2.3.1 PPP projects must be structured to benefit both the public sector and the private sector. Specifically, the PPP deal must deliver value for money to government and also present commercially attractive business opportunities for the private sector.
2.3.2 Public agencies will adopt a Best Sourcing approach in deciding whether to use PPP. This means that agencies will compare the PPP approach (e.g. Private sector to design-build-finance-operate) with the conventional government procurement model (e.g. private sector build and government operate). The public agencies will then select the best approach to deliver the services (either through PPP or through conventional procurement). PPP will only be used if it can deliver better value for money than conventional procurement for that project.
2.3.3 Similarly, for the private sector, there should be sufficient revenue, either from Government or directly from the users, to recover the initial investment and the costs incurred by the private sector.
2.3.4 There are several key factors which will affect whether the PPP deal can deliver value for money to Government while remaining attractive for the private sector. Public agencies should work closely with the private sector to address these issues in order to structure a win-win PPP deal.
a) Competent Private sector providers - Are there reliable and capable private sector providers who can deliver the required services? Is it possible for the private sector to deliver services better and more efficiently than Government?
Fundamentally, PPP will only be successful if the private sector has the capabilities to add value to the delivery of public services. Hence, PPP should only be applied to projects where the private sector has the competencies to meet the service standards required by Government or the public.
In addition, there should also be multiple potential private providers who can offer different proposals and ideas that will drive continual improvement in the delivery of public services.
b) Measurable Output/Outcome specifications - Are the performance requirements expressed clearly in terms of service outcomes and outputs? Are there meaningful Key Performance Indicators (KPIs) to measure the delivery of the service outcomes/outputs?
In a PPP project, the desired service outputs/outcomes must be clearly stated so that the private sector can have a clear understanding of Government's policies and objectives. The private sector can then introduce innovative solutions to meet Government's needs. Clearly stated service requirements also reduce the uncertainty faced by both the public agency and the PPP provider. The service outputs/outcomes should also be measurable. A set of performance measures and targets can then be developed to incentivise the private sector to meet the objectives of the public agency. The public agency can also objectively monitor the performance of the private sector to ensure that its service requirements are met.
c) Sufficient Project Scale - Does the project require a significant level of investment in the development or redevelopment of capital assets? If not, can the project be bundled with similar projects to form a larger PPP deal? Generally, the larger the scale of the project (in terms of capital value of assets), the more potential for management efficiencies through increased private sector involvement, particularly through economies of scale. This is particularly true for services which can be easily replicated, e.g. development of school buildings.
d) Scope for private sector innovation and management efficiencies - Is there sufficient scope for the private sector to innovate? Can the private sector improve the level of utilisation of assets? Is the private sector able to exploit economies of scale through the provision, operation and maintenance of other similar assets/services to other customers?
PPP tends to be more successful for projects where the private sector is well-equipped to introduce innovation. Therefore, the scope of the PPP project should allow the private sector sufficient flexibility to introduce new ideas, e.g. new technology, business process re-engineering, to generate efficiency gains. As far as possible, public agencies should also be open to the private sector's suggestions to share assets or facilities with other users, unless such sharing of resources undermines public policy and objectives.
e) Sufficient time to plan and procure through PPP - Is there sufficient time to procure the services through PPP, given the timeframe of the project?
PPP projects are generally more complex than conventional government projects. Hence, more effort, time and resources have to be put in to structure and tender for a PPP project. Insufficient planning and procurement time might prevent the public agency from identifying all its requirements clearly. The private sector will also need time to examine the business opportunities in a PPP project to propose new ideas. Hence, it is beneficial to both Government and the private sector if ample time is available for both parties to fully understand the objectives of the PPP project and the potential opportunities in the project.
f) Manageable interfaces with other projects or existing contracts - Are there other projects or contracts that interface with the PPP project? Are the responsibilities of the PPP provider and other contractors clearly stated? Are there procedures governing the relationship and interaction between the PPP provider and contractors of other projects/contracts?
In some PPP projects, the public agency might decide to engage separate contractors for specialised services that are not within the scope of the PPP project. For example, the public agency might engage a PPP provider to construct and maintain an office building, but the IT services are separately provided by another IT vendor. In such projects, there should be a clear distinction between the responsibilities of the PPP provider and other vendors (e.g. IT vendors) engaged directly by the public agency. Procedures should also be put in place to govern the interactions between the various providers, e.g. how the vendors should respond to service failures.