Contracts get varied due to changes in scope (RK11). Variations may therefore be sought and agreed because:
• something is found to be technically 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; 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 which 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 having to deal with uncertainty (e.g. 'unknowns') when trying to future-proof assets, e.g. when arising from unexpected changes or a rapid pace in technological advancement (PF04) or population growth (RK05).
Only four interview participants (RK11; PF14; PT12; PF10) provided in-depth insights into risk re-allocation between partners. It appears that 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 demand risk allocation and demand 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 PPP projects are deciding to take-back risks associated with the provision of soft services (PF14; PT12; PF10) particularly in schools, whilst allowing the private partner to continue to maintain and operate the assets. PF14 explains why:
'A review of [PPP] 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'.