Deal or No Deal

HOST

Sonia Mcrobb

Senior Associate

sonia.mcrobb@uk.rlb.com

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Have Public Finance Initiative (PFI) and Public Private Partnership (PPP) Projects just suffered from bad PR? Did rigid contracts, unclear measurement of social value and misunderstood outcomes give them an unfair reputation? And why do we export the model globally yet hesitate to trust it here at home?

These were just some of the questions we discussed at RLB’s UKREiiF’s Rethinking PPPs for a new era: Deal or No Deal - which I had the pleasure of chairing a few months ago in Leeds.

A Quick Rewind

PPP roots go back to the 1970s, with the government seeking public sector efficiency and innovation. It wasn’t until the 1990s, that we saw the emergence of the “build now, pay later” strategy with the Private Finance Initiative, which delivered new public sector assets e.g. schools, hospitals, prisons and roads. But inflexible contracts, high costs and lack of transparency fuelled public criticism. However, what we forget, is that they did allow us to build new assets.

PFIs were abolished in 2018, yet with today’s squeezed public finances, PPPs are once again topical.

So, was it really that bad?

So, did PFIs just have a PR problem or were they fundamentally flawed?

While the panel acknowledged that handing long-term control of a public asset to a private company remains controversial, many projects did exactly what they promised - delivered vital community assets and services. Others, like many of the LIFT projects, were designed with a social outcome at their core rather than just the delivery of an asset – for example, a community health centre rather than a hospital.

Today's State of Play

Where are we today, have contracts got better, and do we have frameworks in place that protect public value? The consensus was yes – but there’s more to do. The panel discussed how some of today’s contracts have breaks in their contracts for independent audits and have strong public representation on project boards. However, there is still a need for modern PPPs to improve this governance, be transparent in their contracts and active, long-term relationship management.

Relationships are key to success. Contracts lasting 25-30 years were compared to a marriage – understanding who you are wedding yourself to, what each partner needs from the relationship and how you grow together, learning lessons on the way. Having the right management in place to run the project, with knowledge woven into the project on all sides throughout the length of the relationship was essential.

PPPs' Role in Powering Future Growth

Our panel agreed: Public-private collaboration can drive regeneration – especially outside of the Golden Triangle of London, Cambridge and Oxford. However, modern PPPs need to have community outcomes embedded into their fabric. Metro mayors, devolution stakeholders and those involved in wider place regeneration projects need to look at these partnerships as ways of improving social mobility, levelling up and boosting local economies, not just as a way to fund.

The biggest challenges for the future were public perception and ensuring that we learn the mistakes from the past, there was also some thinking that public-private partnerships are not the silver bullet.

Investors on the panel made the point that they consider the partnerships they are involved in to be for the long term; and are about developing and managing an asset for the benefit of public services. In some cases, the value measured for PFI schemes did not recognise this outcome-based value but purely measured the cost of the schemes versus the overall benefits. Speaking from the audience, Jo Barnes, from the Sewell Group, reminded us that social value was always part of the public sector ask for the earlier models – but often lacked clear measurement.

Global adoption of PPPs

Ironically, the discussion on international projects highlighted strengths in the UK models such as investability and the importance these models have played. Whilst the UK had pioneered PPP frameworks, it was felt that other countries are now leading the way on innovation and impact. International infrastructure project examples showed how partners can build long-term relationships with local communities, from supporting local fisherman to projects that reinvest back into schools.

MIM: The Welsh Way Forward

It would have been remiss to have a conversation about PPPs without talking about the Mutual Investment Models (MIM) in Wales, where the contract includes social value measurement such as local job creation, training, apprenticeships and community initiatives, with financial penalties for non-delivery. It’s a clear blueprint for future PPPs to follow, and one that took its learnings from the iterations of the LIFT schemes. Without the public support for these projects, it’s clear this will undermine key value drivers.

What do we need for future models of best practice?

Best practice means picking the right partners, clear goals, open books and robust data – all the way from first contract to hand back. Utilising standardisation – learning what works and replicating it – alongside robust data to measure value against service quality and cost is also essential.