Contracts get varied due to changes in scope (RK11). Variations may therefore be sought and agreed because: technically something is found to be wrong in the contract (RK02); expectations do not match the nature of agreed outputs (RK05); there are changes in law or government policy (RK10); there is a need to introduce an additional service (RK11); or there is an opportunity to "future-proof" existing assets (PF04 and RK05) e.g. to meet rising / projected service demand.
For the public partner, regardless of the driver of a variation, a crucial factor in achieving VfM is the ability of its employees to effectively assess and select the best course of action, and not inadvertently (through failing to understand the commercial and legal underpinnings of the concession deed) give away "something which undermines value for the state over the longer-term or leads to [an adverse] change in [its] risk profile" (PT14). Inadequate levels of skills and experience (see 'Employee capability and expertise', above) can therefore have a detrimental effect on achieving desired outcomes through planning for and administering contract variations (PF12). This can be further compounded by dealing with uncertainty (e.g. 'unknowns') when trying to future-proof assets e.g. arising from unexpected changes or a rapid pace in technological advancement (PF04) or population growth (RK05).
Only four interview participants (RK11, PF14, PT12 and PF10) provided in-depth insights into risk re-allocation between partners. It appears this is not currently a significant concern for Australian PPPs (even though there are numerous examples of 'failed' ventures - most notably toll roads - stemming arguably from the use of contemporary risk allocation and forecasting models). Within an Australian context, RK11 asserts that the most likely scenario involving the state taking back risk or altering the contract during operations (in terms of facility management) would be due to mispricing the provision of soft services e.g. catering, cleaning and other people services, where the public partner is faced with a choice between re-negotiating the deal or permitting the operator to walk away from the contract (or go into voluntary administration or liquidation).
However, anecdotal evidence emerging from the UK suggests that, in some instances, public partners in PFI projects are deciding to take-back risks associated with the provision of soft services (PF14, PT12 and PF10), particularly in schools, whilst allowing the private partner to continue to maintain and operate the assets. PF14 explains why:
"A review of PFI was undertaken in 2012. It concluded that there is [little] value in [the private partner providing] soft services...These types of services should be decided on a case-by-case basis but people have tended to add them in without much consideration. The exceptions are health because it's heavily unionised...and you're buying services and not just an asset...and prisons which have complete services including rehabilitation and training. It's not practical with schools because the soft services aren't intensive and the schools are small and typically only need a part-time caretaker".
The public partner should therefore actively manage its risk profile, including developing business continuity plans to minimise potential disruption to government business. Although PT11 and RK05 emphasise the importance of having these plans in place, they question the value of investing resources into detailed planning efforts if the chance of having to enact plans is typically low. Instead, the interviewees state that sufficient resourcing should be provided to deal with actual issues as they begin to emerge. RK05 opines:
"Contingency planning needs to be an emergent process...rather than something [they] sit down and do from day one of the contract. As issues emerge, I would expect them to be thinking ahead about where the issues may lead to and what type of plans should be developed".
Such an approach is reactive and contrary to contemporary risk management which is predicated upon taking a proactive view of risks by identifying them, assessing their relative severity and deciding upon appropriate response treatments in a systematic process implemented well before issues actually 'begin to emerge'. It seems that striking the right balance in developing contingency plans for individual PPPs may come down to the likelihood, consequence, and anticipated pace of disruptive activity occurring, as highlighted by various examples outlined in this and other chapters.