PPP IS THE NEW SME.

I did some reading over the holiday. The ideas expressed here are certainly not mine. If you like them, thank multiple sites on the world wide web too numerous to reference. If you don’t, blame me for inflicting it on you.

In every company I have ever worked at there is, always and forever, talk about about embracing change. You have some people in companies who love change, and then you have many more who stick to the old tried and tested methods, and who will only embrace a change when it’s proven beyond doubt (which means, of course, you’d never get any). The conflict between the ‘innovators’ and the ‘conservatives’ creates all sorts of interesting discussions. At 23 Degrees North we refer to these as ‘bucket and balloon discussions’ 

One recent discussion started with an acknowledgement of the recent fashion for SME’s, digressed into a recognition that the Government no longer has the spending power it once had and then landed squarely on PPP (Public, Private, Partnership).

PPP, we decided, is the new SME.

According to most definitions, the objective of a properly structured PPP is focused on leveraging the innovativeness of the private sector, through the forces of competition, to provide a public service of a desired quality at the lowest possible cost to the user. Unfortunately, this strategy can easily be misunderstood as “free money” in the policy arenas………no one is likely to use that phrase but there is definitely a palpable excitement when policy makers are talking about PPP and it is worrying.

Thankfully, there is a positive example to follow: Since the 1990s there have been a little more than 100 completed and operational PPP projects in Canada, and there are about another 100 under construction or in procurement. Over this period there has been a lot of learning about how to deliver effective PPP projects in Canada, and something of a Canadian PPP model could emerge to create a regional benchmark for how this can be used to help diversify the economy. Let me explain some key elements of this model:

FIRST there is a recognition that the possibly more expensive private financing does not always need to cover the whole project. The traditional “all-in” DBFOM (design, build, finance, operate and maintain) model could be diluted where it does not make economic sense in favour of slimmer models such as “design, build, finance, maintain”; “design, build, finance” and even “build, finance”

SECOND, there needs to be significant investments by policy makers in creating the talent teams needed to implement PPP programs. These are complicated arrangements that require a lot of advanced planning by skilled people. Efforts to try to standardise processes at an early stage could help to create more certainty for the market and would reduce transaction costs for all parties.

THIRD, the motive for undertaking PPP should focus squarely on maximizing the value-for-money delivered to the facility users. This will keep us from undertaking PPPs for poor reasons such as because we see them as a source of “free money” from the private sector (they are not) or because we see them as a chance to privatise a service and remove it from the government’s control completely (they are not that either!).

FOURTH, more recent PPPs in Canada have avoided shifting “demand risk” to the private partners – they recognise it is often expensive with little offsetting benefit if the private partners have little they can to do manage that risk, that is if there is little they can do to influence demand upward or downward.

It seems that the Government of Oman has already acknowledged  the use of PPP to procure and deliver public buildings. On the face of it, this major investment translates into opportunities for our profession and will help to ensure the construction economy remains . However, architects need to understand that PPP’s result in startlingly different business and working relationships which bring with them new roles, responsibilities, challenges and risks….this will be a discussion for another post.

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