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2. Introduction

2.1. Background

This report was commissioned by the Scottish Executive to further its understanding of the performance of Public Private Partnership ( PPP) projects in Scotland. The main aims of the research were; first, to provide an initial assessment of the relative costs and benefits of PPP procurement in comparison to conventional procurement, and of the underlying causes of good/bad performance and; second, to consider what data on PPP projects might usefully be collected in the future. The Scottish Executive was particularly interested in the operational performance of live projects; 64 PPP schemes are now operational in Scotland in sectors including health, education, transport and water.

2.2. Operational PPP projects in Scotland

Figure 1: Number of operational PPP projects by sector

Source: Scottish Executive, Financial Partnerships Unit

Around half of all PPP projects are in the health sector. The majority of the health projects have relatively small capital value and relate, for example, to providing information systems, waste management services or elderly care beds. Seventy three percent of the capital spend in health relates to the three new hospitals at Hairmyers, Wishaw and Edinburgh. ( Figure 2 below shows capital spend by sector.)

In the schools sector, although there are only eleven projects, the majority of the contracts are for the provision of a portfolio of primary, secondary and special schools; some eighty schools have been built or refurbished and are now being operated under PPP contracts.

Water and sewerage is the largest sector by capital value, accounting for one third of the capital invested in operational PPP projects.

Of the three transport projects, the Skye Bridge contract has recently been terminated by the public sector buying out the private sector contractor, and the same is set to happen for the Inverness Airport project, which will leave the M6 (M74) as the sole operational transport PPP.

Other projects include Kilmarnock Prison, the Police Force Training Centre at East Kilbride, a council accommodation project and several IT systems.

Figure 2: Capital value of operational PPP projects by sector

Source: Scottish Executive, Financial Partnerships Unit

2.3. Methodology

Our research was based on a survey of public and private sector contract managers of those PPP projects in Scotland that were operational at the end of 2004. We sent questionnaires to each authority responsible for a live PPP project (authorities included Health Boards, Councils, the Scottish Prison Service and the Scottish Executive) and to the majority of contractors. We also interviewed public and private sector contract managers for a sample of projects. Further explanation of the methodology we used is set out in Appendix 1. The full list of projects included in the survey is shown in Appendix 2.

It is worth noting the inherent limitations of the interview-based methodology. Interview responses are always subject to bias, especially when the respondents have a vested interest in the projects, which was the case in this study. Project managers might not want to be seen to criticise their own PPPs.

Surveys were sent to 64 (100 percent) public sector and 41 (64 percent) private sector contract managers. Response rates were 56 and 59 percent respectively, covering a total of 41 (64 percent) operational PPP projects in Scotland.

Interviews were conducted with public sector contract mangers representing 20 projects, and private sector contractor manager representing 10 projects, covering a total of 25 (39 percent) operational PPP projects in Scotland.

Appendix 1 shows response rates by sector both by number of projects and capital value. We received responses for all projects in the water and sewerage sector. There was a low response rate in the health sector, with the smaller projects in particular failing to return completed questionnaires, although returns were received for each of the three large PPP hospitals. This low response rate may be significant given our perception of more post-completion tensions in the health sector.

Examples of good and bad performance are often specific to a particular project or sector, but wherever possible we have tried to identify the underlying causes of the issues raised, and to draw more general conclusions. We have also tried to identify how outcomes might have differed under conventional procurement, based on the views of those responding to the survey or interviews, most of whom had experience of both types of procurement. Very few projects of comparable size and era to those procured using PPP have been procured using conventional methods, and we have not sought to compare quantitative data across different types of procurement.

It is important to note that, since only those projects that are now operational were included in the survey, our findings are based on data from Scotland's earliest PPPs, procured before 2000. Many of the lessons learnt from these early projects have been applied to more recent projects. In particular, there is far greater contract standardisation and central guidance now than was the case in the late 1990s.

Our research was carried out over a ten week period from December 2004 to March 2005. It covered a wide range of topics, across all sectors where there are operational PPPs. Given this scope, we are only able to give an initial assessment of the relative costs and benefits of PPP procurement in comparison to conventional procurement. But we think that our research has identified some interesting areas in which the Scottish Executive might want to carry out further research with the aim of supporting authorities managing PPP contracts and informing decisions about future contractual arrangements.

2.4. Report structure

Sections 3, 4 and 5 present the evidence from the survey and our assessment of it grouped according to the main phases of PPP projects: procurement, construction and operations. Section 6 presents the survey evidence on value for money issues. In each section we have sought to separate the reporting of the survey evidence from our interpretation.

Our conclusions on stage 2 of the research project, the data on PPP projects which might usefully be collected in the future, are given in Section 7.

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