PPP in the UKIan Rylatt, Chief Executive Officer, Balfour Beatty Investments

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Agenda

Origins of PPP in the UKBalfour Beatty’s experience of PPPLessons learnedSummary

ORIGINS OF PPP IN THE UKOverview

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Public sector procurement in the UK in the 1980s / ‘90sc.75% of public procurement under traditional

methods was delivered over budget c. 70% was lateThe reasons were many but included:●Poor specification●Poor project management●Design creep●Etc, etc

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Aging infrastructureEDUCATION

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Aging infrastructureHEALTHCARE

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The creation of PPP in the UK

Launched in 1995, PPP was introduced to modernize the way in which some public infrastructure and services were delivered in the UK

Provide the public sector with access to the discipline, skills and expertise of the private sector.

Put ‘controls’ around procurement

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The original PPP procurement process PPP was enabled by central government legislation Government announced a commitment of spend per market Local authorities competed for a subsidy (‘PFI credits’) Credits are allocated to successful projects Projects were approved based on a ‘value for money’ test

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A typical UK PPP project Design, construct, finance and maintain for 25 years Raise non-recourse finance:

● Bank finance● Bond finance● Pension fund investment

Private sector invest equity in the project Proposals developed based on client output specifications Private sector takes on risk for project delivery and maintenance

of the asset against client output specifications for the duration of the contract

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UK Investment in PPP is extensive

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Investment in PPP in the UK

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PPP Performance in the UK since 1995

Over 80% were delivered on time. (Costs associated with the 20% that overran were funded by the private sector)

Design and construction quality improved94% of projects ‘always or almost always met

agreed service levels’In many cases improved design led to

improved service outcomesFacilities were safer, designed with operational

safety in mind

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PPP procurement in the UK

AdvantagesPPP has enabled the UK to undergo the biggest

investment in infrastructure since the 1900s. Projects are completed on time, to the agreed

specificationDesign became a key component of PPP

investment and has led to the creation of exceptional community facilities

Delivered savings in design, lifecycle and hard FM

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PPP procurement in the UK

ChallengesA complex procurement model which is difficult

for the public to understand and became political

The procurement process became increasingly complex in a world of austerity

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Greater transparency of information, making information more publicly available

Launch of the operational PPP Savings Program in order to improve the cost effectiveness

Introducing new arrangements for the assurance and approval of major projects to strengthen scrutiny and control

PPP Reform in the UK

BALFOUR BEATTY’S EXPERIENCE OF PPPAbout us

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PPP enabled Balfour Beatty to:

Take a holistic approach to project development delivery and operation

Incorporate design with construction, FM and lifecycle

Develop new asset management skills across a wide range of project types

Transfer and develop best practiceAllow clients to focus on service delivery

20 Birmingham Hospital, c. $800m

21 M25, c. $1.5bn

22 Knowsley BSF, c. $240m

A UK PPP EXPERIENCELessons learned

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Where does the process sometimes go wrong?Lack of definition of requirements / expectations /

bolting on of inconsequentials / extra cost Over optimistic expectation of risk transfer (lack of

private sector control)Client’s lack of quality resource / lack of

employmentLack of public sector understanding of constraints

of leveraged finance

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What makes a successful project?

Strong and focused public sector leadership and support for the project:●Establishment of the need and the value of the approach in the public’s

mind●Understanding and focus from public and private sectors on the real

partnering examples needed to carry the project through●Experienced, properly resourced and properly incentivized team

approach to development and delivery

Clarity of economic estimates and understanding of the real project economics

Shared understanding of risks

SUMMARYPPP in the UK

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Summary

PPP can offer significant benefits as a procurement model

It offers: ● A holistic outsourcing opportunity● Greater certainty of project delivery (schedule and budget)● A transfer of risk to the private sector● Greater accountability for performance

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PPP in the US

Encouraging to see expansion of PPP as a procurement strategy●Offers same benefits that we have experienced in the UK●Potential for local economic boost and job growth –

priorities expressed by Governor Scott

Might consider adopting successful structures used in other jurisdictions●No need to “reinvent the wheel”●Standardized (i.e. Known to the private sector) processes

can reduce procurement costs and improve timing●Many experienced resources are available