Lessons learned

16  In our first report, we concluded that NS&I had secured a very good deal with SBS and that NS&I's experience underscored some important lessons which should be borne in mind in negotiating public-private partnerships. This study shows that NS&I and SBS have learnt valuable lessons in the operation of the project, which are again pertinent to other public and private sector partnerships.

a)  Adoption of a whole business approach

The public and private sector partners should not enter a customer/supplier relationship, but need to take a whole business approach, if they are to achieve current and future strategic objectives. Such a relationship is evidenced by the public sector partner:

■  recognising its requirements may lead to its private sector partner not adopting the most appropriate method of delivery that is best for the business;

■  recognising its actions can have an unwarranted impact on its private sector partner's costs; and

■  having access to the private sector partner's income and expenditure forecasts and not just actuals.

And by the public and private sector partners:

■  challenging the actions of each other to establish that proposals are in the best interest of the whole business; and

■  demonstrating their willingness to change the contract as it is a dynamic document and their interaction through governance procedures.

b)  The private sector needs to recognise the management challenge that PFI represents

Private sector contractors need to recognise the management challenge that complex PFI projects with tight timescales represent and employ and manage appropriate resources effectively to achieve the public sector partner's and their own objectives.

c)  Parent company guarantees are essential

The existence of a substantial parent company guarantee has been instrumental in ensuring that SBS has stayed with the project as it places the onus on the private sector partner to take action to improve a poor financial position. Such a guarantee ought to incentivise the parent company to recognise the management challenge its subsidiary faces and to take sufficient due diligence.

d)  There are alternatives to bailing out the private sector

The public and private sector partners can consider other actions which preserve the original allocation of risk, besides increasing the unitary charge, which will assist the private sector partner to improve a loss making position. Such action can also lead the private sector partner to seek improvements in the business. If public sector partners do provide additional work for their private sector partners, they must demonstrate that variations to the contract represent value for money through, for example, benchmarking of prices, and ensure their decisions are fully auditable.

e)  Contingency plans should be in place

Public sector partners should have contingency plans in place ready and up to date to use if their private sector partners default. Such plans should be drawn up and maintained even where default is unlikely.