack of competition” and “High quality of service required” which scored

2.57, 2.98 and 2.7 respectively.

The reason for implementing PPP projects “Political pressure” was rated low by

respondents in both Hong Kong and Australia. Hood and McGravey (2002) claimed that

the PPP development would remain a major political issue. Relatively speaking, Hong

Kong and Australia have less history of PPP implementation compared to the United

Kingdom. Also, they faced less political pressure when the concept was first introduced,

as the practice has been well documented in other developed countries (such as the

United Kingdom) and the political influence of trade unions is minimal. Hence this

reason for implementing PPP projects was not rated highly.

Also rated lowly by respondents from Hong Kong and Australia was “Avoid public

investment restriction”. Again this reason for implementing PPP projects was not rated

highly as both groups of survey respondents did not believe that the public were under

heavy investment restrictions.

Rated low by only the Hong Kong respondents was “Social pressure of poor public

facilities”. The Hong Kong respondents did not feel that the government has been under


224

pressure from the society. Hence they rated this reason for implementing PPP projects

lowly. This finding could imply that the respondents felt happy towards the current

standard of public facilities in Hong Kong.

Rated lowly by the Australian respondents only was “Shortage of government funding”.

Although financial drive may have once been the main reason for involving private sector

participation, this is not the case anymore. In Australia, the state governments have

noticed the benefits associated with implementing PPP projects and have developed a

more revolutionary process. The state governments are capable of delivering these

services themselves but instead they choose to involve the private sector to achieve added

value from the private sector for particular public projects.

Rated lowly by the Australian and British respondents was “Lack of business and profit

generating skill in the public sector”, again the Australians and the British have a much

longer history in implementing PPP projects hence their skills in this area are much more

advanced. As a result the public sector has acquired sufficient experience and

competency to deliver these projects well. Therefore the respondents felt that

incapability of the public sector to deliver public projects was not the case.

The British respondents rated “Private incentive” lowly. This contradicts with the finding

achieved from the Hong Kong respondents. The public sector of the United Kingdom is

already well experienced at conducting PPP projects, but they realise their job is to deal

with the administrative procedures rather than act as the developer.


225

Also, rated lowly in the United Kingdom survey was “Inefficiency because of public

monopoly and lack of competition” and “High quality of service required”. Again the

experience of the public sector implies that these can be achieved without involving the

private sector.



8.2.3 Section 8.2 Summary

The findings have shown that in general those reasons ranked high by respondents from

Hong Kong and Australia focused on improving the overall performance of public

projects whereas those that were rated high by the British respondents focused on the

financial aspect of the projects. Ranked in the top three by Hong Kong respondents was

“Private incentive”; “Economic development pressure demanding more facilities”; and

“High quality of service required”. In Australia and the United Kingdom both groups of

respondents also ranked their second reason the same as Hong Kong. In addition, the

Australians also ranked the third reason in Hong Kong first; and “Inefficiency because of

public monopoly and lack of competition” third. In the United Kingdom the first and

third reasons ranked by the respondents was “Shortage of government funding” and

“Avoid public investment restriction” respectively.

The reason “Private incentive” was attractive due to the added value which could be


226

applied to public works projects by the private sector. One of the main reasons to adopt

PPP is that the public works project can benefit from the private sector’s expertise,

innovation, motivation and experience. Similar for many governments around the world

“Economic development pressure demanding more facilities” is common. Even though

governments such as Hong Kong are capable to finance their own projects, there are also

other areas in society where they need to support. So by using money from the private

sector, governments can utilise their resources much more effectively. In international

cities particularly, “High quality of service required” to maintain their status and

competition is common. The size and complexity of PPP projects often limit only certain

large private sector parties therefore “Inefficiency because of public monopoly and lack

of competition” is often seen. Many governments first started to implement PPP projects

due to “Shortage of government funding”. Similarly, when the government is under tight

budget controls implementing PPP projects could also “Avoid public investment

restriction”.


227

8.3 Factors Contributing to Successful PPP Projects

This section presents the findings of a study to investigate the factors contributing to

successful PPP projects. The same questionnaire survey was used to obtain data. The

survey respondents were asked to rate eighteen factors which contribute to delivering

successful PPP projects.

The factors that contribute to the success of PPP projects were assessed from different

perspectives of the Hong Kong, Australia and the United Kingdom (results obtained by Li

(2003) from his survey) respondent groups. The means for each administrative system

were calculated and ranked in descending order of importance as shown in Table 8.3.


228

Table 8.3 Mean scores and rankings for the factors that contribute to the success of PPP projects

Success Factors

Hong Kong Australia

United Kingdom (Li, 2003)

N Mean Rank N Mean Rank N Mean Rank a. Stable macro-economic condition 34 3.85 4 11 4.18 12 61 3.19 15 b. Favourable legal framework 34 4.06 1 11 4.27 7 61 3.63 9 c. Sound economic policy 34 3.74 7 11 4.09 13 61 3.19 13 d. Available financial market 34 3.71 8 11 4.18 11 61 4.04 3 e. Multi-benefit objectives 34 3.50 16 10 4.20 10 61 3.19 14 f. Appropriate risk allocation and risk sharing 34 3.85 5 11 4.64 2 61 4.05 2 g. Commitment and responsibility of public and private sectors 34 3.97 2 11 4.91 1 61 3.98 4 h. Strong and good private consortium 34 3.91 3 11 4.64 3 61 4.11 1 i. Good governance 34 3.68 10 11 4.45 4 61 3.72 8 j. Project technical feasibility 34 3.56 15 11 4.36 5 61 3.79 6 k. Shared authority between public and private sectors 34 3.41 18 10 3.70 16 61 2.98 17 l. Political support 34 3.76 6 11 4.27 6 61 3.56 11 m. Social support 34 3.44 17 11 3.36 17 61 2.81 18 n. Well organised and committed public agency 34 3.65 12 11 4.27 8 61 3.74 7 o. Competitive procurement process (enough potential bidders in the process) 34 3.68 9 11 4.27 9 61 3.37 12 p. Transparency procurement process (process is made open and public) 33 3.67 11 11 4.09 14 61 3.6 10 q. Government involvement by providing guarantee 34 3.62 14 10 2.40 18 61 3.16 16 r. Thorough and realistic assessment of the cost and benefits 34 3.65 13 11 4.00 15 61 3.95 5 * N = Number of survey respondents


229


As shown in Table 8.4, W for the rankings of factors that contribute to the success of PPP

projects was 0.061 and 0.270 for Hong Kong and Australia respectively. The computed

W’s were significant with p = 0.008 and 0.004 respectively. Again as the number of

attributes considered were above seven, as mentioned previously the Chi-square value


critical value of Chi-square was 27.590 for both groups (Hong Kong and Australia), the



their rankings of success factors is proved to be consistent. This finding ensures that the

completed questionnaires were valid for further analysis.

Table 8.4 Results of Kendall’s concordance analysis for the factors that contribute to

the success of PPP projects

Hong Kong Australia







Note: Only 33 out of 34 responses from Hong Kong and 8 out of 11 responses from

Australia were suitable for subsequent statistical analyses.


230

8.3.2 Ranking of factors that contribute to the success of PPP projects

Eighteen success factors for adopting PPP were rated by the respondents. Figure 8.1

illustrates the relationship of the top five success factors ranked in Hong Kong with their

ranking positions in Australia and the United Kingdom. These success factors included:

(1) Favourable legal framework;

(2) Commitment and responsibility of public and private sectors;

(3) Strong and good private consortium;

(4) Stable macro-economic condition; and

(5) Appropriate risk allocation and risk sharing.

The top success factor ranked by respondents from Hong Kong was “Favourable legal

framework”. On the contrary respondents from Australia and the United Kingdom

ranked this success factor of medium importance only, at seventh and ninth position

respectively. This finding has implied that the Australian and British respondents were

not particularly concerned about their existing legal framework, which is already well

established to handle PPP projects.

On the contrary, respondents in Hong Kong felt that the legal framework is the most

important success factor. As mentioned by the National Treasury PPP Unit of South

Africa (2007), an independent, fair and efficient legal framework is a key factor for

successful PPP project implementation. Sufficient legal resources at reasonable costs

should be available to deal with the amount of legal structuring and documentation


231

required. A transparent and stable legal framework would help to make the contracts and

agreements bankable. An adequate dispute resolution system would help to ensure

stability in the PPP arrangements. Appropriate governing rules, regulations and reference

manuals related to PPP have been well established in some developed countries (e.g.

United Kingdom, Australia, Canada, South Africa, etc.) to facilitate the effective

application of PPP procurement approach.

The second success factor ranked by Hong Kong respondents was “Commitment and

responsibility of public and private sectors”. This success factor was also ranked

importantly by the Australians and British at first and fourth place respectively. This

success factor was ranked high by all respondent groups irrespective of geographical

locations. To secure the success of PPP projects, both the public and private sectors

should bring their complementary skills and commit their best resources to achieve a

good relationship (National Audit Office, 2001).

Ranked third by respondents in Hong Kong and Australia was “Strong and good private

consortium”. Respondents from the United Kingdom felt even stronger on the

importance of this success factor and ranked it top. This finding again has shown that

this success factor is seen to be highly important to the success of PPP projects

irrespective of geographical locations. The government in contracting out the PPP

projects should ensure that the parties in the private sector consortium are sufficiently

competent and financially capable of taking up the projects. This suggests that private

companies should explore other participants' strengths and weaknesses and, where


232

appropriate, join together to form consortia capable of synergising and exploiting their

individual strengths. Good relationship among partners is also critical because they all

bear relevant risks and benefits from the co-operation (Abdul-Rashid et al., 2006; Birnie,

1999; Corbett and Smith, 2006; Jefferies et al., 2002; Kanter, 1999; Tam, et al. 1994;

Tiong, 1996; Zhang, 2005a).

The fourth success factor ranked by respondents from Hong Kong was “Stable macro-

economic condition”. On the contrary respondents from Australia and the United

Kingdom ranked this success factor relatively low amongst the eighteen success factors

rated. In these countries this success factor was ranked only twelve and fifteenth

respectively. This success factor was therefore seen as quite important in Hong Kong but

rather unimportant in Australia and the United Kingdom.

In a stable macro-economic environment the market is more predictable, hence lowering

risks such as interest rate, exchange rate, employment rate, inflation rate, etc. It is very

important to reduce risks and enable a reasonable investment return for private investors,

especially in the emerging PPP market like Hong Kong. For projects where the major

source of revenue to the private sector is generated from direct tariffs levied on users,

there are revenue risks that can go beyond the control of the private sector like, for

example, future usage level and permitted tariff charges.

There may also be unforeseen risks during the course of the project life. To ensure

project economic viability, the government may consider some forms of government


233

guarantees; joint investment funding or supplemental periodic service payments to allow

the private sector to cover the project costs and earn reasonable profits and investment

returns. At the same time, the government should take due consideration of the private

sector’s profitability requirements in order to have stable arrangements in PPP projects.

Alternative sources of income and financing like property development opportunities

along the railway can be sought to bridge the funding gap for private investors (Abdul-

Rashid et al., 2006; Corbett and Smith, 2006; Li et al., 2005c; Nijkamp et al., 2002; Qiao

et al., 2001; Tam et al., 1994; Tiong, 1996; Zhang, 2005a).

The fifth success factor ranked by Hong Kong respondents was “Appropriate risk

allocation and risk sharing”. Respondents from Australia and the United Kingdom both

ranked this success factor second, showing again that irrespective of geographical

differences all groups of respondents ranked this success factor importantly. Although so

the findings showed that the respondents from Hong Kong ranked this success factor

slightly below the others. This could be due to the fact the Hong Kong has had

experience with different procurement systems that entail different risk allocation models,

thereby making this success factor relatively less critical in terms of its contribution to

project success.

A core principle in PPP arrangement is the allocation of risk to the party best able to

manage and control it (Efficiency Unit, 2003a). Logically, the government would prefer

to transfer risks associated with asset procurement and service delivery to the private

sector participants, who are generally more efficient and experienced in managing them.


234

But the government should be reasonable to take up risks that are beyond the control of

private sector participants. In all cases, the government should ensure there are measures

in place to manage the risk exposure rather than leaving it open to the private sector.

Likewise before committing to the projects, the private sector participants should fully

understand the risks involved and should be prudent in pricing and managing the risks

appropriately (Grant, 1996; Qiao et al., 2001; Zhang, 2005a).

The results also found that the success factors “Shared authority between public and

private sectors” and “Social support” were ranked in the bottom three by all groups of

respondents. These success factors were therefore seen to be least important compared to

the others. Although no explanation can be provided for why these success factors were

ranked particularly lower, it can be assumed that the other success factors were seen to be

more important. This perception was shown to be true for all survey locations.

The mean values for the success factors as rated by Hong Kong respondents ranged from

3.41 to 4.06. This observation has reflected that the variation in their responses are




shown to be much higher for the survey conducted in Australia and the United Kingdom

compared to Hong Kong. This finding shows that the Hong Kong respondents rated the

eighteen success factors much more similarly, whereas in Australia and the United

Kingdom the respondents showed a much larger variation.


235

As the respondents were asked to rate the eighteen success factors according to a Likert

scale from 1 to 5 (1 = Least Important and 5 = Most Important), a value above “3” would

represent that the success factor is of importance. Amongst the success factors none were

ranked below “3” in the Hong Kong rank. In Australia and the United Kingdom only one

and two success factors respectively were ranked below a score of “3”. Therefore, all

three groups of respondents concurred that the identified factors were important.




236

Figure 8.1 Rank relationship between Hong Kong, Australia and the United Kingdom for success factors of PPP

Top 5 rank for success factors of PPP in Hong Kong

(1) Favourable legal framework

(2) Commitment and responsibility of public and private sectors

(3) Strong and good private consortium

(4) Stable macro-economic condition

(5) Appropriate risk allocation and risk sharing

The United Kingdom

(9)

(4)

(1)

(15)

(2)

Australia

(7)

(1)

(3)

(12)

(2)


237


This section has analysed the perceptions of respondents from Hong Kong, Australia and

the United Kingdom on the importance of eighteen factors contributing to successful

delivery of PPP projects. The ranking in Hong Kong showed that the top five success

factors included: (1) Favourable legal framework; (2) Commitment and responsibility of

public and private sectors; (3) Strong and good private consortium; (4) Stable macro-

economic condition; and (5) Appropriate risk allocation and risk sharing.

The top success factor ranked by Hong Kong respondents was ranked with medium

importance by respondents from the other two groups; implying that their legal

frameworks are already well developed to cater for PPP projects hence they are less

concerned on the existing system.

The second, third and fifth success factors were ranked highly by all three groups of

respondents, indicating that these success factors were applicable to delivering successful

PPP projects irrespective of their geographical locations.

The fourth success factor ranked by Hong Kong respondents was ranked lowly by the

other groups of respondents. In Australia and the United Kingdom there is a well

established stable macro-economic environment hence the market is much more

predictable. Hong Kong on the other hand has experienced dramatic changes since the

British to Chinese handover in 1997, hence they are still adjusting to the changes and the


238

market is therefore not as stable. As a result a stable macro-economic condition was

rated much higher by the Hong Kong respondents. In general, all three groups of

respondents concurred that the identified factors were important.

8.4 Enhancing Value for Money in Public Private Partnership

Projects

This section presents the findings of a study to investigate the measures that enhance

Value for Money (VFM) in PPP projects. The same questionnaire survey was used to

obtain data. The survey respondents were asked to rate the importance of eighteen VFM

measures in PPP projects.

The VFM measures in PPP were assessed from different perspectives of the Hong Kong,

Australia and the United Kingdom (results obtained by Li (2003) from his survey)

respondent groups. The means for each administrative system were calculated and

ranked in descending order of importance as shown in Table 8.5.


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Table 8.5 Mean scores and rankings for the VFM measures in PPP projects

VFM Measures

Hong Kong Australia

United Kingdom (Li, 2003)

N Mean Rank N Mean Rank N Mean Rank a. Competitive tender 34 3.91 3 11 4.27 6 61 3.5 6 b. Efficient risk allocation (allocating the risk to the party best able to manage it) 33 4.18 1 11 4.55 2 61 4.02 1 c. Risk transfer (transferring a substantial amount of risk from the public to the private) 34 3.59 8 11 2.73 17 61 3.57 5 d. Output based specification 34 3.91 2 11 4.27 5 61 3.91 2 e. Long-term nature of contracts 34 3.65 7 11 4.18 7 61 3.78 3 f. Improved and additional facilities to the public sector 34 3.35 12 11 4.00 11 61 3.16 13 g. Private management skill 34 3.82 4 11 4.27 4 61 3.41 7 h. Private sector technical innovation 33 3.82 5 10 4.50 3 61 3.28 9 i. Optimal use of asset/facility and project efficiency 34 3.68 6 10 4.70 1 61 3.31 8 j. Early project service delivery 34 3.35 11 11 4.00 10 61 3.72 4 k. Low project life cycle cost 34 3.47 10 11 4.00 9 61 3.24 11 l. Low shadow tariffs/tolls 34 2.82 18 10 3.30 13 61 2.49 17 m. Level of tangible and intangible benefits to the Users 34 3.00 16 11 4.00 8 61 2.83 15 n. Environmental consideration 34 2.97 17 11 2.73 16 61 2.38 18 o. Profitability to the private sector 34 3.18 13 10 3.00 15 61 2.84 14 p. "Off the public sector balance sheet" treatment 34 3.15 14 11 2.36 18 61 3.23 12 q. Reduction in disputes, claims and litigation 34 3.09 15 11 3.18 14 61 2.81 16 r. Nature of financial innovation 34 3.56 9 11 3.73 12 61 3.25 10

* N = Number of survey respondents


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As shown in Table 8.6, W for the rankings of VFM measures was 0.199 and 0.459 for

Hong Kong and Australia respectively. The computed W’s for both were significant with

p = 0.000. Again as the number of attributes considered were above seven, as mentioned

previously the Chi-square value would be referred to rather than the W value. According

to the degree of freedom, the critical value of Chi-square was 27.590 for both groups

(Hong Kong and Australia) the computed Chi-square values were all above the critical

value of Chi-square (108.189 and 54.567 respectively). Therefore the assessment by the

respondents within each group on their rankings of VFM measures is proved to be

consistent. This finding ensures that the completed questionnaires were valid for further

analysis.

Table 8.6 Results of Kendall’s concordance analysis for the VFM measures in PPP

projects

Hong Kong Australia







Note: Only 32 out of 34 responses from Hong Kong and 7 out of 11 responses from


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Australia were suitable for subsequent statistical analyses.

8.4.2 Ranking of Value for Money measures in PPP

Eighteen VFM measures in PPP were rated by the respondents. Figure 8.2 illustrates the

relationship of the top five VFM measures ranked in Hong Kong with their ranking

positions in Australia and the United Kingdom. These VFM measures included:

(1) Efficient risk allocation (allocating the risk to the party best able to manage it);

(2) Output based specification;

(3) Competitive tender;

(4) Private management skill; and

(5) Private sector technical innovation.

The top VFM measure ranked by the Hong Kong respondents was “Efficient risk

allocation (allocating the risk to the party best able to manage it)”. This VFM measure

was also ranked top by the Australians and highly at second place by the British, showing

that its importance in PPP projects is applicable irrespective of geographical locations.

It is essential for the public client and the private bidders to evaluate all of the potential

risks throughout the whole project life. Public and private sector bodies must place

particular attention on the procurement process while negotiating contracts for PPP to

ensure a fair risk allocation between them. Systematic risk management allows early

detection of risks and encourages the PPP stakeholders to identify, analyse, quantify, and


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respond to the risks, as well as take measures to introduce risk mitigation policies

(Akbiyikli and Eaton, 2004). A fundamental principle is that risks associated with the

implementation and delivery of services should be allocated to the party best able to

manage the risk in a cost effective manner.

Second in the Hong Kong and Australia rank was “Output based specification”. This

VFM measure was also ranked high by the British at fifth. Besides the top VFM measure

ranked by Hong Kong discussed previously, this was the only one also ranked highly by

all three administrative regions, indicating again that this VFM measure is applicable to

PPP projects irrespective of geographical differences.

Clear specifications can be used to quantify the resources required for a project. When

project specifications are more difficult to define the costs that it may incur are also hard

to quantify and control. Therefore clearly defined output based specifications can help

the government to monitor the private sector’s performance. The private party can also

feel more confident to achieve targets and keep control of the project flow in order to

enhance their profit margins. Output based specifications can also help the government

to use the public sector comparator more effectively in quantifying whether VFM is

reached by procuring projects via PPP. Some may feel that output based specifications

define too much of the project to allow for private sector innovation, but for example a

two lane tunnel can still leave plenty of room for added value from the private sector.

The Hong Kong respondents ranked “Competitive tender” third. In Australia and the


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United Kingdom this VFM measure was ranked with medium importance only, both at

sixth position. This VFM measure was ranked high in Hong Kong reflecting the

respondents’ views of the actual situation of procuring projects.

Hong Kong has only a limited number of contractors who are able to handle large public

works projects. Therefore it is often the same groups of contractors who are successful at

winning these bids. For those slightly smaller local companies they are often unable to

compete with the larger local companies. For international companies based in Hong

Kong they may not always wish to spend their resources in Hong Kong. Hence a

revolving situation has been formed that there are often few bids received from the

private sector. As a result these projects tend to be awarded to the same groups of people.

Therefore an evolving situation is that the fewer competitors in the tendering process the

more difficult it is to achieve VFM in PPP projects.

In a more competitive bidding environment the private sectors will try all measures to

improve their designs in every aspect. In particular in terms of VFM as one of the main

reasons that the public sector opt for PPP is to achieve VFM in public works projects.

This would therefore be a key reason to choose a particular private party for the

government. In a bidding environment that has few competitors the private sector does

not need to try so hard to win the contracts, hence VFM may not always be achieved.

Ranked fourth in Hong Kong and Australia was “Private management skill”. This VFM

measure was ranked slightly lower by the British at seventh position. The British are


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more experienced in conducting PPP projects hence many of the private sector companies

are already equipped with the necessary skills to handle PPP projects. On the other hand

in Hong Kong particularly many private companies are not experienced with handling

PPP projects and are therefore not equipped with the necessary management skills. The

capability of the private sector can determine the successfulness of the PPP project. The

success of a PPP project is often associated with its degree of VFM that can be achieved.

The fifth VFM measure in Hong Kong was “Private sector technical innovation”. This

was ranked slightly higher by the Australians but lower by the British at third and ninth

position respectively. This VFM measure is similar to “Private management skill”, in that

it relies on the capability of the private party. Obviously the ability of the private party

will determine how successful the PPP project can become in terms of VFM. Then again

VFM is the main incentive for governments around the world to involve the private

sector in to procuring public works projects.

The mean values for the VFM measures as rated by Hong Kong respondents ranged from

2.82 to 4.18. This observation has reflected that the variation in their responses are




slightly higher for the survey conducted in Australia and the United Kingdom compared

to Hong Kong. This finding shows that the Hong Kong respondents rated the eighteen

VFM measures much more similarly, whereas in Australia and the United Kingdom the


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respondents showed a slightly larger variation.

As the respondents were asked to rate the eighteen VFM measures according to a Likert

scale from 1 to 5 (1 = Least Important and 5 = Most Important), a value above “3” would

represent that the VFM measure is of importance. Amongst the VFM measures only two

were ranked below “3” in the Hong Kong rank. These VFM measures were “Low

shadow tariffs/tolls” and “Environmental consideration” which scored 2.82 and 2.97

respectively. In Australia and the United Kingdom three and five VFM measures were

rated below “3” respectively. Similar to Hong Kong, the other respondent groups also

rated “Environmental consideration” below a score of “3” with scores of 2.73 and 2.38

respectively. This finding showed that environment related issues showed the least effect

towards enhancing VFM according to all groups of survey respondents.




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Figure 8.2 Rank relationship between Hong Kong, Australia and the United Kingdom for VFM measures of PPP

Top 5 rank for VFM measures of PPP in Hong Kong

(1) Efficient risk allocation (Allocating the risk to the party best able to manage it)

(2) Output based specification

(3) Competitive tender

(4) Private management skill

(5) Private sector technical innovation

The United Kingdom

(1)

(2)

(6)

(7)

(9)

Australia

(2)

(5)

(6)

(4)

(3)


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This section has discussed the VFM measures rated by survey respondents from Hong

Kong, Australia and the United Kingdom. The results showed that there were two VFM

measures that were ranked highly by all groups of survey respondents.

The first of these which was ranked top in Hong Kong was “Efficient risk allocation

(allocating the risk to the party best able to manage it)”. Appropriate risk allocation so

that risks are assigned to the party best able to manage it, is believed to reduce the

problems encountered in a project. As a result VFM is enhanced due to fewer risks

occurring in the project life.

The second VFM measure ranked highly by all was “Output based specification”. A

clearly defined output based specification enables the milestones and activities in a

project to be much more predictable compared to one without hence the effect towards

VFM is larger.

Ranked thirdly in Hong Kong was “Competitive tender”. This measure can create VFM

when it exists. The more competition in the tendering process, the more the private

sector will try to offer a better package overall for the public sector. In Hong Kong

unfortunately there is limited competition between those companies that can handle PPP

projects; hence the respondents felt that this VFM measure is relatively more important.


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Ranked fourth and fifth in Hong Kong was “Private management skill” and “Private

sector technical innovation”. Both of these VFM measures relate to the ability of the

private sector. Obviously the better the private sector’s ability the more chance there is

for them to enhance VFM. In Hong Kong the skill of the private sector in conducting

PPP projects may not be as experienced as the Australia and the United Kingdom, hence

the respondents felt strongly towards these measures.


This chapter has presented the findings from a questionnaire survey looking at the

reasons for implementing PPP projects, the success factors of PPP projects and the VFM

measures of PPP projects.

The findings showed that the top reason ranked by the survey respondents in Hong Kong

was “Private incentive”. Ranked second by all three groups of survey respondents was

“Economic development pressure demanding more facilities”. Third in Hong Kong and

first in Australia was “High quality of service required”. The reason “Inefficiency

because of public monopoly and lack of competition” was ranked third by the Australian

respondents. And finally ranked first and third by the British respondents was “Shortage

of government funding” and “Avoid public investment restriction”. The rankings showed

that in general those reasons rated highly in the United Kingdom focused on financial

elements whereas those rated highly in Hong Kong and Australia were more related to the


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overall performance of improving public projects.

Amongst the top five success factors ranked by Hong Kong respondents, three were also

ranked highly by the Australians and British. These success factors included:

“Commitment and responsibility of public and private sectors”; “Strong and good private

consortium”; and “Appropriate risk allocation and risk sharing”. These success factors

were therefore found to be important for contributing to successful PPP projects

irrespective of geographical locations. Ranked top in Hong Kong but only with medium

importance in the other surveyed jurisdictions was “Favourable legal framework”. Also,

ranked within the top five by Hong Kong respondents was “Stable macro-economic

condition”, but this success factor was ranked lowly by the Australians and British.

The top five VFM measures ranked by the respondents from Hong Kong included (1)

Efficient risk allocation (allocating the risk to the party best able to manage it); (2) Output

based specification; (3) Competitive tender; (4) Private management skill; and (5) Private

sector technical innovation. The first and second of these VFM measures were also

found to be ranked high by the respondents from Australia and the United Kingdom,

indicating that these were true irrespective of geographical differences. When the risks

are handled well less pitfalls are experienced and as a result VFM is more achievable.

Hence an efficient risk allocation is vital in determining whether VFM can be achieved in

PPP projects. A clear output based specification can enable a more obvious project

design and concept hence minimising the possibility of delivering the wrong product for

the user. Therefore this measure is also important in determining whether VFM has been


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achieved for a PPP venture.

Chapter 9 A Best Practice Framework for Implementing PPP Projects in Hong Kong

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CHAPTER 9

A BEST PRACTICE FRAMEWORK FOR

IMPLEMENTING PPP PROJECTS IN HONG KONG


9.2 The PPP Process

9.3 Incorporating the Research Findings into the PPP Process

9.4 Validation of the Framework



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This chapter presents a best practice framework for implementing Public Private

Partnership (PPP) projects in Hong Kong. Based on the process for conducting PPP

projects presented by the Efficiency Unit of the Hong Kong Special Administrative

Region (HKSAR) government, the findings achieved from this research study suggest

measures to improve the process at each step. The findings drawn from the literature

review, case study analysis, interviews and questionnaire survey are triangulated to

enhance the exiting practice of implementing PPP projects in Hong Kong. By using this

framework both the public and private sectors can deliver better PPP projects.

9.2 The PPP Process

As this research study aims to develop a best practice framework for implementing PPP

projects in Hong Kong, it would be logical to work on the existing governmental

framework. Although the Efficiency Unit of the HKSAR government is not involved

with conducting PPP projects, as mentioned in previous chapters their involvement in

PPP research for Hong Kong within the local government has been inevitable. Hence this

study chose to adopt their process as the baseline for conducting PPP projects in Hong

Kong.


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Figure 9.1 looks at the steps involved in the PPP process as proposed by the Efficiency

Unit (Efficiency Unit, 2008b). A total of 8 steps are defined for this process. The first

step is “Mobilisation and development of a business case”. Within this step there are a

further eight activities that should occur, these include: 1) Conduct needs analysis, market

testing and PPP feasibility study; 2) Establish a project steering committee and designate

a contract manager; 3) Establish whether a site is available; 4) Establish what

facilities/services are required; 5) Prepare a draft Statement of Requirements; 6) Consider

whether to accept proposals for enhanced or other additional commercial

facilities/services on the site; 7) Assess risk; and 8) Prepare public sector comparator and

seek policy endorsement.

The second step is “Funding” which involves submitting a bid via the policy bureau for

funds through the resource allocation exercise process.

The third step is “Technical assessments, consultation and land requirements”. It

involves three activities including: 1) Conduct appropriate technical assessments and

socio-economic studies; 2) Seek necessary authorities’ agreement on land use; and 3)

Conduct consultations with stakeholders, policy committee and legislative council panel.

Step 4 is the “Expression of interest exercise” where an expression of interest exercise is

initiated.


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Step 5 looks at the “Policy and funding approvals”. Two activities are involved including:

1) Consult and seek approvals of public works subcommittee of the legislative council;

and 2) finance committee of the legislative council.

Step 6 is the “Procurement and selection” involving seven activities including: 1) Instruct

department of justice on drafting of procurement documents/contract; 2) Finalise

procurement documents and seek approval from central tender board; 3) Establish bid

evaluation committee; 4) Issue request for proposal and conduct briefings/site inspections;

5) Evaluate proposals; 6) Negotiate with bidders and select from best and final offer; and

7) Award contract.

Step 7 is the “Service commencement”. There are four activities for this step including: 1)

Commence construction; 2) Commissioning of facility; 3) Commence service delivery;

and 4) Establish and maintain close relationship with the consortium.

And finally step 8 “Payment and contract management” wraps up the PPP process. Six

activities are involved including: 1) Monitor performance regularly / Make payment for

the facilities/services provided; 2) Defer or reduce payment; 3) Institute investigations

and issue warning / Initiate dispute resolution procedures; 4) Step-in; 5) Conduct joint

inspection towards the end of the contract; and 6) Hand over facilities at the end of the

contract.


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Figure 9.1 The process for implementing PPP projects in Hong Kong (adapted from

Efficiency Unit, 2008b)

Step 1 Mobilisation and development of a business case 1.1 Conduct needs analysis, market testing and PPP feasibility study 1.2 Establish a project steering committee and designate a contract manager 1.3 Establish whether a site is available 1.4 Establish what facilities/services are required 1.5 Prepare a draft Statement of Requirements 1.6 Consider whether to accept proposals for enhanced or other additional

commercial facilities/services on the site 1.7 Assess risk 1.8 Prepare public sector comparator and seek policy endorsement

Step 2 Funding 2.1 Submit a bid via the policy bureau for funds through the resource allocation

exercise process

Step 3 Technical assessments, consultation and land requirements 3.1 Conduct appropriate technical assessments and socio-economic studies 3.2 Seek necessary authorities’ agreement on land use 3.3 Conduct consultations with stakeholders, policy committee and legislative

council panel


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Step 5 Policy and funding approvals 5.1 Consult and seek approvals of public works subcommittee of the legislative

council and finance committee of the legislative council 5.2 Determine detailed commercial arrangements 5.3 Seek draft land grant conditions

Step 4 Expression of interest exercise 4.1 Initiate an expression of interest exercise

Step 8 Payment and contract management 8.1 Monitor performance regularly / Make payment for the facilities/services

provided 8.2 Defer or reduce payment 8.3 Institute investigations and issue warning / Initiate dispute resolution

procedures 8.4 Step-in 8.5 Conduct joint inspection towards the end of the contract 8.6 Hand over facilities at the end of the contract

Step 7 Service commencement 7.1 Commence construction 7.2 Commissioning of facility 7.3 Commence service delivery 7.4 Establish and maintain close relationship with the consortium

Step 6 Procurement and selection 6.1 Instruct department of justice on drafting of procurement documents/contract 6.2 Finalise procurement documents and seek approval from central tender board 6.3 Establish bid evaluation committee 6.4 Issue request for proposal and conduct briefings/site inspections 6.5 Evaluate proposals 6.6 Negotiate with bidders and select from best and final offer 6.7 Award contract


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9.3 Incorporating the Research Findings into the PPP Process

The existing PPP process described in Section 9.2 of this chapter demonstrates “What”

needs to be done in order to implement a PPP project in Hong Kong. But it does not

explain “How” these activities can be achieved. By incorporating the “What” and “How”,

a best practice framework for implementing PPP projects in Hong Kong can be derived.

The “How” part of the framework can be formed from the research findings obtained

from both the international and local literature review, case studies, interviews and

questionnaire survey. These results were further triangulated for validation purposes. For

each step of the process, users are shown “How” to implement PPP projects by a list of

the “Dos” and “Don’ts”. Tables 9.1 to 9.8 show the “Dos” and “Don’ts” for each step of

the PPP process.

For example, Table 1 demonstrates that there are thirty “Dos” and “Don’ts” for step 1 of

the process “Mobilisation and development of a business case”. The first “Dos” item for

step 1 is to “Prepare a public sector comparator” and the first “Don’ts” item is to “Choose

PPP without thorough investigation” (Section 6.2.2.2). These items are listed within the

table under no specific order. Similarly the same applies for the other tables.


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Table 9.1 Guideline for conducting step 1 “Mobilisation and development of a

business case”

No. Dos Don’ts Reference 1 Prepare a public sector

comparator Choose PPP without thorough investigation

Section 6.2.2.2

2 Ensure an economically viable project

Choose projects that are uneconomical

Section 6.2.2.5

3 Streamline the process Spend long durations during mobilization

Section 4.4.1.4

4 Consider to use PPP when improved services / products can be achieved

Use PPP when improved services / products cannot be achieved

Section 3.4

5 Ensure appropriate risk sharing / allocation

Intend to transfer large proportions of risk to a single party

Section 8.3.2

6 Keep to a timeline Ignore timeframe Section 4.3.4 7 Provide an integrated

solution Have unclear objectives Section 7.3.1

8 Facilitate creative and innovative approaches

Limit the opportunity for the private party to show innovation and creativity

Section 7.3.1

9 Solve the problem of public sector budget restraint

Consider PPP for financial reasons only

Section 7.3.1

10 Minimise political debate Involve in political debate Section 7.3.2 11 Continuous training Employ inexperienced or

unskilful employees Section 6.3.3

12 Public sector to show commitment

Government to be indecisive on procurement method

Section 4.3.4

13 Government to have clear objectives and evaluation criteria

Government to have unclear objectives and evaluation criteria

Section 4.3.4

14 Gain interest of general public

Lack of communication with general public

Section 5.4.2

15 Consider complex projects so that private sector can maximise their ability

Define project scope and design fully

Section 6.4.2.3

16 Avoid legislation obstacles Challenge legislation system Section 4.2 17 Ensure an attractive financial

market Force projects that have no market

Section 3.7

18 Avoid lengthy delays Tolerate delays Section 7.3.2 19 Ensure transparent and

process Lack of transparency in the process

Section 6.2.2.5


259

20 Government champion from high level or treasury departments

Lack of government support Section 6.2.2.5

21 Positive media Bad relationship with media Section 6.3.2.7

22 Ensure a stable macro-economic condition

Proceed under unstable economic conditions

Section 8.3.2

23 Ensure project technically feasible

Expect projects to work without thorough investigation on the technical feasibility

Section 8.3

24 Thorough and realistic assessment of the cost and benefits

Leave assessment of the cost and benefits to later stages

Section 8.3

25 Ensure partnering spirit / commitment / trust

Reluctance to work with partners

Section 6.2.2.5

26 Ensure there is a market need Consider projects with no market

Section 6.4.2.5

27 Consider projects with large operation element

Consider projects that do not involve operation

Section 6.2.2.3

28 Ensure there is government need

Consider projects that the government do not need

Section 6.3.2.3

29 Consider projects of large scale

Consider small scale projects Section 6.4.2.3

30 Ensure better value for money can be demonstrated

Consider projects that are not value for money

Section 6.2.2.5


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Table 9.2 Guideline for conducting step 2 “Funding”

No. Dos Don’ts Reference 1 Solve the problem of public

sector budget restraint Focus on private financing only

Section 7.3.1

2 Allocate the risks appropriately Allocate all financial risks to the private sector

Section 8.3.2

3 Avoid political debate Intensify political debates Section 7.3.2 4 Rely on private parties that are

financially incapable Rely on private financing solely

Section 3.4

5 Avoid delays in negotiation Spend long durations over negotiation

Section 7.3.2

6 Ensure an efficient and mature financial market exists

Assume an efficient and mature financial market is readily available

Section 3.7

7 Conduct a thorough and realistic assessment of the costs and benefits

Avoid continuous assessment analysis

Section 8.3

8 Ensure commitment and responsibility of all parties

Lack commitment and responsibility

Section 8.3.2



Section 6.2.2.5

10 Avoid public investment restriction

Conduct PPP projects for financial reasons only

Section 8.2.2

11 Opt for PPP to provide funding Let funding be the sole reason for PPP

Section 3.4

12 Demonstrate appropriate risk allocation and sharing

Inappropriate risk allocation and sharing

Section 8.3.2

13 Demonstrate value for money Ignore value for money Section 6.2.2.5

14 Ensure partnership arrangement

Think of self privileges only Section 6.4.2.2


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Table 9.3 Guideline for conducting step 3 “Technical assessments, consultation and

land requirements”

No. Dos Don’ts Reference 1 Ensure that improved services

and products can be delivered Lack of interest to show improvement

Section 3.4

2 Appropriate risk sharing Inefficient risk allocation Section 8.3.2 3 Ensure that the party best able

to manage the risk is assigned Transfer all risks to the private sector

Section 8.4.2

4 Provide integrated solution Consider short term goals only Section 7.3.1 5 Facilitate creative and

innovative approaches Minimise opportunities for private efficiency and innovation

Section 7.3.1

6 Ensure experience and appropriate skills

Inexperienced employees Section 5.4.2

7 Gain support and interest from general public

Block out the general public Section 5.4.2

8 Conduct complex projects so that private sector’s expertise could be utilised

Conduct over challenging projects

Section 6.4.2.3

9 Avoid lengthy delays and negotiation

Spend long durations during negotiation

Section 7.3.2

10 Good governance Lack of government governance

Section 8.3

11 Ensure transparent process Lack public consultation Section 6.2.2.5

12 Ensure that project is technically feasible

Aim to achieve technically infeasible aspects

Section 8.3

13 Conduct thorough and realistic assessment of the cost and benefits

Leave assessment of cost and benefits to later stage

Section 8.3


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Table 9.4 Guideline for conducting step 4 “Expression of interest exercise”

No. Dos Don’ts Reference 1 Demonstrate appropriate risk

sharing Hide details of risk allocation arrangement

Section 8.3.2

2 Keep to a timetable Delay the process Section 7.3.2 3 Facilitate creative and

innovative approaches Limit private sector’s chance to show creativity and innovation

Section 7.3.1

4 Government show support towards project

Government appear to be indecisive

Section 6.2.2.5

5 Have clear government objectives and evaluation criteria

Government lack objectives and evaluation criteria

Section 4.3.4

6 Good private sector capability Poor private sector capability Section 8.3.2 7 Government to commit to

projects Government indecisive on procurement method

Section 4.3.4

8 Gain support and interest from general public

Lack of support and interest from general public

Section 5.4.2

9 Speed up negotiation process Spend long durations during negotiation

Section 4.4.1.4

10 Minimise private sector expenditure

Expect private sector to have clear conceptual plans at this stage

Section 5.3.2

11 Partnering spirit/commitment/trust

Consider self privileges only Section 6.2.2.5

12 Ensure transparent process Block out the general public Section 6.2.2.5

13 Ensure there is a market need Propose projects with no market

Section 6.4.2.5



Section 6.2.2.5

15 Have well defined project objectives

Have unclear project objectives

Section 6.2.2.5

16 Propose projects that are technically feasible

Propose projects that cannot be achieved technically

Section 3.4

17 Ensure stable macro-economic condition

Pursue projects under unstable macro-economic condition

Section 8.3.2

18 Ensure efficient and mature financial market exists

Pursue projects under inefficient and immature financial market

Section 3.7

19 Close connection with media Negative media Section 6.3.2.7

20 Ensure a favourable legal framework

Pursue projects under unfavourable legal framework

Section 8.3.2


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21 Ensure a stable political and social environment exists

Pursue projects under unstable political and social environment

Section 3.7

22 Ensure government need Propose projects that the government does not need

Section 6.3.2.3

23 Propose large projects Propose small projects Section 6.4.2.3

Table 9.5 Guideline for conducting step 5 “Policy and funding approvals”

No. Dos Don’ts Reference 1 Keep to a timetable Delays during negotiation /

political debate Section 7.3.2

2 Ensure a stable social and political environment

Pursue projects under unstable and political environment

Section 3.7

3 Ensure a clear legal framework Pursue projects under an unclear legal framework

Section 8.3.2

4 Ensure good governance Poor governance Section 8.3 5 Ensure transparent process Block out the general public Section

6.2.2.5 6 Gain government support and

have champion from high level or treasury department




Section 8.3.2


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Table 9.6 Guideline for conducting step 6 “Procurement and selection”

No. Dos Don’ts Reference 1 Ensure a fair risk allocation

mechanism Allocate large proportion of risk to a single party

Section 5.4.4

2 Allocate risks to the party best able to manage them

Allocate all the risks to the private sector

Section 8.4.2

3 Streamline the process Waste time during administrative procedures

Section 4.4.1.4

4 Provide an integrated solution Have unclear objectives Section 7.3.1 5 Keep to a timetable Delays during negotiation /

political debate Section 7.3.2

6 Ensure a stable social and political environment

Pursue projects under unstable and political environment

Section 3.7

7 Ensure a clear legal framework Pursue projects under an unclear legal framework

Section 8.3.2

8 Ensure good governance Poor governance Section 8.3 9 Ensure transparent process Block out the general public Section

6.2.2.5 10 Gain government support and

have champion from high level or treasury department




Section 8.3.2

12 Minimise political debate Encourage political debate Section 7.3.2 13 Government commitment Scheme aborted before contract Section 4.3.4 14 Compensation to losing bidder High participation costs Section 5.3.2 15 Select strong and good private

consortium Select incapable private consortium

Section 8.3.2

16 Gain general public support and interest

Lack consultation with general public

Section 5.4.2

17 Clear government objectives and evaluation criteria

Unclear government objectives and evaluation criteria

Section 4.3.4

18 Ensure positive media Negative media Section 6.3.2.7

19 Ensure partnering spirit / commitment / trust

Lack partnering spirit / commitment / trust

Section 6.2.2.5

20 Ensure rigorous tendering process

Fixing contracts too quickly Section 6.4.2.5

21 Low tendering / transaction costs

High tendering / transaction costs

Section 6.4.2.2


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Table 9.7 Guideline for conducting step 7 “Service commencement”

No. Dos Don’ts Reference 1 Keep to the contract milestones Neglect the target milestones Section 3.7 2 Continuously introduce

appropriate talents or resources Conduct minimal requirements Section

6.3.2.1 3 Continuous training Be reluctant to develop

personnel Section 6.3.3

4 Communicate with general public

Stop communicating with general public

Section 5.4.2

5 Ensure transparent process Hide project details Section 6.2.2.5

6 Charge reasonable fees for facilities/services

Overpriced fees for facilities/services

Section 4.3.2

7 Ensure financial market Stop searching for markets Section 3.7 8 Ensure a stable and macro

economic condition Ignore surrounding macro economic condition

Section 8.3.2

9 Show good governance Government avoid responsibility

Section 8.3

10 Government to step in if necessary

Government to intrude on activities

Section 5.44

11 Create close links with media Allow the media to gain a bad perception

Section 6.3.2.7

12 Commitment of all parties Lack commitment Section 8.3.213 Partnership arrangement Consider self privileges only Section

6.4.2.2 14 Government to give private

sector free hand to maximise their ability

Prevent private sector to maximise their potential

Section 3.7


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Table 9.8 Guideline for conducting step 8 “Payment and contract management”

No. Dos Don’ts Reference 1 Check that appropriate services

and products are delivered Deliver services and products of lower quality then specified in contract

Section 3.4

2 Show a partnership arrangement

Blame partners for unsatisfactory performance

Section 6.4.2.2

3 Encourage interest of the general public

Prevent transparency Section 5.4.2

4 Government to step in if necessary

Government to interfere without appropriate reason

Section 5.44

5 Ensure a stable macroeconomic condition

Ignore the surrounding macro economic condition

Section 8.3.2

6 Ensure stable political and social environment

Ignore changes to political and social environment

Section 3.7

7 Conduct thorough and realistic assessment of the cost and benefits

Avoid continuous assessment analysis to minimise work load

Section 8.3

8 Ensure efficient and mature financial market

Stop creating economic opportunities

Section 3.7



Section 6.2.2.5

10 Ensure continuous market need Search for new markets Section 6.4.2.5

11 Ensure compliance with contract terms

Breach contract terms Section 3.7

12 Assessed by performance Assessed solely be economic return

Section 3.2.2


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9.4 Validation of the Framework

Validation is an important process to ensure the quality of the research outcomes. This is

normally undertaken as the final stage of the research works. This section presents the

findings of the validation for the best practice framework developed.

9.4.1 Design of the validation questionnaire survey

In order to validate the best practice framework developed from this research study, a

questionnaire survey was conducted. This survey was based on a similar validation

process conducted by Yeung (2007). In his study, a questionnaire survey was adopted to

validate the quality of the “Partnering Performance Index” model which was developed.

Six aspects regarding the model were assessed. These included the areas: appropriateness,

objectivity, replicability, practicability, reliability and suitability. In the questionnaire

survey conducted to validate the best practice framework, the respondents were also

asked to rate these six aspects.

The survey respondents were first presented with the purpose of the questionnaire, some

background information, instructions for the exercise, the process for implementing PPP

projects in Hong Kong according to the Efficiency Unit’s (of the HKSAR government)

model, and also the best practice framework developed from this research study. At the

end of the exercise, the respondents were asked to rate their extent of satisfaction for each


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of the six validation aspects according to a scoring scale from 1 to 5, where 1 represented

“poor” and 5 represented “excellent”. The template for this questionnaire survey has

been included in Appendix 2.

9.4.2 Respondents of the survey

There were three main criteria for selecting the survey respondents for this validation

process. Firstly, the respondents needed to be working closely with PPP, either with

hands-on experience or in research. Secondly, the respondents needed to have a good

amount of knowledge in the situation of conducting PPP projects in Hong Kong. Lastly,

the survey respondents must not have contributed to the development of the best practice

framework in this research study. According to these criteria, participants that attended

the recent CIB TG72 symposium titled “Revamping PPPs’ Symposium” which was held

in Hong Kong on 28 February 2009 were targeted as survey respondents. A total of nine

responses were collected and their details have been shown in Table 9.9.


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Table 9.9 Details of the survey respondents for the validation process

No. Position Type of Organisation Sector Experience

1 Professor

University Research Active researcher

2 President

Project advisers Public and Private Hands-on experience with conducting PPP projects.

3 Professional Consultant University (Law) Research Active researcher and adviser for the Efficiency Unit of the HKSAR government.

4 General Manager Project advisers Private Hands-on experience with conducting PPP projects in Mainland China.

5 Manager Transportation provider Private Hands-on experience with conducting PPP projects in Hong Kong and Mainland China.

6 Researcher


7 Lecturer


8 Legal Adviser Transportation provider Private Hands-on experience with conducting PPP projects in Hong Kong and Mainland China.

9 General Manager Transport authority Public Hands-on experience with conducting PPP projects in Hong Kong.


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9.4.3 Results of the validation

Table 9.10 shows the results obtained from the validation questionnaire survey, which

was conducted with the respondents mentioned in the previous section. The respondents

were asked to rate six aspects of the framework according to a Likert scale of 1 to 5. A

score above “3” would represent satisfactory performance for that aspect. The results

showed that all aspects were rated above “3”. The aspect rated highest was “Degree of

appropriateness” at 3.78. Rated the lowest by respondents was the “Degree of

replicability” at 3.33. Therefore it can be construed that the newly developed best

practice framework was validated to be appropriate, objective, replicable, reliable, and

suitable for delivering PPP projects in Hong Kong.


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Table 9.10 Results of the validation questionnaire survey

Validation Aspect Respondent Mean

1 2 3 4 5 6 7 8 9

1. Degree of appropriateness 4 4 5 4 4 4 2 4 3 3.78

2. Degree of objectivity 4 4 5 3 3 3 3 4 4 3.67

3. Degree of replicability 4 4 4 3 3 2 2 4 4 3.33

4. Degree of practicality 4 4 4 4 4 3 2 4 3 3.56

5. Overall reliability 4 4 4 2 4 3 3 4 3 3.44

6. Overall suitability for PPP projects in Hong Kong 3 4 4 4 4 3 3 4 4 3.67


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Using the findings collected throughout this research study, this chapter has demonstrated

“How” each step of the PPP process proposed by the Efficiency Unit (2008b) could be

conducted based on the findings of this research. As a result a best practice framework

for implementing PPP projects in Hong Kong has been delivered. The presented

framework will enable practitioners in Hong Kong from both the public and private

sectors to effectively utilise the PPP model. Also, given the clearer understanding it is

anticipated to encourage more PPP projects in Hong Kong.

Chapter 10 Conclusions and Recommendations

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CHAPTER 10

CONCLUSIONS AND RECOMMENDATIONS


10.2 Review of the Project Objectives

10.3 Major Findings

10.4 Value and Significance of the Research

10.5 Limitations of the Research

10.6 Recommendations for Future Research



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This chapter concludes the research study. Firstly, the project objectives and the methods

used to achieve them are reviewed. The major findings from this study are analysed and

triangulated according to the data collection methods adopted. Similarities and

differences between these findings are further discussed. Following, the value and

significance of this research are once again revisited. Limitations of this study are also

highlighted and finally recommendations are made for future research.

10.2 Review of the Project Objectives

This research study aimed to develop a best practice framework for implementing Public

Private Partnerships (PPP) in Hong Kong by looking at international experiences. In

order to achieve the aim, six objectives were identified for this research:

(a) Identify the benefits, difficulties and critical success factors of PPP.

(b) Measure the effectiveness of PPP against other procurement methods.

(c) Identify representative case studies from other countries for analysis to identify

their approach to success/failure.

(d) Identify previous projects in Hong Kong that utilised a similar approach to PPP

and to analyse their implementation successfulness.


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(e) Investigate the best conditions in terms of project nature, project complexity,

project types and project scales under which the use of PPP is the most

appropriate.

(f) Evaluate the findings collected to determine a best practice framework for

implementing PPP in Hong Kong.

The objectives were achieved by information collected from a comprehensive literature

review, case studies, interviews and a questionnaire survey (as described in Chapter 2).

Table 10.1 illustrates the tools used to achieve these objectives.


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Table 10.1 Tools used to achieve the research objectives

Data collection tools Objective 1 2 3 4 5 6



success factors of PPP


of PPP against other

procurement methods




success/failure

Identify previous






conditions in terms of

project nature, project

complexity, project types and project scales under

which the use of PPP is the

most appropriate


collected to determine a best practice

framework for implementing PPP in Hong

Kong

Literature review Case study Interview Questionnaire survey


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10.3 Major Findings

10.3.1 Benefits, difficulties and critical success factors of PPP

10.3.1.1 Benefits/attractive factors of PPP

A summary of the attractive factors were summarised from international literature and

presented in Section 3.4 of Chapter 3. Financial benefits of PPP projects are often

regarded by governments as an attractive factor. In many jurisdictions that first started to

adopt PPP projects this was often seen to be the main driver. For example, the United

Kingdom and the Victoria state of Australia were also amongst those to introduce PPP

projects due to financial difficulties to provide for public works projects.

Obviously, private financing is attractive to the public sector for a number of other

reasons. Firstly the government’s pressure to provide for public services can be reduced

by introducing private sector financing. For governments that have no financial worries,

they still often welcome private financing so that they can utilize their own resources for

other means such as for medical and education services. Although some may argue that

the government can borrow more cheaply than the private sector, by reducing the

government’s borrowing will in turn increase their credit ratings. Often PPP projects tend

to be large scaled projects which are complex and costly to deliver, without introducing

private financing these projects may not be possible. For some jurisdictions they may

also be interested to deliver these projects to increase their image, tourism and


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international status.

Cost certainty is also something that has been demonstrated by the private sector to be

more achievable. The public sector on the other hand are not trained businessmen hence

tend to be less capable than the private sector at the economics of projects. In addition,

for public works projects to be delivered by PPP, more business opportunities can be

introduced for the private sector. In PPP projects the extent of private sector participation

tends to be much more compared to traditional projects.

Improved services and products were also found to be attractive factors of PPP from the

literature search. Private sector can introduce more efficiency, skills, technology,

expertise, innovation, long term maintenance and knowledge to the project so that better

public services are provided. The public sector is not trained for these types of jobs

whereas the private sector is hence they tend to perform better. The public sector on the

other hand is trained to deal with administration and by delivering public works by PPP

the public sector can focus on their job duties.

Appropriate risk sharing in PPP projects is a very popular topic amongst literature. A

large emphasis of the arrangement is based on the risk allocation element. Some previous

projects have also had bad experiences with dealing with inappropriate risk allocation for

example the Cross City Tunnel in Sydney. Under a PPP arrangement the public sector

can pass a large proportion of the risks to the private sector. Whereas, in a traditional

approach often the risks handled by the consortium are limited only to the design and


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construction of the project. In PPP projects the risks can extend to operation,

maintenance, revenue, market risks etc. Although this may be advantageous to the public

sector to some extent, the party best able to manage the risk should be assigned.

PPP projects tend to show time certainty. The private sector is involved for financial

returns. The faster a project is delivered the faster they start to collect their revenue.

Hence, often PPP projects tend to be delivered on-time or even earlier than expected.

Chapter 7 presented the findings from an empirical questionnaire survey. The results

found that the top three attractive factors in Hong Kong were efficiency related. The first

attractive factor identified was “Provide an integrated solution (for public infrastructure /

services)”. This may also be considered an attractive factor for traditional projects but in

PPP projects there is a larger emphasis on the overall package as the private sector are

involved in a larger extent.

The second attractive factor rated was “Facilitate creative and innovative approaches”.

As mentioned previously the public sector is not trained in this way, instead their job is to

perform administrative duties. Hence, the private sector tends to be better in this area.

Another factor identified was “Solve the problem of public sector budget restraint”.

Although, Hong Kong is financially capable to provide for its own public services and

facilities there were still some respondents that rated this factor highly, probably due to

the Hong Kong’s large infrastructure plan in the coming years. The first and second

attractive factors were rated the same in Australia.


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The third attractive factor was rated second in the United Kingdom. Rated third in

Australia was “Save time in delivering the project”. And rated first and third in the

United Kingdom was “Transfer risk to the private partner” and “Non recourse or limited

recourse to public funding” respectively.

From the case studies conducted in Hong Kong, it was found that PPP was no longer

solely about drawing finance from the private sector. Advantages such as the private

sector’s added efficiency, skills, innovation, expertise, and risk sharing can also be

achieved. In addition, the cases also showed that recent projects incorporating the

experiences from overseas delivered successful projects, hence future projects should also

learn from good practices of others.

10.3.1.2 Difficulties/negative factors of PPP

A summary of the negative factors of PPP were also found from international literature.

These findings have been presented in Section 3.5 of Chapter 3. Problems in the bidding

process are often discussed for PPP projects. These include the high participation costs,

the lengthy process, and the lack of competition.

Some jurisdictions such as Queensland state in Australia have started to introduce

compensation for losing bidders to encourage more competition. Although the

compensated amount may not be comparable to the actual costs spent by the bidders, still

it helps to reduce their financial losses. Hence the idea has been welcome. The process


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for procuring PPP projects also tend to be lengthy as the process is much more rigorous

than traditional methods. A main stage that public works projects need to get through is

the public sector comparator to validate whether the project should be delivered by PPP

or more traditional methods. Public sectors tend to be very careful to ensure that PPP

projects are only chosen when value for money can be introduced. The process used by

the Victoria state of Australia is particularly rigorous. Also, PPP projects tend to be large,

expensive and complex hence the procurement process tends to take longer.

Appropriate risk allocation is an advantage of PPP, but inappropriate risk allocation is

also a disadvantage. In situations where projects contain high risks or where contracts are

secured too quickly, risks tend to be easily misallocated. Also, the public sector tends to

be keen to pass as much risk as possible to the private sector, and often the private sector

are keen to take up an unhealthy proportion of the risks in order to participate. The

private sector can be risk takers and tend to be keen to take them for a chance of higher

economic benefits.

Literature also identified that lack of private sector capability can be a problem. In most

cases the private sector tends to be confident in their ability. From experience they have

also shown to perform better than the public sector. But in some situations the chosen

private sector may not be financially or technically capable to handle the project. This

could just be because they are not the correct people for the job.

The success of a project often depends on the general public’s support and interest.


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Dissatisfaction from the general public can lead projects failing. This could be due to the

high charges for a PPP facility or service. In PPP projects the private consortium often

charges the facility or service a lot more compared to if it was ran by the public sector as

they need to repay their investment costs as well as earn a profit. Whereas, this is not the

government’s concern..

Other problems identified from literature include the existing legal framework. The

current legal framework of some jurisdictions has not been designed to apply for PPP

projects. In Hong Kong for example there has been specific project legislation which is

time consuming and costly.

An unattractive financial market can also occur during the course of the concession

period which can be long periods, in Hong Kong this tends to be thirty years. The

political unstability and high interest rates are some common problems which are

common.

From the same empirical questionnaire survey presented in Chapter 7, the top three

negative factors identified in Hong Kong were also derived. The top factor identified was

“Lengthy delays because of political debate”. Many projects in Hong Kong have been

put on hold or changed from being delivered by PPP to traditional methods because of

political debate particularly within the local Legislative Council.

The second factor identified was “Lengthy delays in negotiation”, again this factor is


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partially related to the first factor identified. Also, due to some unsuccessful experiences

the local Hong Kong government has been careful to deliver projects by PPP, hence the

negotiation process of projects has tend to be lengthened to ensure that the correct

decisions are made.

The third factor identified was “Very few schemes have actually reached the contract

stage (aborted before contract)”. Again, as mentioned the local government has proposed

a number of PPP projects but due to the opposition received from the Legislative Council

and general public they have continuously reverted to more traditional methods.

The second negative factor was also rated the same in the United Kingdom. Rated first

and third in the United Kingdom included “A great deal of management time spent in

contract transaction” and “High participation costs” respectively. And, rated in the top

three in Australia include: 1) Lack of experience and appropriate skills; 2) High

participation costs; and 3) Confusion over government objectives and evaluation criteria.

Chapter 5 presented the analysis of cases in Australia. The results showed that a number

of obstacles and failings were encountered. First PPP projects took a long process, lack of

knowledge was observed, and disruption of normality was also observed. It was also

found that some complex projects were conducted. Social projects can be more

challenging than economic ones. Projects with unique features can cause more

challenges. It was found that often the private sector can lack confidence due to the

government’s poor track record in committing to projects.


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For transportation projects, inaccurate traffic forecasts can lead to a raise of tolls, general

public dissatisfaction, government limiting the users’ options etc. Also, a partnership

arrangement is essential for PPP projects. In the cases considered the public and private

parties openly criticised each other; there was no toll subsidy / compensation from the

local government, and also the toll level was not open for negotiation.

10.3.1.3 Critical success factors of PPP

Critical success factors of PPP were sourced from international literature and summarised

in Section 3.7 of Chapter 3. The findings include contract benchmarks being achieved

on-time and with good quality, although this critical success factor could also be

considered for traditional projects. Part of the reason for conducting projects by PPP is to

introduce the private sectors’ expertise to a larger extent hence it is important for the

government to give a free hand for the private sector to maximise their ability. In

situations where the project fails in anyway the government must be willing to step in if

necessary as PPP projects emphasise on a partnership arrangement.

A transparent and efficient procurement process is essential in PPP projects. In Hong

Kong for example the general public has often criticised public private collusion existing

due to certain large private parties benefiting huge profits from residential development

rights. A stable political and social environment is also important particularly in less

developed countries. An efficient and mature financial market is essential to ensure that

the project gains revenue as often concession periods span over a long period compared


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to traditionally procured projects.

Critical success factors were derived from the Australian case analysis presented in

Chapter 5. Compensation to the losing bidder was one of these. Due to the high

tendering costs competition is often limited as private parties will consider thoughtfully

that their probability of winning is very high before competing for PPP projects.

Therefore compensation for the losing bidder is attractive to increase compensation as

their financial loss will be reduced. The government should also show strong support so

that the project can be delivered successfully.

Chapter 6 presented the findings from interviews conducted with experienced PPP

practitioners from the public and private sector, as well as researchers. From the

interviews with the public sector the most common critical success factors were identified.

Well defined project objectives were mentioned according to both Hong Kong and

Australian interviewees. Obviously, this factor is also important in traditional projects

but for the complexity of PPP projects it is even more important. As mentioned

previously PPP projects emphasise a partnering arrangement hence partnering

spirit/commitment/trust was mentioned by both groups of interviewees again. Also, the

importance of an appropriate risk allocation was highlighted by Hong Kong interviewees.

And a competitive procurement process was mentioned by Australian interviewees. Due

to the size and complexity of PPP projects there are very few private parties who are

capable hence often there are very few competitors involved. More competition in the

process will increase the chance of selecting a capable consortium to handle the job.


286

The private sector interviewees mentioned similar critical success factors for PPP to the

public sector interviewees. In addition, they also added that an economically viable

project (according to Hong Kong and Australian interviewees) is important. As

mentioned previously the private sector are businessmen hence economics is an important

factor for them. In Hong Kong, government support (champion) was found to be

important. In other jurisdictions there is often a specific unit to deal with PPP projects. It

is likely that this unit will fall under the treasury department. In Hong Kong on the other

hand there is no such unit hence there is a lack of leadership to drive PPP projects from

the government’s side. As shown from previous cases in Australia, positive media is

crucial for successful PPP projects. The researcher interviewees agreed that well defined

project objectives would be important. They also added that a transparent process and

market need are important.

Chapter 8 continues to present the findings from the empirical questionnaire survey. The

top five success factors for delivering PPP projects in Hong Kong were also mentioned

previously by the other sources of information collected. The findings from the

questionnaire therefore validated previous findings from other sources. These success

factors include:

(1) Favourable legal framework;

(2) Commitment and responsibility of public and private sectors;

(3) Strong and good private consortium;

(4) Stable macro-economic condition; and

(5) Appropriate risk allocation and risk sharing.


287

The second success factor was ranked first in Australia and fourth in the United Kingdom.

The third success factor was ranked third and first in Australia and the United Kingdom

respectively. The fifth success factor was also ranked second in both Australia and the

United Kingdom. Also ranked in Australia was “Good governance” at fourth and

“Project technical feasibility” at fifth. In the United Kingdom ranked third and fifth was

“Available financial market” and “Thorough and realistic assessment of the cost and

benefits”.

10.3.2 PPP compared to other procurement methods

As mentioned in Section 3.2 of Chapter 3 from the international literature review, there

are several differences between the PPP method and the traditional practice. The main

differences highlighted include the financial arrangement for funding the project and the

risk allocation arrangement for each party involved. It is likely that in a PPP project the

finances will be supported fully or partially by the private sector. And also in PPP

projects the public sector tends to prefer letting the private sector take a share of the risks

involved.

Chapter 4 has analysed a large cross border project where the governments responsible

were originally going to deliver it by Build Operate Transfer (BOT), but in the end

decided to finance it themselves instead. Reasons for this change were analysed and

several suggestions to encourage PPP projects have been presented (refer to section

10.3.4 of this chapter).


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Again, from the interview findings presented in Chapter 6 it was found that the public

sector interviewees observed several differences between PPP projects and traditional

projects, these include:

PPP projects tap in private sector’s efficiency/expertise/management/skills

(according to Hong Kong and Australian interviewees);

Public Sector Comparator can act as an indicator to determine the preference

between the methods (according to Hong Kong interviewees only); and

Private sector financing and finance structure of the project (according to

Australian interviewees only).

According to the private sector interviewees the implementation process of projects can

be independent but reducing the competition can minimise the private sector’s loss in

time and money. They also mentioned several differences between PPP and traditional

methods including:

Increased efficiency and speed in PPP projects (according to Hong Kong and

Australian interviewees);

Better integration in PPP projects (according to Hong Kong interviewees only);

Better value for money in PPP projects (according to Hong Kong interviewees

only);

PPP projects accessed by performance (according to Hong Kong interviewees

only);

Larger projects (according to Australian interviewees only);

Different risk profiles (according to Australian interviewees only); and


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Rigorous tendering process (according to Australian interviewees only).

In addition, the researchers identified several differences between the two approaches as

well including:

Different risk profiles (according to Hong Kong and Australian interviewees);

Private sector more innovative / efficient in PPP projects (according to Hong

Kong and Australian interviewees);

PPP is a partnership arrangement (according to Hong Kong interviewees only);

and

PPP projects have high tendering / transaction costs (according to Hong Kong

interviewees only).

10.3.3 Representative case studies from Australia

Chapter 4 has presented and analysed two highly profiled PPP projects in Australia.

These are the Southbank Education and Training Precinct (SETP) in Brisbane and the

Cross City Tunnel (CCT) in Sydney. SEPT is the Queensland state’s first PPP project

hence it has been in the public eye from the very beginning. The CCT has been a project

highly profiled in the media and criticised by the general public. From the analysis of the

SETP and CCT projects the failures observed have been reported in Section 10.3.1.2 of

this chapter. Besides these failures, a number of success factors were also observed in the

SETP project and reported in Section 10.3.1.3 of this chapter. Similarly the advantages

and best criteria for PPP have been given in Sections 10.3.1.1 and 10.3.5. These cases


290

were identified from the literature review and during the discussion with interviewees.

Chapter 4 also describes the function of Partnerships Victoria in Victoria state of

Australia. The unit has produced some of the best guidelines and materials for

conducting PPP projects. Also, a database of projects conducted by their unit is available

on the public domain.

From the interviews with the public sector in Chapter 6, it was found that the

interviewees had all referred to international cases for lessons learnt. Also, they were

keen to build up their knowledge on the PPP experience in other jurisdictions. The

interviews with the private sector showed that all had previous PPP experience

internationally. Similarly the researchers had also conducted cases studies and research

on an international scale.

10.3.4 PPP experiences in Hong Kong

Four highly profiled projects in Hong Kong were analysed in Chapter 4. These included

the Cross Harbour Tunnel (CHT) which is also the first BOT project in Hong Kong to be

conducted, and also the only PPP style project to be returned into the local government’s

hands in Hong Kong. The second case studied was the Western Harbour Crossing

(WHC). This project has been one of the less fortunate BOT projects in Hong Kong, due

to the frequent criticism from the general public, media and legislative councilors

concerning its high tolls. The Asia World Expo (AWE) is a more recent PPP project


291

which has been subsidised heavily by the local government to encourage more PPP

projects. And finally the West Kowloon Cultural District (WKCD) project which was

originally going to be procured by PPP, but a recent decision left the government paying

for it themselves. From the analyses of these studies it was found that the local

government could encourage more and proper PPP projects by integrating the lessons

learnt internationally with their own experiences. These cases were identified from the

literature review and during the discussion with interviewees.

A non-PPP project was also considered in Chapter 4. The Hong Kong – Zhuahai –

Macau bridge was originally proposed to be delivered by the BOT model. But recently

the three governments responsible have come to an agreement that they would finance the

project themselves instead. Several reasons were highlighted for this sudden change.

These reasons led to a list of conditions that would be necessary in future to encourage

more PPP style projects including:

Attract the private sector by an economically viable project;

Speed up the process of tendering and negotiation in PPP projects;

Adopt legal experts to advise on the contracts;

Ensure that toll prices are kept at acceptable levels to the general public

throughout the concessionary period;

Transparent process to avoid public perception of collusion between business

and the government; and

PPP should be adopted for reasons besides financial.


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Findings from Chapter 6 showed that the private sector interviewees tended to have

experience in projects both locally and overseas. Practitioners in Hong Kong may not

have the necessary talents to conduct PPP projects due to the minimal PPP project

experience in Hong Kong. Therefore, gaining overseas experience or importing expertise

has been a solution. Instead Hong Kong should consider training their own people both

in the public and private sector to involve in PPP projects.

The public and private sector interviewees all felt keen towards PPP reference materials.

Some of the public sector interviewees in Hong Kong even had their own resources

available. On the other hand the private sector interviewees tended to refer to reference

materials provided by others.

10.3.5 Best conditions for using PPP

The interview findings in Chapter 6 showed that projects best suited for PPP according to

the public sector interviewees include ones that are economically viable (according to

Hong Kong and Australian interviewees) and ones with scope for innovation (according

to Australian interviewees only). Often the success of a project is measured by the

economics, especially for the private sector. Therefore, with adequate profit margins

from the PPP project all parties are normally kept happy. PPP projects tap in private

sector’s expertise, so where projects have more room for innovation, the private sector’s

ability can be maximised.


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According to the private sector all sorts of projects are suited for PPP, but their motives

for conducting PPP projects include:

Government need (according to Hong Kong and Australian interviewees);

Private sector expertise (according to Hong Kong interviewees only);

Value for money (according to Hong Kong interviewees only);

Private sector efficiency (according to Hong Kong interviewees only); and

Risk transfer (according to Australian interviewees only)

The researchers in Hong Kong added that each project should be considered

independently but it is likely that PPP is adopted when the government lacks funding for

providing public works projects. According to the Australian researchers large projects

are more suitable for PPP.

Also presented in Chapter 8 are the findings for the reasons to adopt PPP projects. The

results showed that in general Hong Kong focuses on improving the overall performance

of public projects. Ranked highly in Hong Kong, Australia and the United Kingdom was

“Economic development pressure demanding more facilities”, again this reason is related

to the project’s economics Ranked highly in Hong Kong and Australia was “High quality

of service required”. Ranked in Hong Kong only was “Private incentive” also related to

economics. And ranked in either Australia or the United Kingdom alone include

“Shortage of government funding”, “Inefficiency because of public monopoly and lack of

competition” and “Avoid public investment restriction”. As mentioned previously Hong

Kong is not short of financial reserve but both Australia and the United Kingdom started


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to use PPP because they were unable to provide for the necessary public facilities and

services. The competition issue has once again been confirmed to be important. Often

there are many governmental procedures for finances to be secured but with the

introduction of private financing many of these can be avoided.

The criteria for PPP projects were discussed in Chapter 5 from the Australian case

analysis results. It was found that PPP should be adopted when the project shows value

for money. Project risks should always be allocated to the party best able to handle them.

A risk sharing mechanism should be adopted in projects of high risk nature. A regular fee

payment from the government instead of the private sector bearing the revenue risk could

be considered

10.3.6 Recommendations for Developing a Best Practice Framework for Public

Private Partnerships in Hong Kong

Drawing from the findings derived, a best practice framework for implementing PPP

projects in Hong Kong has been presented in Chapter 9. Obviously, it is difficult to unify

all types of projects hence this framework acts as a general guideline only. This

framework incorporates the findings achieved from the literature review, case studies,

interviews and questionnaire survey throughout the research study. The findings were

then applied to an existing PPP process identified by the Efficiency Unit (2008b) of the

Hong Kong Special Administrative Region (HKSAR) government. This process contains

eight key steps for implementing PPP projects including:


295

(1) Mobilisation and development of a business case;

(2) Funding;

(3) Technical assessments, consultation and land requirements;

(4) Expression of interest exercise;

(5) Policy and funding approvals;

(6) Procurement and selection;

(7) Service commencement; and

(8) Payment and contract management.

From the findings of this research study, users adopting the process for PPP projects in

Hong Kong are shown the “Dos” and “Don’ts” at each step. Lastly, this framework was

validated by a questionnaire survey conducted with PPP practitioners. The respondents

were asked to rate six factors relating to the performance of the framework. These factors

included: appropriateness; objectivity; replicability; practicability; reliability and

suitability.

10.4 Value and Significance of the Research

This research study has introduced a best practice framework for PPP in Hong Kong

which has never been introduced previously by others. The framework does not intend to

introduce new alternatives but instead builds on existing practices so that users can more

easily adapt to the improvement. Development is made to the current process of

implementing PPP projects. Up to present, practitioners in Hong Kong are only told


296

“what” they should be doing, but have not been shown “how” they can achieve these

goals. This framework has been developed using both international and local experiences

so that the lessons learnt from overseas can be incorporated to fit in with the distinct local

situation.

The findings are believed to be useful for all practitioners who are either considering or

currently involved with PPP projects. Practitioners involved with existing projects can

better understand how to conduct them so that they can be carried out more efficiently.

For those practitioners considering adopting or participating with PPP projects can be

given more confidence to take action. As a result more development is encouraged.

Opportunities are also broadened for the private sector improving the overall financial

climate. With Hong Kong’s current proposed infrastructure plan more procurement

alternatives should be sought. Projects should be delivered by the method that it is most

suitable for.

This framework therefore provides an alternative to traditional methods. The public

sector is better informed hence in future can consider which types of projects are most

appropriate to be delivered by PPP. Also, both the public and private sector will be more

aware of each others’ motives which are important for projects to succeed.

Besides the obvious practical uses of this best practice framework, the findings from this

study have also contributed to the body knowledge in PPP. The recent developments of


297

PPP in Hong Kong have been reviewed, highlighting areas that require further works for

researchers. Information has also been gathered from countries that are leading in the

area of PPP, which has helped to broaden knowledge in this field. In addition, the

development of this best practice framework has presented a methodology that could be

used for research studies even in other fields and industries.

10.5 Limitations of the Research

Several limitations were noticed whilst conducting this research study, these include:

A larger number of questionnaire responses would have increased the

credibility of the results from the survey analysis. In Australia particularly, data

collection was found to be more difficult due to geographic distances.

The questionnaire results obtained from Hong Kong and Australia were

compared to those findings obtained by Li (2003) in England. The analysis

would have been more valuable if the data collected in England was more up to

date.

The interview findings from Hong Kong and Australia were more difficult to

compare due to the different level of understanding in the topic of PPP.

Although all interviewees were involved with PPP in some way, it was found

that the Hong Kong interviewees were in general less knowledgeable on the

topic compared to the Australian interviewees.

The results would have been more representative if more case studies could

have been conducted, but due to time limitation this was not possible.


298

The attractive and negative factors were used as a checklist for identifying

suitable PPP projects, but the accuracy needs improvement as the relative

weighting of the factors has not been identified.

Currently the best practice framework has been designed for general PPP

projects only.

10.6 Recommendations for Future Research

Some recommendations for further research work are also proposed:

From the findings achieved in this research study it would be interesting to

apply the theory to potential real life PPP projects. These projects could be

monitored throughout their project life and compared with projects that did not

follow the best practice framework proposed in this study. The differences

could be recorded and analysed for further improvement. Also, with the

development of this framework it would be interesting to see it put to trial by

encouraging the Hong Kong government to adopt the suggestions. This

message could be delivered to them via local conferences and presentations.

The questionnaire survey adopted for this research study could be repeated in

other jurisdictions to enable an international comparison with the results

obtained from the Hong Kong respondents.

The relative weighting of the attractive and negative factors should be

identified, so that the checklist for identifying suitable PPP projects could

provide a more accurate assessment.


299

The best practice framework presented should be further refined for different

projects according to their size, type, government’s political and budgetary

strength, time etc. currently it is for general projects only.


This research study has formed a solid basis for practitioners in Hong Kong to improve

on the current PPP model adopted. By doing so, a win-win situation will be created

between both the public and private sectors. As a result the construction industry and the

general public at large will benefit.

References

300

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APPENDICES

Appendix 1 Questionnaire Survey Template for Research Study

Appendix 2 Questionnaire Survey Template for Validation Process

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328

Appendix 1 Questionnaire Survey Template for Research Study

1. Your position in the organization: 2. Name of your organization: 3. Your Country of Origin: 4. Please select your primary role below:

Public sector Private sector Other Central government Financier Please specify: Local government D&B contractor Public enterprise Designer only

Contractor only Consultant / advisor Operator (facility manager) Supplier Subcontractor

5. How many years of industrial experience do you have? 5 years or below 6 – 10 years 11 – 15 years 16 – 20 years 21 years or above 6. How many PPP projects have you been involved in? None (please move on to Part B) 1 2 3 4 above 4 7. Which of the following PPP projects have you been involved with (you may tick more than one box)?

Hospital Transportation Water & Sanitary Power & Energy IT & Communication Housing & Office Defence & Naval Police & Prison School & Education Others (please specify)

B. Features of PPP Projects Please rate the following statements based on a Likert scale from 1 – 5, where 1 represents the “Least Important”; 5 represents the “Most Important”; and select “N/A”’ if you are uncertain in rating a particular statement. 1. Please rate the attractive factors for adopting PPP instead of traditional

procurement

1 2 3 4 5 N/A

a) Solve the problem of public sector budget restraint b) Provide an integrated solution (for public infrastructure / services) c) Reduce public money tied up in capital investment d) Cap the final service costs e) Facilitate creative and innovative approaches f) Reduce the total project cost g) Save time in delivering the project h) Transfer risk to the private partner i) Reduce public sector administration costs j) Benefit to local economic development k) Improve buildability l) Improve maintainability m) Technology transfer to local enterprise n) Non recourse or limited recourse to public funding o) Accelerate project development p) Others (please specify)

Developing a Best Practice Framework for Implementing Public Private Partnerships (PPP)

A. About the Respondent

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329

Please rate the following statements based on a Likert scale from 1 – 5, where 1 represents the “Least Important”; 5 represents the “Most Important”; and select “N/A”’ if you are uncertain in rating a particular statement. 2. Please rate the negative factors for adopting PPP arrangements 1 2 3 4 5 N/

A a) Reduce the project accountability b) High risk relying on private sector c) Very few schemes have actually reached the contract stage (aborted before contract) d) Lengthy delays because of political debate e) Higher charge to the direct users f) Less employment positions g) High participation costs h) High project costs i) A great deal of management time spent in contract transaction j) Lack of experience and appropriate skills k) Confusion over government objectives and evaluation criteria l) Excessive restrictions on participation m) Lengthy delays in negotiation n) Others (please specify) 3. Please rate the privileges / attractions for private sector involvement in PPP

projects

1 2 3 4 5 N/A

a) Government sponsorship b) Government assistance in financing c) Government guarantee d) Tax exemption or reduction e) Incentive of new market penetration f) Others (please specify) 4. Please rate the driving forces leading to the adoption of PPP

1 2 3 4 5 N/A

a) Economic development pressure of demanding more facilities b) Political pressure c) Social pressure of poor public facilities d) Private incentive e) Shortage of government funding f) Inefficiency because of public monopoly and lack of competition g) High quality of service required h) Avoid public investment restriction i) Lack of business and profit generating skill in the public sector j) Others (please specify) 5. Please rate the measures that enhance the achievement of Value for Money in

PPP projects

1 2 3 4 5 N/A

a) Competitive tender b) Efficient risk allocation (allocating the risk to the party best able to manage it) c) Risk transfer (transferring a substantial amount of risk from the public to the private) d) Output based specification e) Long-term nature of contracts f) Improved and additional facilities to the public sector g) Private management skill h) Private sector technical innovation i) Optimal use of asset/facility and project efficiency j) Early project service delivery k) Low project life cycle cost l) Low shadow tariffs/tolls m) Level of tangible and intangible benefits to the Users n) Environmental consideration o) Profitability to the private sector p) “Off the public sector balance sheet” treatment q) Reduction in disputes, claims and litigation r) Nature of financial innovation s) Others (please specify)

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Please rate the following statements based on a Likert scale from 1 – 5, where 1 represents the “Least Important”; 5 represents the “Most Important”; and select “N/A”’ if you are uncertain in rating a particular statement.

6. Please rate the factors that contribute to the success of PPP projects

1 2 3 4 5 N/A

a) Stable macro-economic condition b) Favourable legal framework c) Sound economic policy d) Available financial market e) Multi-benefit objectives f) Appropriate risk allocation and risk sharing g) Commitment and responsibility of public and private sectors h) Strong and good private consortium i) Good governance j) Project technical feasibility k) Shared authority between public and private sectors l) Political support m) Social support n) Well organised and committed public agency o) Competitive procurement process (enough potential bidders in the process) p) Transparency procurement process (process is made open and public) q) Government involvement by providing guarantee r) Thorough and realistic assessment of the cost and benefits s) Others (please specify)

C. Other Suggestions and Comments on Implementing PPP Projects

End of the questionnaire Thank you for your valuable contribution

Acknowledgement This questionnaire was adapted from Dr. Bing Li and Prof. Akintola Akintoye with their permission to compare PPP practices between different jurisdictions. Returning Questionnaire Kindly return the completed questionnaire by: (a) post to Miss Esther Cheung (Research Associate), Freepost No.58, Department of Building and Real Estate, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong; or (b) fax to (852) 2764-5131; or (c) e-mail at [email protected] Further Information If you are interested in assisting our further research work / receiving a summary of our research work, please provide your e-mail address: _____

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Appendix 2 Questionnaire Survey Template for Validation Process

Validation Scoring Sheet

- A Best Practice Framework for Implementing PPP in Hong Kong Purpose of the questionnaire To validate that the best practice framework for implementing PPP in Hong Kong is comprehensive, objective, reliable and practical. Background This framework was developed as part of the deliverables of a PhD research study conducted at the Queensland University of Technology in Australia by Ms. Esther Cheung. Instructions This document contains of 5 pages (1 page of background and instructions and 4 pages explaining the best practice framework). At the end of this document you are kindly requested to rate six validation aspects by simply selecting the appropriate boxes. Information of Respondent Your position in the organization: Name of your organization: Please state your primary role (i.e. public/private/other):

Your kind assistance in completing this questionnaire is very much appreciated. Please kindly return the completed form to Ms. Esther Cheung either by email: [email protected] or by fax: 852 2764 5131 on or before 31 March 2009.

Thank you in advance for your kind contribution.

Ms. Esther Cheung

17 March 2009

The Best Practice Framework for Implementing PPP in Hong Kong

According to the Efficiency Unit’s (of the Hong Kong Special Administrative Region (HKSAR) Government) process for implementing PPP projects in Hong Kong there are a total of eight steps (Figure 1). This process demonstrates “What” needs to be done in order to implement a PPP project in Hong Kong. But it does not explain “How” these activities can be achieved. By incorporating the “What” and “How”, a best practice framework for implementing PPP projects in Hong Kong has been derived. For each step of the process, users are shown “How” to implement PPP projects by a list of the “Dos” and “Don’ts”. Tables 1 to 8 show the “Dos” and “Don’ts” for each step of the PPP process.

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Figure 1 The process for implementing PPP projects in Hong Kong (adapted from the Efficiency Unit of the HKSARG)

Step 1 Mobilisation and development of a business case 1.1 Conduct needs analysis, market testing and PPP feasibility study 1.2 Establish a project steering committee and designate a contract manager 1.3 Establish whether a site is available 1.4 Establish what facilities/services are required 1.5 Prepare a draft Statement of Requirements 1.6 Consider whether to accept proposals for enhanced or other additional commercial facilities/services on the site 1.7 Assess risk 1.8 Prepare public sector comparator and seek policy endorsement

Step 2 Funding 2.1 Submit a bid via the policy bureau for funds through the resource allocation exercise process

Step 3 Technical assessments, consultation and land requirements 3.1 Conduct appropriate technical assessments and socio-economic studies 3.2 Seek necessary authorities’ agreement on land use 3.3 Conduct consultations with stakeholders, policy committee and legislative council panel

Step 4 Expression of interest exercise 4.1 Initiate an expression of interest exercise

Step 5 Policy and funding approvals 5.1 Consult and seek approvals of public works subcommittee of the legislative council and finance committee of the legislative

council 5.2 Determine detailed commercial arrangements 5.3 Seek draft land grant conditions

Step 6 Procurement and selection 6.1 Instruct department of justice on drafting of procurement documents/contract 6.2 Finalise procurement documents and seek approval from central tender board 6.3 Establish bid evaluation committee 6.4 Issue request for proposal and conduct briefings/site inspections 6.5 Evaluate proposals 6.6 Negotiate with bidders and select from best and final offer 6.7 Award contract

Step 7 Service commencement 7.1 Commence construction 7.2 Commissioning of facility 7.3 Commence service delivery 7.4 Establish and maintain close relationship with the consortium

Step 8 Payment and contract management 8.1 Monitor performance regularly / Make payment for the facilities/services provided 8.2 Defer or reduce payment 8.3 Institute investigations and issue warning / Initiate dispute resolution procedures 8.4 Step-in 8.5 Conduct joint inspection towards the end of the contract 8.6 Hand over facilities at the end of the contract

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Table 1 Guideline for conducting step 1 “Mobilisation and development of a business case”

Table 2 Guideline for conducting step 2 “Funding”

No. Dos Don’ts 1 Solve the problem of public sector budget restraint Focus on private financing only 2 Allocate the risks appropriately Allocate all financial risks to the private sector 3 Avoid political debate Intensify political debates 4 Rely on private parties that are financially incapable Rely on private financing solely 5 Avoid delays in negotiation Spend long durations over negotiation 6 Ensure an efficient and mature financial market exists Assume an efficient and mature financial market is readily

available 7 Conduct a thorough and realistic assessment of the costs and

benefits Avoid continuous assessment analysis

8 Ensure commitment and responsibility of all parties Lack commitment and responsibility 9 Ensure an economically viable project Choose projects that are uneconomical 10 Avoid public investment restriction Conduct PPP projects for financial reasons only 11 Opt for PPP to provide funding Let funding be the sole reason for PPP 12 Demonstrate appropriate risk allocation and sharing Inappropriate risk allocation and sharing 13 Demonstrate value for money Ignore value for money 14 Ensure partnership arrangement Think of self privileges only

No. Dos Don’ts 1 Prepare a public sector comparator Choose PPP without thorough investigation 2 Ensure an economically viable project Choose projects that are uneconomical 3 Streamline the process Spend long durations during mobilization 4 Consider to use PPP when improved services / products can

be achieved Use PPP when improved services / products cannot be achieved

5 Ensure appropriate risk sharing / allocation Intend to transfer large proportions of risk to a single party 6 Keep to a timeline Ignore timeframe 7 Provide an integrated solution Have unclear objectives 8 Facilitate creative and innovative approaches Limit the opportunity for the private party to show innovation

and creativity 9 Solve the problem of public sector budget restraint Consider PPP for financial reasons only 10 Minimise political debate Involve in political debate 11 Continuous training Employ inexperienced or unskilful employees 12 Public sector to show commitment Government to be indecisive on procurement method 13 Government to have clear objectives and evaluation criteria Government to have unclear objectives and evaluation criteria 14 Gain interest of general public Lack of communication with general public 15 Consider complex projects so that private sector can

maximise their ability Define project scope and design fully

16 Avoid legislation obstacles Challenge legislation system 17 Ensure an attractive financial market Force projects that have no market 18 Avoid lengthy delays Tolerate delays 19 Ensure transparent and process Lack of transparency in the process 20 Government champion from high level or treasury

departments Lack of government support

21 Positive media Bad relationship with media 22 Ensure a stable macro-economic condition Proceed under unstable economic conditions 23 Ensure project technically feasible Expect projects to work without thorough investigation on the

technical feasibility 24 Thorough and realistic assessment of the cost and benefits Leave assessment of the cost and benefits to later stages 25 Ensure partnering spirit / commitment / trust Reluctance to work with partners 26 Ensure there is a market need Consider projects with no market 27 Consider projects with large operation element Consider projects that do not involve operation 28 Ensure there is government need Consider projects that the government do not need 29 Consider projects of large scale Consider small scale projects 30 Ensure better value for money can be demonstrated Consider projects that are not value for money

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334

Table 3 Guideline for conducting step 3 “Technical assessments, consultation and land requirements”

No. Dos Don’ts 1 Ensure that improved services and products can be delivered Lack of interest to show improvement 2 Appropriate risk sharing Inefficient risk allocation 3 Ensure that the party best able to manage the risk is assigned Transfer all risks to the private sector 4 Provide integrated solution Consider short term goals only 5 Facilitate creative and innovative approaches Minimise opportunities for private efficiency and innovation 6 Ensure experience and appropriate skills Inexperienced employees 7 Gain support and interest from general public Block out the general public 8 Conduct complex projects so that private sector’s expertise

could be utilised Conduct over challenging projects

9 Avoid lengthy delays and negotiation Spend long durations during negotiation 10 Good governance Lack of government governance 11 Ensure transparent process Lack public consultation 12 Ensure that project is technically feasible Aim to achieve technically infeasible aspects 13 Conduct thorough and realistic assessment of the cost and

benefits Leave assessment of cost and benefits to later stage

Table 4 Guideline for conducting step 4 “Expression of interest exercise”

No. Dos Don’ts 1 Demonstrate appropriate risk sharing Hide details of risk allocation arrangement 2 Keep to a timetable Delay the process 3 Facilitate creative and innovative approaches Limit private sector’s chance to show creativity and

innovation 4 Government show support towards project Government appear to be indecisive 5 Have clear government objectives and evaluation criteria Government lack objectives and evaluation criteria 6 Good private sector capability Poor private sector capability 7 Government to commit to projects Government indecisive on procurement method 8 Gain support and interest from general public Lack of support and interest from general public 9 Speed up negotiation process Spend long durations during negotiation 10 Minimise private sector expenditure Expect private sector to have clear conceptual plans at this

stage 11 Partnering spirit/commitment/trust Consider self privileges only 12 Ensure transparent process Block out the general public 13 Ensure there is a market need Propose projects with no market 14 Ensure an economically viable project Choose projects that are uneconomical 15 Have well defined project objectives Have unclear project objectives 16 Propose projects that are technically feasible Propose projects that cannot be achieved technically 17 Ensure stable macro-economic condition Pursue projects under unstable macro-economic condition 18 Ensure efficient and mature financial market exists Pursue projects under inefficient and immature financial

market 19 Close connection with media Negative media 20 Ensure a favourable legal framework Pursue projects under unfavourable legal framework 21 Ensure a stable political and social environment exists Pursue projects under unstable political and social

environment 22 Ensure government need Propose projects that the government does not need 23 Propose large projects Propose small projects

Table 5 Guideline for conducting step 5 “Policy and funding approvals”

No. Dos Don’ts 1 Keep to a timetable Delays during negotiation / political debate 2 Ensure a stable social and political environment Pursue projects under unstable and political environment 3 Ensure a clear legal framework Pursue projects under an unclear legal framework 4 Ensure good governance Poor governance 5 Ensure transparent process Block out the general public 6 Gain government support and have champion from high level

or treasury department Lack of government support

7 Ensure stable macro-economic condition Pursue projects under unstable macro-economic condition

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335

Table 6 Guideline for conducting step 6 “Procurement and selection”

No. Dos Don’ts 1 Ensure a fair risk allocation mechanism Allocate large proportion of risk to a single party 2 Allocate risks to the party best able to manage them Allocate all the risks to the private sector 3 Streamline the process Waste time during administrative procedures 4 Provide an integrated solution Have unclear objectives 5 Keep to a timetable Delays during negotiation / political debate 6 Ensure a stable social and political environment Pursue projects under unstable and political environment 7 Ensure a clear legal framework Pursue projects under an unclear legal framework 8 Ensure good governance Poor governance 9 Ensure transparent process Block out the general public 10 Gain government support and have champion from high level

or treasury department Lack of government support

11 Ensure stable macro-economic condition Pursue projects under unstable macro-economic condition 12 Minimise political debate Encourage political debate 13 Government commitment Scheme aborted before contract 14 Compensation to losing bidder High participation costs 15 Select strong and good private consortium Select incapable private consortium 16 Gain general public support and interest Lack consultation with general public 17 Clear government objectives and evaluation criteria Unclear government objectives and evaluation criteria 18 Ensure positive media Negative media 19 Ensure partnering spirit / commitment / trust Lack partnering spirit / commitment / trust 20 Ensure rigorous tendering process Fixing contracts too quickly 21 Low tendering / transaction costs High tendering / transaction costs

Table 7 Guideline for conducting step 7 “Service commencement”

No. Dos Don’ts 1 Keep to the contract milestones Neglect the target milestones 2 Continuously introduce appropriate talents or resources Conduct minimal requirements 3 Continuous training Be reluctant to develop personnel 4 Communicate with general public Stop communicating with general public 5 Ensure transparent process Hide project details 6 Charge reasonable fees for facilities/services Overpriced fees for facilities/services 7 Ensure financial market Stop searching for markets 8 Ensure a stable and macro economic condition Ignore surrounding macro economic condition 9 Show good governance Government avoid responsibility 10 Government to step in if necessary Government to intrude on activities 11 Create close links with media Allow the media to gain a bad perception 12 Commitment of all parties Lack commitment 13 Partnership arrangement Consider self privileges only 14 Government to give private sector free hand to maximise their

ability Prevent private sector to maximise their potential

Table 8 Guideline for conducting step 8 “Payment and contract management”

No. Dos Don’ts 1 Check that appropriate services and products are delivered Deliver services and products of lower quality then specified

in contract 2 Show a partnership arrangement Blame partners for unsatisfactory performance 3 Encourage interest of the general public Prevent transparency 4 Government to step in if necessary Government to interfere without appropriate reason 5 Ensure a stable macroeconomic condition Ignore the surrounding macro economic condition 6 Ensure stable political and social environment Ignore changes to political and social environment 7 Conduct thorough and realistic assessment of the cost and

benefits Avoid continuous assessment analysis to minimise work load

8 Ensure efficient and mature financial market Stop creating economic opportunities 9 Ensure an economically viable project Choose projects that are uneconomical 10 Ensure continuous market need Search for new markets 11 Ensure compliance with contract terms Breach contract terms 12 Assessed by performance Assessed solely be economic return

Appendices

336

Questionnaire Please select the relative score for each validation aspect below to represent the extent of satisfaction (1 represents “poor” and 5 represents “excellent”).

Validation Aspects

Scoring Scale Poor Excellent

1 2 3 4 5 1. Degree of appropriateness 2. Degree of objectivity 3. Degree of replicability 4. Degree of practicality 5. Overall reliability 6. Overall suitability for PPP projects in Hong Kong

a thesis submitted for the degree of doctor of...

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