PPP contracts appear to be performing well in relation to availability of the basic assets (e.g. schools, hospitals, roads etc). Poor availability performance would lead to significant deductions in the payments received by the contractor which creates a strong set of incentives for the contractor to ensure availability. The level of incentives here is, in part at least, a function of the level of debt in the vehicle - which determines the importance of availability performance to the banks.
We have not identified any evidence to suggest that the soft facilities management (FM) services provided under PPP are any better or worse than those provided by the public sector (either through short-term contracting out or by employing staff directly). Fundamentally the answer to the question depends on the level of service specified in the contracts and the amount that the authority pays for these services. As discussed in Section 1.3 of this report, this is an area where further, in-depth, analysis of a selection of comparator projects is likely to provide more robust evidence and conclusions on relative levels of performance.
We have not been able to draw conclusions on the value for money of the operational services provided under PPP. A key issue for further investigation is how facilities management services get re-priced against the market using benchmarks rather than market testing.
An important point in relation to soft FM in PPP contracts arising from this work relates to the interaction with hard FM and the allocation of risks. This is a particular issue if the authority itself is carrying out soft FM (for example, cleaning carpets), while the contractor carries out hard FM (for example, replacing carpets worn out through over-cleaning). These problems clearly occur in conventional procurement too, although they are rarely explicitly identified.
Where the contractor carries out both functions this risk allocation issue is overcome. However, our interviews have suggested that the authority still risks becoming embroiled in internal wrangles over responsibilities. This is particularly the case in situations in which the hard and soft FM sub-contractors are different:
• The majority of SPVs are construction-led, and there is a risk that, once the construction phase of the project is completed, and the profits relating to that phase extracted, the project will become less of a priority for the construction partner (although they will retain an interest in the SPV profits).
• In the operational phase, day to day contact is often with the soft FM sub-contractor to the SPV and there is some evidence that authorities are finding it difficult to hold the SPV and its construction sub-contractor to their ongoing responsibilities where they fall outside the remit of the on-site soft FM provider.
We believe that this finding suggests that further consideration needs to be given to the impact that contractor structure within the SPV will have on project performance - particularly as it moves to the operational phase.