Public and Private Partnership: Barnhill School - Dissertation Example

Public and Private Partnership – Barnhill school, Hillingdon In the recent years there has been a massive growth in the application of Public-PrivatePartnership (PPP) where contracting is led out to the private firms for the provision of public services, thus blending in the private sector resources and skills with the public sector. This blending of the resources is rather a complex architecture and requires a detailed understanding of the PPP design and implementation features. (Barrot, 2004). This complex architecture of the PPP also establishes a risk sharing relationship between both the public and the private sector thus working upon some agreed upon outcomes. In the UK, PPPs have been used in various public sectors for the roads, IT services, hospitals, education etc. the most common form of PPP that was launched in the UK in the year 1992 includes the Private Finance Initiatives (PFI) which is contrary to the traditional model where the public sector bought assets from the private sector firms and had rights over it, under the PFI, the purchase of service is limited to a fixed number of period, where the supplier takes the responsibility of all the project phases. Although this approach provides an important insight for analysis purposes however it has not been given much exposure (Bennett & Iossa). Although UK had recognized the potential of PPP financing structure however it gained recognition in the year 2003 by the European Commission and more initiatives were taken in order to develop the infrastructure. In the European Union, out of the member countries UK has much well-developed PPP architectures and programs and the EU considers PPP “an essential instrument to competitiveness and economic development in the whole EU territory” (Prodi, 2003) The popularity of the PPPs has been likely to increase over the years as there are a greater number of such partnerships between the private and the public sector, where the public sector’s limited budgets persists the adaption of such a partnership and the private sector envisages opportunities of making profits through such partnerships. However this partnership demands a close scrutiny in order to have a complete analysis of the outcomes that are required. The possibilities of the partnership between the two sectors is illustrated with the (Figure 1) Figure 1 Public-Private Partnership Spectrum (Loxley, 1999) As the figure illustrates at one extreme the public sector can fully take charge and responsibility of all the aspects of the service delivery including the infrastructure, whereas the private sector can also take up these responsibilities. However there is a variation relative to the amount of responsibilities taken up by both the sectors. In the ideal situation the PPPs help in capitalizing the strengths of the parties from both the sectors, so as to make the partnership mutually beneficial (Loxley, 1999) Background to the Barnhill School Project A new school needed to be established in the Borough of Hillingdon by the Hillingdon Borough Council in order to provide additional space within the borough for educating 1450 school children, between the ages of 11 and 18 years (Ryan, 2004). The school required facilities that included assembly hall, dining area, catering facility, library, IT suite, sports hall a stimulating indoor environment, hence a complete construction of the building on the existing site. For this to take place Private Finance Initiative (PFI) was used as the route of procurement in order to make use of the public money in a better and effective way. The government policies were taken into consideration for the project that also required it to be environmentally, economically and socially sustainable (Garwood, Logan, Mills, & Willoughby). The Stakeholders to the project The PFI project (Broadbent & Laughlin, 1998) has two fundamental requirements that it must demonstrate the value for money and also there should be transfer of risk from the public sector to the private sector. As for the value of money, it can be compared to the traditional approach in order to evaluate that how much the project would have cost the public sector through the traditional procurement procedure. The transferring of risk should be allocated keeping in view that would be better able to manage it. Like the other PFI project, an education based PFI project in education also is required to show the value for money and the risk should be transferred to the private sector. The risk transferring factor is usually is established from the costing of the project life cycle, the third party’s income, the risk sharing profile and also on the design and construction (Livingstone & Munro, 1997).It is also important that the local authority must be able to afford the service payments over the life of the project (McCabe, McKendrick, & Keenan, 2001). Private Partner – Jarvis Corporation Jarvis Corporation is a multi-disciplinary organization that specializes in the PPP/PFI. It provides services in the design, construction, facilities management and project finance with the aim to “set the pace in its approach, across the full spectrum of corporate responsibility: from health, safety and environmental factors, to social and community issues” (jarvis-uk.com). Its aim is driven by its commitment to be the leading company by creating a sustainable relationship with all its stakeholders while developing a structured approach to environmental and social responsibilities (Ryan, 2004) Public Partner – Barnhill School, Hillingdon Barnhill School is a specialty school for sports and Business College for the students aged 11-18. The school started its operations in the year 1999 and now serves as a dynamic and innovative place of learning with its state of the art facilities and infrastructure. It is also credited as Outstanding for its caring environment by ofsted in the year 2008 (Home: Barnhill Community High) Project Overview The process of PFI is a set of established steps that need to be followed in order to reach a fruitful partnership between both the parties. The first step involves the clarification of the objectives in order to identify the business needs that are equally understood by both the parties so as to work on a common objective. Following that the options are assessed and the outline of the business case is established. The third phase is to invite the bids by issuing of the contract notice; a pre-qualification of the bidders is done followed by the short listing of the bidders. The business case is once again refined in terms of the business requirements and needs. Finally the bidder is selected and the contract is handed over. The financial arrangements are done and finally the project is managed over the period decided (Allen, 2001) The school required a floor area of 12,000 square meters in order to accommodate student strength of 1450. The project was initiated under the PFI agreement between the Hillingdon Borough Council and the consortium that was led by the Jarvis Construction UK. The design of the building required five facilities that would be linked thus giving an interconnection setup to the school. The agreement with the PFI provider would be maintained for 25 years (Ryan, 2004). In this project time had been the biggest constraint, and because of this the procurement process began in the June 2000, when the bid was submitted and the closing was due in October 2000. The procurement process gave the bidders a maximum of 12 weeks to respond to the bid, a total of 20 bids were received out of which 4 were shortlisted for the final stage (Garwood, Logan, Mills, & Willoughby). Project Evaluation In the public-private partnership, the finance that is provided by the private consortium for public services may leads to a number of issues that the individual projects must evaluate so as to make the partnership beneficial (Hall, 1998) for this purpose measurement of the outputs that are required from the project must be done accurately because the public services are generally multi-dimensional hence the quality is sometimes difficult to measure therefore a scrutinized analysis must be done. The introduction of the private incentives into the public sector requires well written terms of contract thus to build a trust relationship with the contractor. A comparative analysis should be done in order to evaluate the cost had the project been done in the public sector, as the private firm has different costs associated with it hence the project cost is likely to be higher than that of the public sector (G.Pollitt, 2000) The evaluation of this partnership revealed by the project team of Barnhill that sustainability is the most positive attribute of this partnership as it led to an advantage over the other schemes that were offered by the competitors. It was with this effort that the school achieved the DfEE SEAM rating and was nominated for the “School of the Future”. As it is proposed that the outcomes should be briefed with the clients in order to achieve sustainable outcomes, in the case of barnhill such offerings were not available however the school managed to achieve the sustainable outcome on its own. The sustainability factor should be included in the inception of the project so that the efforts are made to achieve that objective. In this case the design team set the objectives voluntarily which included the energy targets, water use and recycling, waste issues and the transportation issues. The life cycle costing in the PFI is also of the paramount importance and needs to brief in order to specify the targets and the tenders can be compared accordingly. In this case there was a short time span for the calling of tenders and selection of the contractor, thus it had an impact on the construction phases of the project as it had to faced difficulty in the obtaining of certain materials which caused delays in the project overall. Time scale needs to be realistic whenever a good design is required while incorporating the sustainability objective so as to receive a better outcome in the future (Garwood, Logan, Mills, & Willoughby). Challenges The PFI initiative has been under strict scrutiny from its opponents however in the case of UK it is completely the opposite, the procurement process in the UK has been shifted from the traditional procurement method to the PFI methods. However there are certain challenges posed to the PFI method. According to some recent figures, it is shown that out of 700 PFI infrastructure projects procured, 12% of those projects were delivered late (Source: HM Treasury) and 22% projects were over budgeted (Source: National Audit Office). These figures suggest that although PFI maybe the major contributor in the infrastructure development in the emerging economies however the risks that are associated with it must be identified. In the project infancy stage diligence is required from the clients end in order to shortlist and appoints appropriate management expertise and using a robust pre-qualification procedure. This will allow all the parties involved to apply their expertise to develop the project and to reduce the risks involved in the project (MORLEY & WAINSCOTT, 2006) Although there are certain challenges associated with the PFI methodology, however there are positive aspects to it as well. It is with the PFIs that the financial constraints have been lifted from the public sector, as the attraction of the private sector in it has been able to gain capital spending from this sector. The PFI spending by the private sector exceeds that of the government and it is due to these PFIs that several large projects have come into existence. As the private sector take the financial responsibility these projects have been possible in the budget, however had they been using the traditional procurement methods, the budgets would have exceeded to a much greater extent. The private sectors involvement in the PFI is quite creditable, as more private contractors have come forward, thus bringing new ideas, technology to UK. A large number of these private contractors include the foreign firms. There has also been innovation in the private contracts which have led to innovation in the types of contracts and physical assets issued (G.Pollitt, 2000). In the school setup the benefits include the easing of the burdens on the school management as the services are rendered by the contractor moreover the payments are not made by the public sector until the commencement of the service, therefore the financial burdens are also levied off from the financial sector. The private contractor also brings certain other benefits to the contract from which the governing body, the school and the Local education authority (LEA) can benefit. These benefits include the commercial, financial and technical expertise of the private contractor. The major factor, the risk can be managed by wisely allocating it to the parties. The partnership arrangement’s benefits are seen in terms of the increased use of the school and new facilities by the local community, specialized institutions are established such as specialist colleges and also the community takes pride and ownership of the new facility and the environment. At the end of the contract period (normally 25 years) the school is returned to the LEA which at that time is in the prime condition due to the services rendered by the private contractor (Irving & Hosken) The above stated arguments clarify the important role the PFI plays in the improvement of the public services and infrastructure projects, however like many procurement initiatives it has its certain limitations as well and thus this limits it from being a total success. Some problems that are reported on the PFI procurements include (Bing, 2005), that the costs associated with tendering of the PFI projects is generally high, as the private contractors includes all the costs that it has to bear in the contract. The negotiations involved in the project are complex and lengthy. The delays in the innovation, design and constructions are also experienced in case the contractor runs out of resources. Disparity between the public and private sector in terms of differences in modes of operations, decision making and accountability can also be a source of hindrance. The role of the government also plays an important role in this process (Alshawi, 2009) (G.Pollitt, 2000) also states certain negatives associated with the PFI method, that the procedure involved can be very lengthy as it entails 2 years for the initial assessment to the signing of the contract as the procedures and stages involved are quite complex. A survey conducted by the Royal Institute Chartered Surveyors, 1998 concluded that the PFI methodology is time consuming, overly bureaucratic, speculative and a high risk is passed on to the private sector. The bidding costs are generally high and are substantial amounts for each bidder. (Kerr, 1998) states that the bid amount for an initial bid may cost £0.5m per bidder however the final cost can go up to a total of £3m. Similarly (Wilkins, 1998)estimates that the cost of tender for all the PFI projects in the year 1998 totaled to a sum of £500m thus reflecting the cost associated with the signing of contracts. One another major flaw is that the bidders are generally small in number who bid for a certain project as there is lack of legal advisors, financial advisors, thus the bidders in the project is very limited. Also there is a risk of over runs in the project due to the bidding cost involved. Conclusion The initiative of the PFI methods in the UK since 1979 have shown many positive outcomes and substantial changes in terms of transfer of control of finances, building operations as well as the management of the investment projects from the public to the private sector. However despite the benefits this procurement method has over the other traditional procurement methods still it is suggested that the complexities involved in the documentation and the overall process needs to be scrutinized at the initiation stage so that sustainability can be achieved. Like in the case of Barnhill School and Jarvis partnership the time constraint turned out be a major factor in the project commencement. Similarly the costs associated with the PFI and the sharing of burdens and risks enables the public sector authority to make a choice between the different outsourcing strategies available. The education sector plays an important role the economy and majorly the economic growth today depends on the PPP and PFI projects (New Economy, 2000). PPP/PFI initiatives improve the conditions of the schools, help in the upgrading of its status to specialty schools, provides better infrastructure and thus allows to keep a balance of the public and private sector involvement thus not to risk education, but to increase the standard of education. In the educations sector the effects of the PPP/PFI initiatives cannot be judged as it takes 20-25 years for a project to be matured and finished. However, in the short run it is witnessed that these projects have been successful, as the Barnhill school has managed to gain the crediting of “A” in terms of its environment, The infrastructure is also maintained over the years. The partnership of the public-private sector needs to be seen over the years in order to judge whether this partnership can continue in the long run as well. 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