Written by Marijke Brijnaert, consultant at TA Europe
TA Europe is a leading technical advisor in PPP projects and transactions. Its team members have developed the basic PPP standards for schools in Germany, the Netherlands and Belgium. TA Europe advises on PPP school projects in Uruguay, Germany, Luxembourg and Austria, including a number of portfolio transactions and 2 new DBFO (Design, Build, Finance and Operate) portfolios with nearly 100 schools spread all over Uruguay.
Different types of social infrastructure have been developed by means of Public-Private Partnership (PPP) for decades: education, healthcare, defence, leisure and congress centres are only a few examples. PPPs in social infrastructure have great advantages for the different parties involved, but we would like to point out some points of attention as well.
A PPP allows the public partner to benefit from the experience, efficiency, creativity and competences of a private partner. This input from the private sector can be seen as one of the biggest advantages of PPP in this sector.
A second advantage is the holistic approach of the total lifecycle cost based on cost-effectiveness.
But most importantly, social professionals can focus on their social tasks.
Operation and Maintenance component
The Operation and Maintenance contract component can be tailored to sectors needs. Social infrastructure projects can choose the extend of maintenance and facility management that will be included in the 20, 25 or 30 years operation contract. Therefore the buildings are designed and constructed with the involvement of the future operators. Experiences show that PPP assets are always in top condition and nearly 100% available over the whole operation period of up to 30 years.
As TA Europe, we have seen different scopes in different types of infrastructure. Prisons mostly include an extended maintenance and facility program with cleaning, catering and laundry included. Schools vary from a simple owner’s maintenance to the full range of cleaning, catering, caretaker, waste management and energy supply.
It is known that the tender costs of PPP are relatively high. Therefore a minimum scale of the projects is needed, but this can vary in function of the public partner’s needs and the private market’s availability. Also, a specific organisation is needed for managing a PPP project and hence an experienced company with a reliable organisation.
In our projects, we have seen many school PPP’s as an example of how different scales of project tenders can be used. In Austria, small to medium-sized contractors can participate in single school tenders. Luxembourg had a single school tender running with a 45,000 sqm school that attracted bigger private players but was recently cancelled by the authority. A new pipeline has opened in Uruguay where 44 kindergartens and 15 nurseries in different locations in the country are clustered together and 3 similar pipelines are opening up in order to cover the country’s infrastructure shortage. In the Scholen van Morgen in Belgium originally 165 schools were appointed to 1 consortium that appointed a delegated developer and clustered tenders were launched to appoint contractors and maintenance operators. The latest Belgian school program bundles one or more schools in clusters from 10,000 to 35,000 sqm.
An important aspect in order to manage the tender costs is the standardisation of the contract clauses. In the Netherlands for example, the contracts have been well standardised what makes it easy and more attractive for contractors to enter the tender process.
The main principle in a public-private partnership is that risks and responsibilities are allocated to different parties and should be borne by the party most appropriate to influence, manage and mitigate these risks. This risk allocation is fixed in the different agreements and contracts between the different parties. There are some strict rules by the EU in order to be ESA neutral.
If risks such as underground risks, volume risks, permit risks or risks of changes of law are allocated to the private partner, sufficient preliminary investigations should have been performed by the contracting authority. Otherwise, these risks cannot be priced reasonably by the private partner and issues and discussions can appear at a later stage.
Clear and concrete contracts should be set up in order to mitigate interface risks. If the authority’s cleaning company uses the wrong cleaning products on a sports floor, for example, the lifecycle maintenance will not be in line with what the maintenance contractor has foreseen.
The definition of the project and the quality and performance requirements are tailored to the present needs. But those needs will inevitably change over the 20 to 30 years operation period.
The objective, measurable and unequivocal definition of these requirements is not an easy task. Lack of clear output-based specifications can give rise to discussion in the design, construction and operational phase.
As TA Europe, we have seen different causes for changes in the different phases of a PPP project. In some cases, the policy of the authority changes and operational services like laundry and catering are cancelled after a certain time. When the contracts allow these changes, no difficulties are to be expected.
Sometimes structural changes are necessary to the building itself. When the German school system changed from only morning tutoring to whole day tutoring, the schools that were constructed more than 10 years ago in the Cologne school PPP programme, requested a structural change. Catering facilities and dining halls needed to be created. As would be the case in a traditional tender, costs were charged to the authority for these kinds of adaptations.
The most important difference between a traditional tender and a PPP where the contractor is also responsible for the financing of the project is the presence of a third party in the form of a bank or bank consortium, which provides the project financing. The lenders perform extensive due diligence on a technical, legal and financial level and follow the project closely during the construction and operation phase. That is one of the reasons why the preparation period for a PPP may take longer than a traditional tender. But once the contract has been signed and the construction works commence, there is virtually no delay in relation to the planning and this preparation time is compensated.
The biggest advantage of PPP’s in the social sector lays in the integrated approach of construction and lifecycle cost and the optimisation of the creativity and innovations from the private partner.