Stephen Dance, Partnerships UK

In less stable markets, good transactions are harder to achieve. So now more than ever, it is time to strengthen the capability of the public sector to become an increasingly effective participant in the development, negotiation and subsequent operation of PPP contracts.

Today, everyone is looking for a sharper deal. 'More for less' to the taxpayer can often translate into 'less for more' to the contractor. Unsurprisingly, contractors are unhappy with this vision of the future – they too have mouths to feed and shareholders to satisfy – so, unless we are smart about it, we can expect to see the spirit of partnership between public and private sectors coming under increased pressure in the next few years.

The challenge, of course, is to find new ways of delivering the required outcomes more effectively – thereby achieving value for money within the constraints of affordability and generating acceptable returns to the contractor. Reconciling these interests within the terms of a PPP contract will test the commercial skills on both sides.

However, there are things that can be done:
• Firstly, the development of more robust processes within the public sector to test the mechanisms for delivery of new services/infrastructure policies before intensive engagement with the market;
• Secondly, the management of competitions by public authorities in ways that minimise the amount of wasted resources consumed during the bidding phase – all of which has to be paid for somewhere; and
• Thirdly, a genuine willingness by private sector contractors to find new solutions, through innovation and integration.

The solutions are required in a time when both public and private sectors face increased scrutiny of decisions; client authorities are reviewing their requirements to identify real priorities, for financiers the days of a credit committee rubber stamp (if they ever existed) are long gone, and equity participants now see risk where previously there was opportunity.

The 2020 Public Services Trust paper on Better Outcomes, launched on 1st December, points towards a way in which the public sector can commission based on outcomes – payment by results. Later in this issue of The PPP Journal you can read about some of the other things that are happening or have been proposed to address these issues, such as focusing a 'whole area' investment through Total Place and tailoring solutions to local issues, for example, in the social housing markets.

One thing that these innovative approaches to delivery have in common is the need for effective contracting. This, in turn, means ensuring that the public sector teams that are engaged in the development, procurement and subsequent management of PPP contracts have the capability and resource, both internally and externally supplied, within an appropriate governance structure to secure the best terms.

Providing the public sector with the capability and resources to do the job on behalf of the taxpayer is a long-standing issue, confirmed most recently by the National Audit Office in its report on commercial skills in complex government projects. As the commercial environment becomes tougher, that requirement – both for the development of in-house skills and proper deployment of advisers – becomes more acute. The current tendency for public sector organisations to impose moratoria on the engagement of external assistance is understandable, and in a period when the future of some projects is uncertain, probably prudent. But as the uncertainty clears and the priorities emerge, it is more important than ever that the public sector can deploy commercial skills that are at least equal to those available to their private sector counterparts.