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PFI Scotland Edition 8: July 2000

Finance Minister Jack McConnell announced on 13 June that the Scottish Executive is to take a financial stake in a new body to support Public/Private Partnerships. The move will help with the development of several school projects in the East and West of Scotland as well as an e-commerce project. Announcing the move the Minister said: "I am pleased to be able to announce today that the Executive will take a financial interest in Partnership UK in a bid to ensure Scottish projects and interests are safeguarded. "Public/Private Partnerships have a significant role to play in delivering our agenda for new schools and hospitals. Last June I announced important reforms to the way we are taking forward these partnerships in Scotland to ensure better safeguards for the public and staff interest and greater transparency in the process.

"The new body - itself a new PPP - will initially support schools projects for East and Mid-Lothian, and refurbished primary schools for Glasgow City Council as well as a ground breaking E-Commerce project for the Scottish Tourist Board."

Background

1. Partnerships UK will be a Public/Private Partnership, with the Government as the largest single share holder. The Scottish Executive stake is 5% and is expected to be of the order £1-2m.

2. PUK will become a co-venturer in PPP projects. It will fund a proportion of a project's procurement cost and will meet part of the costs of advisers. PUK costs will be reimbursed by the successful bidder in projects.

PARTNERSHIPS UK Conference in London

The first tranche of private finance initiative (PFI) and public private partnership project (PPP) deals in progress under the Partnerships UK banner was unveiled by Andrew Smith, Chief Secretary to the Treasury and James Stewart, its Chief Executive as the minister declared Partnerships UK "open for business".

Mr Smith said that such projects would make significant contributions to the modernisation and strengthening of Britain's public services. He called for them to be used more widely and said that Partnerships UK was the ideal vehicle to expand the partnership model further. Speaking at a Partnerships UK conference in London, Mr Smith said:

"Partnerships UK has got together a first rate team who are capable of delivering the Government's vision on public private partnerships into the next decade. The private sector skills they offer will help in the drive to deliver improved public services across the country in many of the Government priority areas.

"Partnerships UK will hit the ground running with an impressive list of projects. This is clear evidence that they will be a driving force in this area of expertise. With Partnerships UK now open for business I am sure they will be at the cutting edge of project improvement and development in the coming months".

James Stewart, Chief Executive of Partnerships UK said: " I believe that Partnerships UK's mission will be to work closely with the public sector to create opportunities for everyone; more projects, lower costs, greater speed and better value for money in PPP deals.

"These are projects which represent an ideal mix across education and hospital sectors, transport systems, as well as the development of schemes for local authority services. They also fill the void in the market place, bringing together bundling programmes, developing commercial ventures as part of the Government's wider markets approach and bringing us closer to the world of global e-business."

The projects, which Partnerships UK is discussing with Departments and Authorities include:

Prisons (new competition round)
Barts and London NHS Trust
Docklands Light Railway - London City Airport extension
Primary care
Glasgow primary schools
Midlothian Schools Community Campus Project
East Lothian Schools project
Forensic Science Service
British Waterways Water Grid
Scottish Tourist Board e-business project
Staffordshire Street Lighting Project
Bristol and South Gloucestershire Rapid Transit

Partnerships between the public and private sectors are a cornerstone of the Government's modernisation programme. By drawing on the best of both public and private sectors, public private partnerships can help the public sector to deliver modern, high-quality public services.

Public private partnerships bring with them new challenges which require specialist skills and expertise. Partnerships UK has been formed to help the public sector meet these challenges. Its mission is to work with the public sector to make PPPs better, stronger and faster projects."

Background

1. Partnerships UK was announced on 22 July 1999 by the then Chief Secretary to the Treasury, Alan Milburn. Partnerships UK will be a public private partnership; a joint venture with the public sector owning a minority interest and the private sector owning a majority.

2. The governance structure has been designed to balance private sector disciplines with Partnerships UK's public sector mission. A majority of board members will come from the private sector and the public sector will be represented by two non-executive directors appointed by HM Treasury. The wider public interest will be represented through an Advisory Council made up of the principal public sector stakeholders.

3. Partnerships UK will maintain very close links with Government. As the successor to the Treasury Taskforce, it will continue to assist the Treasury, Government Departments and the Office of Government Commerce.

4. Partnerships UK has the ability to enter into a 'development partnership' with a public authority, both effectively operating a joint venture to procure PPPs successfully. Partnerships UK will work with the Government in the development of public private partnership policy and contract standardisation, will help with project evaluation and implementation, and will support PPPs in difficulty. It will also continue to work closely with 4Ps on local authority projects.

5. Partnerships UK's financial targets will be set to fulfill its public sector mission while permitting a fair return on capital.

6. Legislative authority for Partnerships UK is being obtained in the Government Resource and Accounts Bill. The Bill is expected to receive Royal Assent shortly, following which Partnerships UK will be able to put in place formal development partnerships for the projects currently under discussion. Further projects are expected to be undertaken by Partnerships UK before its formal launch as a Public Private Partnership in late autumn.

7. Details of the projects contained in the launch material and this press release are available on the Partnerships UK website at www.partnershipsuk.org.uk

How to Achieve Design Quality in PFI Projects

Published in April 2000, this note is the seventh in a series of Technical Notes to be issued by the Treasury Taskforce which are designed to provide practical guidance on key technical issues which arise from the implementation of the Private Finance Initiative (PFI). It has been endorsed by the Commission for Architecture and the Built Environment, the Construction Industry Council and the National Audit Office.

The note;-

1) is intended to assist public sector procuring bodies to ensure that the highest quality design solutions for buildings or equipment are submitted and delivered within bids for PFI projects. While the advice it contains may be relevant to non-PFI projects, its focus is on the management of the PFI procurement process, and in particular:

• the management of relationships with bidders;
• the provision of clear information early in the competition about what is required and how bids will be evaluated; and
• ensuring that design requirements are consistent with the budget available for the project.

2) The note does not indicate what are good design solutions to meet specific needs, which are a matter for individual departments, agencies and NDPBs. It is advisory rather than mandatory, providing guidance on good practice. However, Accounting Officers may wish to take the guidance into account in accordance with their responsibilities for value for money.

3) Both procurers and private sector bidders should be aware that Government procurement policy is that 'value for money' is not the 'lowest price'. Instead, the optimum combination of whole life costs and quality to meet users' requirements is required. Procurers should state the criteria for the most economically advantageous tender in advertisements and in tendering documents. Clearly, with awards made on this basis, it is essential that a project audit trail showing how all aspects of design considerations have been handled should be recorded and maintained.

4) This note should be read in conjunction with The Treasury Taskforce's Step by Step Guide to the PFI Procurement Process (Revised November 1999), How to Follow EC Procurement Procedure and Advertise in the OJEC (June 1998), How to Account for PFI Transactions (Revised June 1999), How to Appoint and Manage Advisers (August 1998), How to Appoint and Work With a Preferred Bidder (July 1999), and How to Construct a Public Sector Comparator (October 1999), together with any departmental guidance on design issues.

The text of the note is also available at http://www.treasury-projects-taskforce.gov.uk and, later in 2000 at http://www.ogc.gov.uk.

Standardisation of IT PFI Contracts

A platform for spreading best practice amongst Public Private Partnership (PPP) practitioners involved in drawing up IT contracts was announced on 28 March by Chief Secretary Andrew Smith and Cabinet Office Minister Ian McCartney.

This platform takes the form of new guidance for IT PPP deals which builds on the development and success of previous Treasury Taskforce standard contract guidance across all public services. The guidance is expected to further improve deal flow, reduce the costs of tendering and avoid the pitfalls of the past when poorly drafted contracts led to the demise of some IT projects. The guidance sets out recommendations not only for contract drafting, but also for improving the project management of IT PPP deals.

Launching the guidance, Andrew Smith said:

"This is an important step forward in ensuring that project and risk management for IT contracts is undertaken rigorously. The document emphasises the need for strong risk handling strategies and formalises the pre-contract risk review process which has been carried out to date by the Treasury Taskforce on significant projects.

"I expect the adoption of the standard approach set out in the guidance to produce substantial savings and result in greater value for money for the public sector."

The publication of this specific guidance document for the IT Public Private Partnership sector is just one of the initiatives that the Government is currently undertaking to improve the strength of Government IT projects generally.

Ian McCartney, Minister of State at the Cabinet Office who is sponsor for the Government's current review of the handling of major IT projects, said of the guidance:

"This Government is determined that our IT systems deliver first-class services and good value for money. Suppliers share responsibility for ensuring that projects deliver the promised service benefits and come in on time. A successful procurement process is fundamental to the success of these complex but vital projects. The guidance we are announcing today is just one part of a comprehensive package of measures to ensure that we implement systems successfully and maximise the benefits of IT to the public."

The Taskforce IT guidance has also received the full backing of the National Audit Office (NAO), the Government spending watchdog. Assistant Auditor General, Jeremy Colman, of the National Audit Office, said:

"The new guidance perceptively reflects the key lessons learned from the first generation of PFI projects in the IT sector, many of which have been identified in our own reports. The onus is now on government departments and the IT industry to implement the guidance and improve the prospects of delivering projects to time, cost and functionality."

The guidance should be read as a supplement to the Treasury Task Force Standardisation of PFI Contracts and sets out proposals for dealing with the specific issues that are likely to arise in IT PFI projects. It aims to address how such issues should be dealt with in the Contract in a manner that is commercially deliverable and which ensures the Authority's requirements are met. In addition, this Guidance seeks to help Authorities and Contractors by encouraging project- and risk- management approaches to aid a Project's smooth transition from concept to full implementation and beyond. The three main objectives are:-

• to promote a common understanding as to how risks should be dealt with in IT PFI projects,
• to encourage consistency of approach, both in terms of project management and contract drafting, for IT PFI projects: and
• to reduce the time and costs of the procurement process and to help the parties reach a deal which represents value for money for the Authority and a sufficiency profitable deal for the Contractor.

The guidance also gives recommendations for approaching major software developments. It has been prepared after an extensive consultation process with public and private sector managers of IT projects, as well as financiers. It is expected that the publication of the guidance will encourage more financiers to support IT PPP deals, as the document provides answers to some of the bankability problems posed to date in this sector.

Enquiries about obtaining copies of the guidance should be made through Butterworths on 020 7400 2500 or at http://www.butterworths.co.uk/.

Creating Effective PFI Project Teams:

A new Consultation Document on identifying and developing competences needed to successfully deliver PFI projects.

The Second Bates Review of PFI stressed the importance of strengthening departmental deal making skills. In response the Treasury Taskforce asked PricewaterhouseCoopers to develop an initial framework identifying the competences staff at all levels in departments and authorities would need to deliver their projects. Draft technical guidance on A Competence Framework For Creating Effective PFI Project Teams has been issued for consultation and can be found at:

http://www.treasury-projects-taskforce.gov.uk/series_other/compframe/compframe1.htm

Developing people with the right deal-making skills is essential if the public sector is to get best value for money from PFI projects. Developing understandable and accessible guidance to assist departments will help this process. Comments on the draft, particularly from practitioners, would therefore be most welcome.

A full list of current Treasury PFI publications are listed at Annex C.

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