Are there other delivery and procurement models used in the delivery of public assets in the UK and internationally that respondents consider work well? What are the key features of these model(s)?

Other respondents will no-doubt discuss the use of Regulated Asset Bases for asset provision and various construction contracting methodologies such as frameworks and early contractor engagement. All of these have their place.

In Scotland, SFT has two particular models that are relevant:

The Non-Profit Distributing (NPD) structure is a form of public private partnership for asset provision that like PFI relies on a project finance structure but is very different in respect of key features that are relevant to Government's aims set out in Section 1.2 of the consultation document. The structure is used for the provision of relatively standard social and economic infrastructure funded from taxation via an availability payment to a provider on a "pay as you use" basis over the life of the asset (as opposed to traditional capital investment where the public sector uses "pay as you build" from capital budgets as the asset is created). As the funding is over the long-term, private financing is used to pay for the creation of the asset up-front. Key features are:

a)  A regulated return to the private sector limiting the profits from the operation of the asset to a capped level through the provision of risk capital through fixed interest subordinated debt rather than equity. Any excess returns are passed back to the public sector procurer of the asset. This fixing of the level of return creates a better balance between risk and reward to the private sector.

b)  A Public Interest Director on the Board of the private company established to deliver the assets, with a particular responsibility to represent the interest of the public sector procurer and maximise returns to it. The inclusion of a public interest director, along with changes to contractual provisions on information provision delivers greater financial transparency

c)  Simplification of contract provisions including: amending elements of risk transfer around changes in law, insurance premiums and utilities consumption in particular where the private sector was required under previous models to accept risks that it could not reasonably manage; removing elements of service provision around minor changes to the asset and cosmetic maintenance and harmonisation of payment mechanisms across sectors delivers accelerated and cheaper procurement processes as there is a lesser requirement for individual contract tailoring and can potentially access a wider range of financing sources as the risks associated with the asset in its operational phase are more predictable and capable of strong investment rating.

d)  Revised interaction of design and procurement with a greater level of design work undertaken prior to the launch of a procurement process for the NPD contractor when combined with contract simplification has a further role in delivering accelerated and cheaper procurement processes as the period when two or more bidders are expending significant sums on parallel design development can be reduced. There is a potential for some opportunity for innovation during the competitive process to be lost and therefore the quality of the public sector controlled specification and early-stage design process, along with consideration of the design hand-over point is critical.

e)  Payment only for an available asset retains the incentive on the private sector to deliver to time and budget, and to take appropriate risk on the delivery of services

f)  Taking the best of change mechanisms from contracts used across different sectors strikes an appropriate balance between simple changes that the public sector building occupier can make itself, intermediate changes that can be selected from a pre-priced and transparent price list, and more complex changes where there is a transparent process for costing the change required. This gives greater flexibility to accommodate change whilst recognising and making transparent that there is always a cost associated with changing an asset whether that be a sunk cost if the asset was paid for as it was built, or an ongoing cost if it is paid for as it is used.

Taken together, SFT believes that used for assets to which it is suited, the NPD model is less expensive and uses private sector innovation to deliver services more cost effectively whilst retaining the key benefits of a "pay as you use" structure. An explanatory note on the NPD model can be found here1.

The other model adopted by SFT is the hub structure which creates an institutional public private partnership including a private sector delivery partner and the key public bodies in a region (eg Health Boards, Local Authorities, blue light) for the delivery of community infrastructure. hub allows for pay-as-you-build delivery using traditional capital budgets or pay-as-you-use delivery under a structure with a similar regulated return to the NPD model. It is based around a set of carefully determined key performance indicators which require continuous improvement in cost performance over time and delivery of targeted environmental and social outcomes such as building energy performance and training and employment opportunities. The regulated return under the hub model is structured with a base return to the private sector, sharing of returns from improved performance between the public and private sectors above the base case in order to incentivise continuous performance improvement, and a capping of return above which 100% would be returned to the public sector asset procurer. Hub sees the public sector investing in projects alongside the private sector and having Directors on the Board to bring a shared interest and further increased transparency.  Aside from continuous improvement and the achievement of important key performance indicators in delivery, the hub model promotes joined-up commissioning of assets between the public sector participants under the governance of a Territory Partnering Board. This will see an increase in the sharing of facilities between public bodies within a community and asset rationalisation through joined-up estate planning, delivering better services to end users, reduced service delivery costs and reduced overall estates costs.