Department of Finance Review of PPP Structures
Contents
Executive Summary 1
Public Private Partnerships in Ireland 1
Meeting the PPP Challenge in Ireland 2
Conclusions 3
I. Introduction 5
Context 5
Terms of Reference 5
Approach and Report Structure 6
II. Strategic Context 8
Introduction 8
Policy Context 9
Overview 9
National Development Plan 10
Recent Economic Developments 11
National Economic and Social Council 12
Organisation for Economic Co-operation and Development 12
Framework for Public Private Partnerships 13
Procurement Context 14
Procurement Spectrum 14
PPP Forms 15
Partnership Context 16
Statement of Principles 16
Stakeholder Consultation 17
Summary of Analysis 17
III. International Context 18
Introduction 18
International Developments 19
Organisational Structures 19
Common Barriers 20
Pilot Projects 21
Implications 23
IV. Current Position 24
Background 24
Programme Lifecycle 24
Programme Mobilisation 26
Current Structures 26
Pilot Projects 27
Key Success Factors 28
Programme Expansion 28
New Projects 28
International Benchmarking 30
New Markets, New Products 30
Key Success Factors 31
Activity Programme 31
Standardisation 36
V. Effectiveness of Existing Arrangements 38
Introduction 38
Creating Embryonic Structures 38
Stakeholder Engagement 39
Market Development 40
Ensuring Deal Flow 41
Pilot Project Delivery 41
Initial PPP Policy and Procedures 42
Awareness and Understanding across Government 43
Expansion Phase 44
Accountability 44
Delivery Structures 44
Securing Resources 44
Value for Money 45
Momentum 45
VI. Structural Considerations 46
Accountability 46
Delivery Structures 47
Securing Resources 55
Value for Money 57
Momentum 57
VII. Moving Forward 60
Definition of the Organisation Model 60
Roles and Responsibilities 64
Cabinet Committee on Infrastructure and PPP’s 64
Minister for Finance 65
Departments 65
Social Partners Public Private Informal Advisory Group (IAG) 68
Inter-departmental Group on PPPs (IDG) 68
Central PPP Unit 68
Strategic 76
Strategic – Project Sponsorship and Promotion Role 76
Executive – Project Leadership and Management Role 77
Support – Subject Matter Expert Role 78
Project Stages 78
Competence Clusters 79
Uses 79
Project Management Frameworks 80
Underpinning Competencies 81
VIII. Realising the Benefits of PPP 82
Introduction 82
Data Capture 85
Performance Measures 85
Business Plans 86
Assessment of Process Effectiveness and Views of Stakeholders 86
Context of Deal Flow and Value for Money 87
IX. Recommended Actions 88
Conclusions 88
Recommended Actions 89
Department of Finance Review of PPP Structures
Executive Summary
1 Public Private Partnerships (PPPs) are central to meeting one of the biggest challenges presently facing Ireland: overcoming the significant infrastructure deficit. Whilst growth forecasts remain high, the National Development Plan 2000 – 2006 recognises that this growth is conditional upon, inter alia, removing infrastructure bottlenecks in the economy. The Plan commits to using Public Private Partnerships as a core mechanism to deliver on the infrastructure agenda with, in our estimate, some EUR 13 billion worth of projects procured under this approach over the next five years. This is equivalent to the award of a PPP contract on average once every two weeks.
2 International experience reveals a range of benefits, which the use of Public Private Partnerships can bring. In the short term, these relate to better value for money over the lifetime of the project, more efficiency in procurement, faster project delivery and a capability to deliver more projects in a defined timeframe. These are clearly issues of major importance to Ireland at this time. Over the longer period, PPPs offer opportunities to improve the quality of public services, provide long-term value for money, transfer risk to the private sector and enhance competitiveness through the opening of competition and the better utilisation of assets.
3 At the same time Public Private Partnerships are an essential element of an emerging model of effective government, which views the State as the regulator rather than provider of certain public services. Recent major studies by the National Economic and Social Council and the Organisation for Economic Co-operation and Development point toward this approach, which can be seen developing in the European Community and elsewhere. It is clear that the application of PPPs in Ireland will extend far beyond the delivery of targets in the National Development Plan.
Public Private Partnerships in Ireland
4 To date, Government activity in Ireland to develop PPP has focused primarily on programme mobilisation. Progress has been made in some crucial areas including market development initiatives to create interest amongst national and international private sector providers, creation of a deal flow - stronger in some sectors than in others - engagement of national shareholders, establishment of embryonic management structures, development of policy and guidance in a number of important areas and initiation and progression of a range of pilot projects.
5 Progress has been made against a backdrop of a highly visible political commitment to the Public Private Partnership approach with the clear backing of the Taoiseach, the Minister for Finance and senior Ministers and the creation of the Cabinet Committee on Infrastructure and Public Private Partnerships. International experience indicates that top-level political leadership is essential to the development of PPP as a mainstream approach to public procurement.
6 In our experience, the development of a PPP programme at national level is characterised by three general phases of activity, namely mobilisation, programme expansion and programme maturity. Ireland has been effective in the mobilisation phase and is currently seeking to move quickly into a rapidly increasing programme expansion phase. The activities and challenges in each phase differ in content and emphasis and there are significant new requirements if this transition is to be met effectively and within the timescale inherent in the National Development Plan.
Meeting the PPP Challenge in Ireland
7 We have defined the key success factors in moving from mobilisation to programme expansion. These form the core of the organisational challenge for the Irish Government. The transition requirements are for clear accountability, structures which focus on delivery of projects, the securing of adequate resources, value for money in respect of the procurement and co-ordination of projects and momentum to move toward widespread involvement in PPPs.
8 Our report assesses the options by which these criteria can best be met and makes recommendations as to how the preferred model can best be implemented in practice.
9 To deliver on the transition agenda and as a basis for embedding PPPs over the longer term, we recommend that an organisational model based on a sectoral focus for project delivery is the appropriate way forward. This coincides with existing departmental structures and fits with the existing model of Government, an essential factor in ensuring early and sustained progress.
10 While the model we are recommending is based on current arrangements, it does not represent a simple expansion of existing structures. Specifically the model provides greater clarity of remit at departmental/sectoral level and at central PPP unit level in addition to a new focus on accountability for PPP as a mainstream part of the departmental strategy formalisation process. At the same time, new processes are set out whereby the central unit can get involved at project level or review adherence to PPP best practice without infringing the accountability model. We highlight the critical need for expanded resource at central unit, departmental and procurement authority levels. We also suggest frameworks for measuring effectiveness of PPP and supporting measures for those engaged in delivery.
11 In line with the sectoral focus of the recommended model, we recommend that PPP units within departments will advise their own department on the PPP dimensions of the department’s statement of strategy and act as a co-ordinating and sectoral policy body for the procurement of projects. It is recognised that differing departmental structures, procurement arrangements and project profiles means that no single form of PPP unit is appropriate in every circumstance.
12 The expanded central unit for PPPs should remain in the Department of Finance with close links to the Minister who will act as the visible PPP champion. Acting on the Minister’s behalf and with the authority of the Cabinet Committee, the central unit can perform a key role in ensuring adherence to PPP best practice, mandating national issues and resolving problems at a project level without impinging on the responsibility and accountability of departments as the deliverers of the projects. Departments should be held to account by means of the strategic planning processes established under the Strategic Management Initiative.
13 Implementing the PPP programme can only succeed if there is swift progress in securing resources to address the range of policy and procurement issues which are highlighted in our report.
14 The central unit should be resourced to a level commensurate with its role and responsibilities and the requirement for expert personnel from the private sector in relation to technical PPP issues. Assessment of specific needs at departmental level can be made following development by departments of more detailed work programmes. It will be particularly important to strengthen resource and expertise at the project procurement level. This internal resource will continue to be supported by external advisers and it will be important to drive forward the accessing of advice on a value for money basis. We suggest improving this aspect through greater use of framework agendas, extension of the standardisation agenda and a clear emphasis on the PPP philosophy and concentration on output rather than input-based specifications.
Conclusions
15 In our assessment Ireland has moved effectively through the mobilisation phase harmonising the key requirements of visible political leadership and commitment to deliver progress on market development, deal flow and stakeholder engagement. Embryonic structures have been established which have advised policy development and actioned a range of pilot projects.
16 This provides a solid platform for moving into the programme expansion phase, a transition which will present specific new challenges in clarifying accountability, achieving value for money and securing resources.
17 We suggest that an enhanced extrapolation of the current organisational structure is appropriate in moving forward. This model should be underpinned by the continued political leadership, so vital to creating and maintaining the momentum necessary for a successful PPP programme. This will be a vital context in which to address the key and emerging issue of stakeholder engagement at levels below the national arrangements, both within and outside government.
18 Our report contains a number of specific recommended actions which form the basis of the programme for moving from mobilisation to expansion. The details can be distilled as follows:
· use the current organisational model as a basis for progress into the expansion phase and also to deliver the maturity phase;
· provide leadership for the organisational structures through a continued role for the Cabinet Committee and the Ministerial championing of Public Private Partnerships;
· secure the additional resources necessary to deliver rapid expansion by strengthening the central unit in the Department of Finance, policy units in Departments and at project procurement level;
· use processes being developed under the Strategic Management Initiative to embed PPP as a procurement method across Government allowing the mechanism to play a full role in a changing environment for the delivery of public services; and
· use both political influence and Government resource to actively address engagement of stakeholders at levels below national frameworks, particularly with those directly impact at procurement level.
19 These actions will be important in moving Ireland through to the next phase of PPP development and toward realisation of the potential benefits which the PPP approach can offer. It must be noted, however, that the most significant elements of these benefits will not be yielded until the final maturity phase of PPP development.
I. Introduction
Context
1.1 The economic progress made by Ireland during the last five years has significantly exceeded the targets set in the last National Development Plan. The new National Development Plan 2000-2006 suggests that the Irish economy can continue to sustain an average annual rate of growth of five per cent in the medium term. Significantly, however, this view is based on the assumption that existing infrastructure bottlenecks and labour shortages are tackled to sustain the competitiveness of the economy can be sustained.
1.2 The National Development Plan 2000-2006 highlights that much of the infrastructure within Ireland is inadequate to meet existing needs and that it is increasingly coming under strain as a result of the rapid growth in the Irish economy. Factors such as rapid economic growth, reductions in European funding, new European legislation and the increasingly competitive global economy, all mean that the country must find faster ways of developing infrastructure, with greater efficiency and at optimum value for money. Public Private Partnerships (PPP’s) are expected to play a major role in addressing the infrastructure deficit in Ireland.
1.3 In response to this need, the public service has established administrative structures to lead, drive and co-ordinate the introduction of the Public Private Partnership approach across and in conjunction with the line departments of Government. These structures are the focus of this review.
Terms of Reference
1.4 In order to build on the significant progress made to date in adopting a PPP approach, the Department of Finance appointed PricewaterhouseCoopers in January 2001 to undertake a review of the effectiveness of the Public Private Partnership structures currently in place within government. This review builds upon the lessons learnt from the Public Private Partnership experience of other countries while at the same time reflecting the key requirements of the Irish Public Private Partnership model. The exact terms of reference for the review are:
· to assess the appropriateness and the effectiveness of existing Public Private Partnership structures in the context of the ongoing pilot project phase and the objectives for Public Private Partnerships set out in the National Development Plan of securing accelerated infrastructure delivery and value for money;
· to identify the appropriate structures required to deliver on an expanded and accelerated programme of Public Private Partnership projects and to make recommendations, if deemed necessary, on the future institutional framework for the Public Private Partnership process at a central level; and