Innovation on PPP

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Risk Area

One of the focus points of PRIMO in the last several years, because of its increasing relevance in strategy and policy development in the public domain. Here you find the advises of experts, given during a round table in Brussels on the 23rd of April in 2013.

Special thanks to Mr. Tristan Dhondt and Mr. Rob Ellermeijer of Ernst & Young for their kind hospitality and to Belfius Bank, BNG Bank, Risk Management Partners (RMP) and UDITE for their partnership. The meeting was chaired by ir. Jack Kruf, founding and actual President of PRIMO.

Introduction

Innovation of the PPP-contracts, modern partnership  and constructive cooperation are some topics  to stimulate new developments. It’s the challenge to find new ways in the use of the PPP-contracts within the coming period as part of the initiatives to get away from the financial crisis, according the chairman. He framed the context of this meeting: “Public organizations could give the stimulus for new projects being realized via such contracts”.

Key questions

  • How must or can we, as PRIMO Europe and UDiTE, renew the dialogue between public and private parties?
  • How do we give real meaning to the partnership?
  • What are the main topics of the PPP context?
  • What are the USP’s for PPP?
  • What are the main uncertainties to manage a PPP?

Expert observations

Wouter Slob (Secretary General UDITE and City Managers of Municipality of Medemblik):
Considerations:

  • Scarcity of money is a fact.
  • Contracts are often ended, due to the lack of managing the risks.
  • One should never waste a good crisis to start with PPP !
  • It is important to keep the project always in CONTROL.
  • Public funds are not available now, in contrast with private funds.

Conclusions:

  • Municipalities are in need for new money.
  • This could be generated by new ways of partnerships.
  • The focus will not only lie on infrastructure but also on the social domain. Here is more money involved the coming years than the in the hard-sector.

Franz Traxler (Ernst & Young)
Considerations:

  • Financing PPP’s is difficult at the moment due to the financial crises.
  • PPP’s in Europe are decreasing strongly and need an innovation.
  • Banks are very reserved to step in to a PPP contract.
  • Infrastructure-projects are always in need for PPP.
  • New sources for funding, for example pension funds + insurance companies + banks + wealth funds + European funding for developing regions are new possibilities to consider.

Conclusions:

  • Projects must have sufficient budget >> 50 M€.
  • Create a joint-venture that will last for the contracting period.
  • Transfer the property to the PPP-construct.
  • Clear view on the very long term of the project and the results.
  • Clear and SMART contract with essential specifications and ONE clear risk profile.
  • Clear structure of the PPP (concession, integrated contract, et cetera).
  • Clear view on the investment as well the division of the costs/ profits.
  • If there is a budget  >> 50 M€, al lot of parties will consider stepping in.
  • The public partner must have ONE voice !
  • Recent PPP-contracts are filled with ‘utility’-clauses to obtain extra services.
  • More pro-active guidance of the EU to the project structure and the –processes.

 

Dominique de Wilde d’Estmael (Belfius)
Considerations:

  • Various constructions  of PPP-contracts are already in place. DBF, DBFM, D(esign) B(uild) F(inance) M(aintain) O(perate) e.g. toll.
  • There are always three parties involved: the contractor(s) + the financial partners + the public body.
  • Political support during the contract period / the willingness to be a true partner.
  • Equal level in know-how between all the participants.
  • Make trust clear and explicit.
  • New projects are in the market: hospitals, prisons, toll-roads, coastal systems, navigating systems.
  • Markets and politicians have the active duty to inform each other to start PPP-projects.

Conclusions:

  • Focus on more accepted structured PPP contracts. Clear including Key Performance Indicators( KPI’s)  are relevant.
  • Share the risks on the one table of the PPP.
  • Know who is responsible for the (public/private ) risks.
  • Make sure that all the risks are well assessed.
  • PPP: is ideal when looking for specific services, is quicker, gives better access to the market, generates policy and planning working with less surprises, comes with a clear and long term contract, there’s value for money/service/well-being, financial parties are well related/connected to the public party, regular payments thus more constant and predictable flow of budgets, the volume of work (>> 50 M€) is big enough, the result(s) are explicit and clear due contracting.
  • Sharing this knowledge with the public organisations is the first step to make.

 

Edwin van Veenhuizen (BNG)
Considerations:

  • Be aware that all the parties involved get profits from the result.
  • We see that municipalities join forces to start a regional PPP-project!
  • PPP exists for a long time, over 100 years, and in different ways. BNG is the PPP-bank in service to the Public sector. Prosperous and robust.
  • PPP  is mostly seen as DBFMO-contracts, but there is more under the sun.
  • New financial institutions are stepping in from Germany, Japan, China.
  • PPP is applicable in new area’s e.g. housing-corporations, healthcare, new hospitals, schools, assets, area development, business-places, campuses, transport-plaza, theatre, water- systems, sewage-systems, public buildings.
  • The volume of the PPP-projects in growing, e.g. >> 150 M€ is becoming regular.

Conclusions:

  • Invest in the making of a unique definition of the PPP.
  • Start communicating the broad range of possibilities for solving a broad range of political interesting issues.
  • Stimulate cooperation on a regional level
  • KPI’s need to be well defined with energy-efficiency-topics. Make them smart.

 

Kim Moric (DLA Piper)
Considerations:

  • Access to the complexity of the project + procurement: use one contract and use generic terms to create freedom in realization and exploitation. Therefore knowledge must be in place. The market will step in. Make sure that the costs and risks are connected to the right place/ party.
  • Permits are complex: the authority should deliver quality permits. We have to check whether the civil servant today is aware of the risks implied in the project? Who will take the risk of a failed permit? Make sure that all the risks are well known and managed. See to it that risk assessment is done properly for each party involved. Look at the legal aspects.
  • There are also limits to PPP. Look at the changes that are possible within the contract  instead of having to write a new contract. Changes will occur!
  • On EU level they deal with changing in contracts. Each time you change a contract ‘dramatically’, it is in fact another contract, another procurement. Question is whether a change in contractor for example means that you have another contract.

Conclusions:

  • Figure out what the result(s) will be and always have an excellent knowledge of the total costs,  be sure to know the benefits for every involved party. Assess the cost as a public partner, even the cost for the contractor.
  • PPP’s are always very complex, so make sure that knowledge and experience are secured all over the PPP-period.
  • The PPP network Brussels Wallonia wrote a report for municipalities above 10.000 inh. Clue in that report: partnership is the way to go and not necessarily a DBFM. Through partnership we will evolve, innovate.

 

Marc  Teyssier d’Orfeuil (Club des PPP )
Considerations:

  • ‘Le Journal du CPPP’ is widespread in France and growing over the last 5 years.
  • CPPP is a private initiative supported by public organizations, financial institutions and private market parties.
  • PPP is applied in schools, defense, energy, sport facilities, roads, airports, prisons and growing.
  • Often in use with long time concessions.

Conclusions:

  • Pragmatic approach between partners is key for true succes.
  • Drivers for PPP are enthusiastic users, long time period of production.
  • Secure the knowledge, project management, risk management, legislation of the contract of the PPP.

 

General Additional comments
Thomas Graiff (Marsh France)

  • Use only ONE risk matrix for the PPP.
  • Compose ONE method for risk treatment.
  • Secure the knowledge of the cost of risk management.
  • Take very frequently the steps of risk identification, – prioritization, -allocation, -quantification  (with the parameters time and money.
  • Allocate the risks to the private and the public partner(s).
  • Value at risk e.g. the risk value of the whole project.
  • Use optimal capacity to manage the risks, both upside and downside.

 

Thomasz Korczynski (Lawyer and delegate PPP-knowledge centre)

  • Poland started with PPP in 2005 due to membership of EU.
  • Hard to gain confidence in PPP.
  • Worldcup football: first PPP became operational. It is on private initiative.
  • No central public organizations will step into PPP contracts due to the lack of knowledge, expertise and trust in the private parties and the financing companies.

Suggestions

There’s a lack of competencies and resources in the field of PPP. So far, the public authorities and the private parties will always need consultancy in legal, financial and  technical matters. That is a first issue. The second one has to do with this issue. Public and private parties never choose for a risk management consultancy. However, the risk is completely transversal, it occurs on a technical level, it is financially accountable and it is legally translated. We can say that the risk is the thread and the backbone of the PPP outline, but without any consultancy dedicated to it.

It could be a choice to promote this aspect while stressing on certain failures (in France for example a hospital proves a poor anticipation of risks) and successes (also in France, the University of Bretagne did put a thorough risk analysis in the heart of its exchanges during the competitive dialogue).

It is indeed important to communicate loud and clear on best practices and success stories in PPP. That is already one potential role for PRIMO Europe and Udite. The same organizations might also want to consider to collaborate with financial and other private partners in order to narrow the gap between public and private parties. In general, interested parties should get back into the PPP arena!

We can also stress the idea to explore possibilities in all services in the public domain. There are possibilities in the social sector.

A very useful partner we didn’t mention so far is Solace, being the British union of city and municipality chief executives.

PRIMO and Udite, but also other stakeholder organizations should synchronize their actions and stimulate the use of PPP’s. It should be possible to create a unique centre of knowledge.  First step is to write a report on this round table and publish its results. Specific PPP-products and services can be added to the report. The participants to the round table can evaluate the results of the specific report and the use of PPP nowadays in general.

The P of ‘Partnership’

  • We have to be clear in our statements (what are the goals, ..) : certainly the public partner has to know what it wants. See the Club PPP 10 commandments.
  • We have to learn from examples. Examples of what is proven good, not always the negative aspects.
  • We need first to create a culture of PPP.
  • The public authority needs to compare PPP thoroughly with a standard procurement before making a choice between the different project approaches.
  • HR insufficiencies need to be solved.
  • We stress the need to get good advise before the start of the project. For municipalities it’s often about a ‘once in a lifetime’ project,  making it even more important to do it good. Even having a list of good examples is not sufficient to say that you have experience on PPP.
  • For your own history in projects, look at the past and the costs you had that period of time.
  • The political factor is sometimes unknown, question is how to tackle it.
  • We don’t or very rarely see PPP occur in school or public sector education programs. How to handle that?
  • Can we promote exchange between local authorities, also on technical points?
  • If (the level) of willing + (the level) of knowledge = equal, then we have partners!
  • You can’t speak about a good start if you don’t let a bank advise you from that start.
  • Risk management can be the frame on top of all the project aspects
  • Partners should split risks and tasks.

 

The aspect of ‘Brand’

  • Work fast in order to get some things visible rapidly.
  • Work on long term and sustainable.
  • The starting point or level should still be there in 25 years.
  • An engagement to perform.
  • Leave some flexibility to the private partner (design), by , f.e. not being too detailed in the project requirements. We see that that is the current culture though. By working in clausules, we can count in possible changes.
  • Transparency as an argument! Why? There are more partners involved.
  • Imago: PPP is still and always be perceived as privatization.
  • Private and public long term partnership is something strong (good argument).
  • Ways of alternative financing (with civilians)? Contra: it makes you miss some relevant experience the banks have on advising, innovation  = still added value.

Conclusions

Public Private Partnerships are:

  • of interest if there is a volume of work, interesting for the private parties to step in,
  • realistic when it’s about (public) infrastructure,
  • succesful if the timetable of the contract takes at least 20 years. 30 years and more is also applicable in Europe,
  • subject to changes in legal and governmental developments,
  • subject to changes of the actual parties during the contract’s timetable,
  • subject to (partial) changes in the contract that result into legal confrontations,
  • subject to how the partnership is executed,
  • knowledge must be secured and spread actively,
  • subject of which interaction must be studied constantly.

 

Participants

participants (in order of appearance)

Ir. Jack Kruf (NL) (jack.kruf@primo-europe.eu)
Founding and actual President PRIMO Europe. Former City Secretary Roosendaal (NL), Senior Advisor WagenaarHoes (NL), Designer and Chief Editor ‘Governance Connect’.

Tom Wustenberghs (BEL) (tom.wustenberghs@primo-europe.eu)
President PRIMO Vlaanderen, Treasurer and board member PRIMO Europe, General Director IVCA (Interlocal Crematory Union Antwerp)

Eugène Meuleman (NL) (Eugene.meuleman@primonederland.nl)  
President PRIMO Nederland, Board member PRIMO Europe, Secretary-General Director Hoogheemraadschap de Stichtse Rijnlanden (waterboard management), Board member Union of Waterboards Netherlands

Gérard Combe (FR) (gcombe@rhonealpes.fr
President PRIMO France, Board member PRIMO Europe, Founder Udite, Délégué Général Conseil Régional Rhône-Alpes

Ed Mallens (NL) (ed.mallens@primo-europe.eu
Senior Advisor PRIMO Europe, Senior Advisor & Trainer Public Risk management and governance,  Expert in normalization and standardization ISO/CEN/NEN.

Eric Frank (NL) (eric.frank@primonederland.nl
Director PRIMO Nederland, Board member at Maatschappij (Society for Trade and Commerce, Amsterdam)

Karl Vanderplaetse (BEL) (karl.vanderplaetse@primo-europe.eu
Senior Advisor and Projectmanager PRIMO Europe, board member PRIMO Vlaanderen.

Tristan Dhondt (BEL) – tristan.dhondt@be.ey.com (not present)
Partner at Ernst&Young Belgium, Real Estate & Transaction Advisory Services – PPP, Project Finance.

Franz Traxler (BEL) – franz.traxler@be.ey.com 
Senior Manager at Ernst&Young, Transaction Advisory Services, ,financing and investment strategies, financial modeling, project finance, PPP, EU/EIB funding

Edwin van Veenhuizen (NL) – edwin.vanveenhuizen@bng.nl 
Business Manager Structured Financing at BNG, formerly Specialist Public Finance Infrastructure at BNG (Bank Dutch Municipalities)

Dominique de Wilde d’Estmael (BEL) – dominique.dewilde@belfius.be 
Head of Project Finance Infrastructure at Belfius Bank, partner for different Belgian projects.

Jean Paul Schaaij (NL) – jeanpaul.schaaij@rws.nl (not present)
Director PPP-support at the Dutch Ministry of Infrastructure and Environment, supporting all (semi-) public ordering parties realizing projects using PPP, working as a counter for all market parties bringing in private initiatives for public investments

Kim Moric (BEL) – kim.moric@dlapiper.com 
Lawyer and Partner at DLA Piper, PPP-expert and president PPP network (regions of Brussels and Wallonia, Belgium), editing a report on PPP-development in those regions.

Marc Teyssier d’Orfeuil (FR) – celine.prat@club-ppp.org 
Délégué Général du Club des PPP (Paris). Functions as a knowledge network and organises workshops and regional meetings on PPP, publishes a.o. ‘Le Journal du Club des PPP’. Large number of partners from the private sector implied.

Pierre Delorge (FR) – pierre.delorge@club-ppp.org 
Consultant at the Club des PPP (Paris). On Club des PPP, see above.

Thomas Graiff (FR) – thomas.graiff@marsh.com 
Responsible for Public Sector France and Project leader PPP, Department Public Services and Enterprises, at Marsh & McLennan France. Marsh (insurance brokers and risk managers) is partner of PRIMO France.

Tomasz Korczynski (POL) – tomasz.korczynski@eversheds.pl 
Lawyer and Partner at Wierzbowski Eversheds, Warsaw, Polska. PPP-practice leader at that office and at the PPP knowledge center Poland. PPP-advisor Polish Parliament and the Capital city of Warsaw. Author, conference speaker and lecturer at the Warsaw School of Economics.

Stéphane Duhr (FR) – Stephane.duhr@bif.com 
Director at Barclays Infrastructure Funds (Paris), Venture Capital and Private Equity. Continental Europe and the UK. Seminar leader on PPP at the IEP Paris.

Jaap Gelok (NL) – ejgelok@borsele.nl (not present)
Mayor at Municipality of Borsele in which the Nuclear Plant is based (NL).

Isabelle Vanachter (BEL)  isabelle.vanachter@vespa.antwerpen.be (present morning)
Advisor at VESPA, the autonomous agency for real estate and city projects, City of Antwerp (494.000) (BE). VESPA works with public and private partners on real estate and city development.

Henk Berends (NL)  – henk.berends@nijmegen.nl (not present)
Regional Manager at City Development Company, City of Nijmegen (165.000), NL. Developing project Waalsprong, a newly constructed part of the city of Nijmegen

Staf Mariën (BEL) – staf.marien@ocmwgenk.be 
Secretary (General Director) Public Center Social Welfare, City of Genk (65.000). Board member PCSW-directors. Author and editor PCSW magazine. Advisor PRIMO Vlaanderen.

Nanne Kramer (NL) – n.kramer@dewolden.nl (not present)
Secretary (Director) at Municipality of De Wolden (24.000) (NL). Focuses on collaboration, innovation, change management and societal engagement.

Peter Savelberg (NL/BEL) – peter.savelberg@planet.nl (not present)
Spatial & Economic innovations (city-, area- & country development) at TristateCity. Strategic and creative director at Flying Elephants. Chairman and concept Director at Dutchina Thinktank. Director/Owner at PS Real Estate Concepts. Advisor to a.o. Municipalities of Tilburg and Hilvarenbeek.

Wouter Slob (NL) – wouter.slob@medemblik.nl 
Secretary (Director) at Municipality of Medemblik (43.000) (NL). Secretary-General Udite (Union of EU Local Chief Executives).

Rien Lammertink (NL) – info@lincmanagement.nl (not present)
Executive interim manager, manager collaboration and fusion processes, organization advisor, troubleshooter & coach. Advisor at LINCmanagement, Welfare organization Vierstroom, Cognitum.

Marie-Gemma Dequae (BEL) – (mariegemma.dequae@gmail.com)  (present morning)
Board member Belfius bank, chair of the scientific council or PRIMO Europe. Board member of BELRIM, IRM, AIB Vincotte. Researcher in risk management.