mark williams

Mark Williams providing CP3P training in Africa
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Greater collaboration between the public and private sector in emerging markets is transforming property and infrastructure and providing exciting opportunities for economic growth. We are now seeing public private partnerships (PPPs/P3s) in a wider range of countries, as well as in new sectors (e.g. water and wastewater) both in established PPP/P3 markets and in those where PPP/P3 project pipelines have paused - such as the UK.

What is often lacking in these partnerships is the expertise, experience and credibility to fully unleash the huge potential of PPPs/P3s. However, with specialist PPP/P3 training it is possible to equip public sector organisations with the capabilities to prepare, procure and manage these valuable partnerships. The benefits of having these skills are very clear, because the more skilled public sector teams manage to secure better value bid prices from the private sector partner and the funders. 

PA is the first consultancy able to deliver the newly launched APMG PPP Certification Program, sometimes referred to by its awarded credential - the Certified PPP Professional (CP3P). We have partnered with the Chartered Institute of Public Finance and Accountancy (CIPFA) to provide this training and have just returned from delivering this training to World Bank and Government PPP Unit staff in Kenya, Uganda and Rwanda.

As part of the CP3P training we needed to understand the national scale of the PPP/P3 opportunities in these countries and so ran a “readiness assessment”. This allowed us to consider the views of the World Bank and PPP Unit staff and understand their perceptions from an international investor stand point. The issues covered in this assessment included the institutional framework for progressing PPPs/P3s; the state of the economy; the level of political engagement; and support for a PPP/P3 pipeline.

We identified that there are a number PPP projects in the pipeline, including those in procurement, under construction and operating, and that these are supported by strong GDP growth – 5.6% in Kenya, 5% in Uganda and 7.5% in Rwanda. It was also clear that, at an individual level, staff were enthusiastic, they had a good level of existing skills and they recognised the importance of having programme/project managers, technical, financial / commercial and legal experts in their teams.

A key principle of the CP3P training and accreditation is to drive the use of a standard global language for describing PPPs. This is not to say that local terminology, legislation, guidance and approach will change, but a CP3P professional will be able to recognise and reconcile the differences between the approach in their own and other jurisdictions. At a national scale, the benefits of this accreditation programme include equipping organisations with the know-how to champion vital collaborative infrastructure programmes and projects. 

We drew on our own experience as practitioners to ensure that the staff understood how to implement a project effectively, based on a strong business case process, and a good PPP/P3 arrangement. In particular, we wanted to underline the importance of not spending time and resource developing a theoretically perfect PPP/P3 arrangement, which is then not implemented. We were also able to use our experience from working on both the public and private sector side to provide insights into private sector motives in PPP/P3 deals and on the importance of post contract signature contract monitoring. It is vital to recognise that these are long term (25 years) relationships where the public value / VFM of a PPP/P3 accrues throughout the operational phase and so these projects need ongoing scrutiny.

These partnerships are going to remain high on the agenda in many countries. Property and infrastructure spending is forecast to hit $9trillion by 2025, a proportion of which will be PPPs P3s. In addition, the World Bank has approved 407 loans with a PPP component, between 2002 and 2016 totalling $15.6 billion and the UK Defence Infrastructure Organisation has announced that it will explore and analysis alternative funding sources, such as PF2 (private finance), to meet £2 billion of required investment. All that means that the CP3P training and accreditation is a very timely addition to the support available to those embarking on PPP projects.

Mark Williams, Director and Property & Infrastructure Lead at PA Consulting and member of CIPFA's Governments Faculty Board - specializes in providing financial and commercial advice on a range of complex contract PPP/PFI savings projects across defence, transport, education and health.  

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Making successful cases for Public Private Partnerships

Mark Williams, property and infrastructure lead at PA Consulting Group and John Wilkinson, MOD Defence Infrastructure Organisation PFI Advisor (on secondment from PA Consulting Group)

Infrastructure investment under good PPPs/P3s deals

It is well documented that infrastructure investment is vital to support economic growth. In emerging markets and developing economies there is now greater collaboration between the public and private sector working to transform property and infrastructure, thus providing exciting investment opportunities. We are seeing public private partnerships (PPPs/P3s) in a wider range of countries and in new sectors, for example water and wastewater, in both new PPP/P3 markets and in those with established PPP/P3 agreements in development and operation. Success is dependent on structuring the right deal and gaining support from government institutions and the private sector.

The variety, complexity of deals and the mixed messages that have been sent have resulted in criticism in some quarters of existing deals and challenges in agreeing new ones. PPP/P3 deals have become contentious and the projects can take a long time and consume valuable, scarce resources with some deals failing to be agreed after significant development.

This article considers how government institutions can improve the flow of infrastructure funding through PPP agreements, focusing on how performance can be improved by building capability to create good deals and using a compelling business case to convince decision makers and influencers.

Creating good deals

To support the development of good deals, specialist PPP/P3 training is available to equip public sector organisations with the capabilities to prepare, procure and manage the full range of these valuable partnerships. The Certified PPP/P3 Professional (CP3P) / APMG PPP Certification Program has been developed by a number of regional development banks and the World Bank Group, and was part funded by the Public-Private Infrastructure Advisory Facility to enhance PPP performance globally. The course covers:

  • Definition and main characteristics of a PPP
  • Alternatives for infrastructure finance and procurement
  • Types of PPP and other terminology applied
  • Where PPPs are used
  • Motivations for using PPPs
  • Typical structure of a PPP
  • How PPPs are financed
  • Reasons for project failure
  • Introduction to the PPP Framework concept and considerations
  • Overview of the PPP Process

The CP3P credential provides a credible demonstration that an individual has PPP skills that are aligned with international good practice. At a national scale, the benefits of this accreditation programme include equipping organisations with the know-how to champion vital collaborative infrastructure programmes and projects. 

Using the Five Case Model to build a compelling business case for successful PPPs

Irrespective of whether the proposed PPP/P3 is the greatest deal ever, without the ability to progress through the decision making hurdles it remains an academic exercise. Greater transparency and scrutiny mean that the decision making business case for the deal must be robust, with the business case used as the tool to explain the deal and convince approvers.

The UK Treasury defines a government business case model in the Green Book and to support this has been developing and championing the Better Business Case (BBC) approach; this is now being used by governments and global non-governmental organisations around the world. The APMG BBC training course and accreditation programme has been delivered to around 4,000 government officials and advisors.

The APMG BBC training equips staff to guide decision makers and senior stakeholders through the Five Cases to build the compelling Business Case Model to make the best value-for-money decision.

The Five Cases organise the business case into the key relevant topics:

  • Strategic = “Applicable” does it meet the policy, strategic and organisational needs?
  • Economic = “Appropriate” does it offer optimal public value, in the context of a long list and then short list of options?
  • Commercial = “Attractive” is it attractive to both the public and the private sector (on the assumption that a procurement competition will be required)?
  • Financial = “Affordable” can we afford it within the agreed funding envelope?
  • Management = “Achievable” can it be successfully delivered?

This model is being used extensively to support better decision making in the appraisal of government spend. The clarity delivered is particularly relevant in support of PPP deals where the complexity and long term nature of the deals raises many questions.

More information on CP3P is available at https://ppp-certification.com/.

More information on BBC is available at www.apmg-international.com/en/qualifications/better-business-cases/better-business-cases.aspx

For more information about PA Consulting Group visit www.paconsulting.com

Mark Williams, Director and Property & Infrastructure Lead at PA Consulting and member of CIPFA's Governments Faculty Board - specializes in providing financial and commercial advice on a range of complex contract PPP/PFI savings projects across defence, transport, education and health.  

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‘Direct procurement for customers’ (direct procurement for short) is a new delivery model for the regulated UK water sector, proposed by Ofwat (the UK water sector economic regulator) in December 2015[i]. Similar to PPP/P3, direct procurement is expected to drive value for customers by encouraging more competition in the sector, particularly in the financing and operation of water assets. Given this, water companies can apply existing frameworks such as the World Bank PPP/P3 methodology and the UK HM Treasury’s Better Business Case principles to help design, deliver and manage high-quality direct procurement schemes.

What is ‘direct procurement’?

Direct procurement requires UK water companies to consider long-term, DBFOM[ii] partnership arrangements for the delivery of large-scale assets. Ofwat’s guidance currently defines this as assets with a whole-life total expenditure of more than £100m. The final details of direct procurement, including the expenditure threshold, are currently under consultation, but Ofwat intends for it to come into force from 2020. Direct procurement may be applicable to a wide range of assets, from new reservoirs, to upgrades of existing treatment works and transfer pipelines.

Why has Ofwat introduced it?

By guiding companies to use direct procurement, Ofwat aims to introduce greater competition into the financing, delivery and operation of water assets. Ofwat hopes that direct procurement will deliver lower financing costs, based on the experience at the Thames Tideway (a major wastewater infrastructure programme currently underway in London, UK), where competition for financing led to an extremely low cost-of-capital. In addition, Ofwat believes direct procurement will introduce efficiencies into the water sector through:

1.Better allocation and management of risk;

  1. More focused long-term incentivisation and better value-driven trade-offs between opex and capex;
  2. Innovation: direct procurement investors are likely to have wide-ranging international and cross-sector experience – and therefore be able to bring new ideas;
  3. Greater clarity and certainty of costs and outcomes

Sound familiar?

PPP/P3 offers lessons for direct procurement

UK regulated water companies are privately owned and operated, and as such, direct procurement schemes will not be strictly public-private partnerships. However, direct procurement aims to bring more competition into the financing and operation of water assets through the creation of long-term partnership arrangements, much like PPP/P3 schemes in the public sector.  As outlined above, the benefits Ofwat wishes to produce are very similar to those delivered by PPP/P3. Therefore, we believe that PPP/P3 experience offers many lessons that Ofwat and UK water companies can apply to direct procurement.

World Bank PPP/P3 framework and HM Treasury Better Business Case training will help water sector organisations deliver better direct procurement schemes

Direct procurement is significantly different to traditional models of asset delivery in the UK water sector. As a result the water industry are working to build experience and capacity in direct procurement-style models. Given the similarities between direct procurement and PPP/P3, the World Bank PPP/P3 framework will help water sector organisations understand how to design, implement and manage direct procurement schemes. Water companies can also apply HM Treasury’s Better Business Case principles to rigorously appraise and select the most appropriate schemes for direct procurement. We should expect demand for these skills to increase strongly in the UK water sector over the coming two to three years.

Water companies don’t need to ‘reinvent the wheel’ for direct procurement

Direct procurement represents a shift for how water companies design, deliver and operate water assets on behalf of their companies. Given this, delivering direct procurement will bring some  challenges for the water industry. However, direct procurement shares many similarities with PPP/P3 which will be to the benefit of companies. For PPP/P3 there are existing frameworks to help companies select the most appropriate schemes and implement high-quality arrangements – such as the World Bank PPP/P3 framework and HM Treasury’s Better Business Cases guidance. Smart water companies will make the most of these existing frameworks to help them deliver high-performing direct procurement schemes. This will help direct procurement deliver Ofwat’s anticipated benefits, and change the UK water sector for the better.

Credits: Written by Will Nixon, Infrastructure Expert at PA Consulting and Mark Williams, Property and Infrastructure Lead / CP3P and BBC Trainer at PA Consulting. 

 

[i] Water 2020: Regulatory framework for wholesale markets and the 2019 price review, Ofwat, 10 December 2015

[ii] Design-Build-Finance-Operate-Maintain

Mark Williams, Director and Property & Infrastructure Lead at PA Consulting and member of CIPFA's Governments Faculty Board - specializes in providing financial and commercial advice on a range of complex contract PPP/PFI savings projects across defence, transport, education and health.