The second set of benefits refers to the additional quality of infrastructure assets and related services delivered in PPP projects10. Unlike Accelerated Delivery (which results in bringing forward NFBs), Enhanced Delivery benefits are independent of when the infrastructure is delivered. In other words, Enhanced Delivery refers to a higher level of service quality from a given infrastructure asset.
Enhanced Delivery may be due to at least three structural features of PPPs:
∙ Applied lifecycle approach and assured maintenance: the contractual commitment to maintenance results in better asset conditions and higher residual values11;
∙ High service quality: developing contractual commitments to defined service standards results in both better designed and higher quality service delivery;
∙ Clearly defined governance structure: the benefits associated with increased external scrutiny/due diligence by lenders and investors, better management of service delivery and the public sector concentrating on its core tasks.
The incentive to provide innovative solutions in the delivery of public services is an important benefit of PPPs and has been a VfM driver in several PPP programmes. This may come in the form of innovation in infrastructure design and/or the delivery form of the service12. The fact that the public sector specifies the outputs it wants, not how to deliver the service (inputs) should facilitate innovation13.
PPPs that promote innovative design generate an important economic and social value. A well-designed school for instance may improve the educational attainment of students. A well-designed hospital could help patients to get better more quickly. Given that PPPs are long-term contracts and PPP companies have strong incentives to focus on the lifetime of an asset, one can expect sizeable returns to design innovation. Furthermore, the benefits of good design in a project are not project specific but can be replicated in the future.
Doing something different, or innovative, inevitably involves risk. There is a natural tendency to avoid taking such risks unless there is an incentive to do otherwise. The public sector typically prefers to use what has worked in the past or what a previously selected solution as this involves less risk. For the private partner in a PPP, including innovation in a bid will frequently make the difference between securing or losing a long-term contract. In this case, innovation is heavily incentivised. PPPs are therefore more likely to generate new ways of delivering public services and ensuring VfM.
Box 3 presents some recent evidence of Enhanced Delivery associated with PPPs.
Box 3 - Enhanced Delivery: evidence from recent studies
| Two recent studies published by KPMG indicate that PPPs can enhance delivery in both the education and health sectors. Whilst these studies do not explain how PPPs have this effect, evidence of potential effects is clearly set out. Education14 The headline conclusions of the KPMG report are the following: • Investment in schools leads to improvements in educational attainment; • Schools procured via PPP achieve improved educational outcomes more quickly than those procured conventionally; • Amongst the schools renewed through a PPP, educational attainment improved at a rate that was 20% faster than in renewed conventionally financed schools (This result is a description of the performance of a data set including every state secondary school in England. However, the result does not pass conventional tests of statistical significance and therefore cannot be used as reliable indicator of future performance); • In the subset of renewed schools that were fully rebuilt via a PPP, educational attainment improved at a rate that was over 90% faster than in fully rebuilt conventionally financed schools (This result does pass conventional tests of statistical significance and there is a 90% chance that this relationship would apply in the future). Health15 The headline conclusions of the KPMG report are the following: • PFI hospitals have better patient environmental ratings than conventionally procured hospitals of a comparable age, in which facilities management services are performed either in-house or contracted out16; • PFI hospitals have higher cleanliness scores than non-PFI hospitals of comparable age. Interestingly, in terms of financial cost comparisons the study found that the cost of cleaning PFI hospitals is on average similar to that of cleaning non-PFI hospitals, but it is less variable. |
The Generic Benefits Matrix 2 below helps identify some of the potential additional NFBs associated with Enhanced Delivery.
Generic Benefits Matrix 2 - Enhanced Delivery
| PPP feature | Sub-category | Examples | Usually included in PSC test? | Potential NFBs | Can they be quantified? | Can they be valued? | Potential approaches |
| Life cycle approach to asset and maintenance | On-going commitment to maintenance, leading to better asset condition and higher residual economic value | On time investment in road maintenance leads to reductions in damage to vehicles and reduction in costs of upgrading road at later stage | Maintenance costs of PPP option included in PSC test. Not included are the risks and costs associated with public sector under-investing in maintenance | Yes | Partially | Partially | 1. Residual value is clearly measurable based on elapsed projects. 2. Backlog maintenance deficit levels can be measured by reporting on infrastructure quality and valuing the cost of remediation. 3. User surveys to estimate social costs of under-investment in infrastructure maintenance. |
| Service quality | Better defined /controlled project scope Stronger customer orientation17 | PPP contract discipline places some limits on over-sizing/ gold plating Better and faster response to user needs | No | Yes | Difficult |
|
|
|
Standards specified in PSC, but difference in quality between PPP and Public sector option is probably under-estimated | Yes | Yes | Difficult | User satisfaction can be quantified via survey | |||
| Improved output from defined service standards, better design, etc. | In hospitals, for example, lower hospital infection rates 18 | Again, may be priced in PSC at advanced stage, but possibility of difference with public sector option being under-estimated | Yes | Yes | Difficult | Reliance on publication of outputs which can be tested statistically. | |
| In schools, for example, better academic achievements by students19 | No | Yes | Yes | Difficult | In case of schools and training, econometric analysis of grade obtained, length of time at school, etc. | ||
| In roads, for example, faster accident / snow / ice clearance on motorways | No | Yes | Estimates may be possible | Existing method for valuing accident/ delay reduction |
| ||
| Governance | Due diligence | Poorly planned projects may be identified and discarded | Unlikely | Yes - better projects are built | Difficult |
|
|
| Public sector focuses on output and core business | Less time spent on administrative issues | No | Yes -teachers, doctors, managers and others can concentrate on their core business. | Yes | Yes | Surveys (e.g. amount of time saved from resolving administrative issues - time saving can then be priced based on time saved x value of time) | |
| Public sector not well equipped to manage the integration of complex contracts | Risk of weak contract management | No | Yes - problems are resolved more quickly, users get better service and public sector free to manage other duties. | Yes |
| Surveys (e.g. number of problems that occurred and length of time to resolve these problems) |
___________________________________________________________________________
10 These benefits are enjoyed by the users of the asset or the related services. There may be a shift in the number of users as a result of the improved quality. Better services may raise the demand for the asset/service, and these new users would also benefit from Enhanced Delivery.
11 For conventionally procured projects, maintenance of the asset often has to compete with other "priorities" for public sector spending and is frequently one of the first factors to be reduced.
12 E.R.Yescombe "Public Private Partnerships: Principles of Policy and Finance", 2007 p. 23.
13 Several studies highlight innovation in PPPs. For example, a CEPA report on 'Public Private Partnerships in Scotland: Evaluation of Performance' (2005) found "energy efficient designs driven by the transferred risk around energy performance and, in the schools and further education sectors, flexible layouts, and innovative location of and access to community facilities…and 'considerable evidence of technical innovation in the water sector with the introduction of techniques new to Scotland". An NAO report entitled, 'The Operational Performance of PFI Prisons' (2003) found that: "PFI has brought innovation, mainly in the recruitment and deployment of staff and use of new technology" and "promoting a more constructive staff/prisoner relationship". For examples in hospitals and other sectors, see CBI, 'Building on Success: The Way forward for PFI' (2007).
14 KPMG, Infrastructure Spotlight Report: Investment in school facilities and PFI - do they play a role in educational outcomes? (2008). The study relies on Government statistics on individual school educational outcomes in England measured by performance in external examinations at age 16 between 1994 to 2006. It has a population size of 2,771 public sector secondary schools in England of which 2,614 had not been renewed and 157 had been renewed.
15 KPMG and University College London, Operating Healthcare Infrastructure: Analysing the Evidence (2010).
16 The patient environment rating assesses non-clinical aspects of patient surroundings and takes into account the organisations policy, cleanliness in various areas, infection control, general environment and conditions in access/external areas.
17 Evidence/ Examples: Partnerships UK, Investigating the performance of operational PFI contracts (2008); 4ps, Review of operational PFI and PPP projects (2005).
18 KPMG, University College London, 'Operating Healthcare Infrastructure: Analysing the Evidence' (2010).
19 KPMG, Infrastructure Spotlight Report Investment in school facilities and PFI - do they play a role in educational outcomes? (2008); (2009).