The proportion of projects delivered on time shows an improvement over historical experience in traditional procurement but there were more delays than reported in the NAO's 2003 study. |
In the NAO's 2003 study, 'PFI: Construction Performance', 76 percent of the projects surveyed were ready to use on time or early and 92 percent were delivered within 2 months of the target date, an improvement over historical experience12. In our survey, of the 40 projects where data for the construction phase was provided, 28 (70 percent) were delivered on time or early and a further 3 were delayed by 2 months or less.
Timely construction completion is particularly important in the schools sector, where the target date is generally arranged to ensure that the new asset is ready at the start of a school term. In the case of 7 of the 9 schools PPP projects that responded to the survey, all of the assets were available for use on time. In relation to the 2 projects where there was a delay, one was due to the authority's change of requirements. In the case of the other project, half of the schools in the portfolio had been completed by the required date and the remainder were completed within three months.
Of the 9 waste water projects included in the survey, 3 were delivered late and another, although delivered on time, did not initially meet its performance test requirements. Some of the longest delays (7 and 8 months) were observed in this sector. In the majority of cases the facilities were working to some extent during the delay period.
In all 12 cases where there was a delay in the asset being available for use (other than where the delay was due to an authority change of requirements), the authority was able to delay payment of the whole or part of the unitary charge and, in a few cases, claim compensation for the delay. (In the water sector bonuses were paid in 3 cases for early completion.)
Although, under PPP, the public sector does not normally pay for assets until they are ready for use, it is still important that agreed delivery dates are met, both to fit in with any plans for transition from previous assets, and so that the economic benefits of the project are realised as envisaged in the business case. While the results of our survey demonstrate an improvement over conventional procurement, it is disappointing that the proportion of projects delivered on time in Scotland is lower than reported in the NAO's study. Despite this, and although around a third of projects were late, the contract incentives to deliver on time do appear to be working, with the mean delay only 5 months, and the maximum delay 11 months, which compares favourably with overruns in traditionally procured projects.
It is not clear though that these improvements are unique to PPP projects, and it might be possible to achieve similar results using Design and Build contracts, if upfront specifications were developed to the same level as in PPP projects and an element of the payment were linked to timely completion. There might also be greater scope to include liquidated damages for delays, which are standard in Design and Build contracts, in PPP projects.
Resolution of minor snagging caused frustration for authorities. |
In interviews, several respondents discussed frustrations over minor snagging, which had not prevented the asset being deemed available for use but nevertheless needed to be resolved. If minor snags had not been resolved before the SPV's construction contractor had left the site, then authorities found that it was difficult and time-consuming to get them remedied. We understand that there are contractual remedies, in current contracts at least, which (i) allow the authority to serve a notice on the contractor requiring the works to be carried out; and (ii) after a certain period, if the works are still outstanding, enable the authority to make payment deductions and / or carry out the works itself and claim costs from the contractor. Nevertheless, given the number of authorities that raised this issue, we think that it would be useful to review whether the latest contracts provide appropriate incentives to resolve snagging issues.
Recommendation: Further research should be carried out to review whether the contractual remedies relating to snagging provide appropriate incentives to contractors to resolve these issues.
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12 The NAO 2001 'Modernising Construction' report found that some 70 percent of projects were delivered late.