When the press reports another Private Finance Initiative (PFI) or Public Private Partnership (PPP) story most people tend to think of projects involving roads, prisons, the health sector or education.
Few stop to consider the applicability of these procurement routes in the arena of culture, media and sport. But David Hutton reports that funding is available for the development of projects in the arts and leisure sectors and many are underway already.
The essence of a PFI or PPP transaction is to require the private sector partner to design, build, finance and operate a particular facility or facilities. Having obtained the money to finance construction from a funder, the private sector partner will require the local authority to make a payment over the term of the contract (usually 25 years) which will reimburse the debt borrowed for the construction costs, meet the ongoing pre-agreed expenses and pay the profit element. That payment will be dependent upon whether the facilities are maintained to the standards agreed at the outset and the quality of service provided. These schemes are happening in the arts world.
The public private partnership programme has several guises. Many know it as PFI or PPP but other procurement routes are developing. Joint procurement between different authorities, joint procurement between different sectors such as health, leisure, culture, education and housing are being developed all of which are seeking to encourage such new facilities to be a focal point in a community.
Government backing
The Department of Culture, Media and Sport is one of the recipients of PFI credits in the comprehensive spending review. The review three years ago is enabling 11 schemes to proceed and these include a mixture of leisure developments, both single and multi-site projects, (Sefton, Uttlesford, Amber Valley, Penwith, Lewisham (see right), Breckland, Wolverhampton and Brent) as well as schemes for new libraries, galleries and museums such as those in Swindon, Cambridge and Oldham. The most recent comprehensive spending review has allocated credits over the next three years for the sector. The benefit to authorities of such revenue credits means the funding gap to meet the regular payments will be supported. Whilst the availability of such monies will assist local authorities in developing these projects, a more common route is likely to be the PPP route whereby the authority will find monies through a combination of efficiency savings, land sales and other sources in order to finance a long term deal whereby the private sector take long term responsibility for the running of such centres.
Learning from experience
There is much to consider if analysing such schemes but local authorities can learn lessons from previous projects as to how best to procure such schemes as well as understanding how best to create a long term partnership which allows the flexibility required to meet ever changing needs and demands of the leisure and art communities and the requirements of the public. Guidance is available, for example in the soon to be completed ?4p?s Procurement Pack and Guidance for leisure projects? which includes advice on how to procure such schemes and standard form documents for use including a detailed project agreement, payment mechanism and output specification.
Most of the best lessons to learn are the oft-repeated common sense ones. If a project is to succeed the procuring authority must deal with the preparation, expectation and anticipation of all likely to be involved. Preparation is paramount not least in the recognition of the time likely to be required. A specific project management scheme ought to be established. The project management both internally, with stakeholders and with the private sector bidders is the key to a successful procurement. Involvement of stakeholders is essential but recognition that a scheme needs to be affordable must prevail. Many stakeholders when faced with the opportunity of a new facility wish to incorporate ideas which render the project unaffordable or, in schemes where revenue generation is a critical element, it is unlikely to generate the income required to make the scheme attractive.
Managing the process
The limited capacity in the private sector means potential bidders should be informed of proposals perhaps by way of a ?soft market testing? very early in the process. Their views on project preliminaries such as the scope, feasibility, affordability, timetable for procurement and opportunities for revenue generation can and need to be explored. For a public private partnership to be successful dealing with the expectations of the private sector cannot be ignored. Notwithstanding the viability of a scheme if there is no private sector interest then the scheme is likely to fail. Too many schemes in this sector have to date failed for want of this information. In a sector which depends for its success on encouraging members of the public to use the facilities, ignoring the private sector wishes and skills will not benefit the scheme.
Having established the interest from the private sector and understood how best to structure a project, the management of the competitive process is crucial. A realistic timetable needs to be incorporated and be supported by the relevant political commitment. Project management of the process, issuing complete documents during the procurement process rather than revisiting issues time and again, and allowing negotiation to be conducted in competition is imperative if the local authority is to achieve the best deal possible. Being able to negotiate from a well-rehearsed position of strength is often neglected in the rush to put the project into the public arena. All too often some relatively basic concepts such as ensuring the authority owns the land can be forgotten. Such oversights can have significant consequences as the process develops.
Critical success factors
Many factors can have an influence on whether a public private partnership is deemed to be successful. The subjective analysis is likely to depend upon the original expectations of the parties. However, the schemes which have achieved the most appropriate risk allocation are likely to be the most successful. This means that the party best able to manage the risk ought to take the risk. Accordingly, the private sector are perhaps best placed to design the facilities so as to encourage access and to encourage use of the facility thereby generating income. The authority may, however, wish to influence and control the pricing structure and times of opening. Public sector bodies on occasions remain of the view that, in order to ensure proper performance they need to have a regular opportunity of inspecting and reviewing the performance that is being carried out. Under a PFI or PPP arrangement the payment mechanism is as much an incentive regime as a penalising regime for poor performance. Because a requirement on the private sector will be to deliver an output specification, the means and manner of achieving this should be of less interest to the public sector. The key to a successful long term partnership is to ensure that the payment mechanism (which is at the heart of any public private partnership) maintains an equilibrium between incentive to perform and penalising for poor performance. Alongside the payment mechanism a flexible arrangement for dealing with changes will need to be established.
Invariably, in other sectors successful public private partnerships have benefited from larger schemes or schemes which involve more than one facility. The bundling of such services is something that the leisure and arts sector ought to be able to create thereby making schemes perhaps more attractive but certainly more viable.
These details apart, there is an undoubted future for the development of leisure and arts PPP schemes and it is evident that there will be no single means of procuring these projects either through PFI or PPP or other procurement routes. Whatever route is adopted the more time spent in planning and preparation the better the chances of success of the long term project.
David A. Hutton is a partner in the Projects practice of Bevan Ashford and is responsible for the legal aspects of the 4p?s Procurement Pack and Guidance for leisure and cultural schemes. e:david.hutton@bevanashford.co.uk
Lewisham Council has been awarded a £10.6m PFI to provide a new ?Lifestyle Centre? in Downham to replace a rundown library and baths. The development will see the integration of health and creative services along with new library and sports facilities. The direction of this integrated development has been influenced by Charles Landry's ?Lewisham Culture and Urban Development Commission? report (http://www.creative.lewisham.gov.uk).