Our case studies provide a sample of the work and projects that we have been involved in. The projects have been successful in their development and delivery due to the work of many individuals and organisations.
PFI/PPP Operational Savings
The PFI/PPP Operational Savings programme was an HMT initiative in 2011 which concluded that savings of at least £1.5 billion were possible over the remaining life of the operational PFI contracts. Such savings could be achieved by more effective contract management, more intensive use of the asset and changes to the contracts.
The initiative was carried out collaboratively across the Public Sector with Local Partnerships playing an integral role, supporting both Central Government Departments and Local Authorities across a wide spectrum of sectors. The support included the identification, management and implementation of savings.
The main areas where savings have been made on PFI and PPP contracts are:
- Refinancing of PFI projects – particularly those projects signed in the aftermath of the 2008 financial crash and exposed to higher lending margins. A number of these projects have been refinanced at lower margins, enabling gains to be made
- Compliance checks – light touch contract monitoring has often resulted in contractors reducing resources to comply with the contract or errors arising. Such typical areas of non-compliance include health and safety or other availability criteria, invoicing errors, project documentation errors, errors in gain share arrangements and failure to meet KPIs
- Renegotiation – given the duration of the contracts, over time it may become apparent that certain specifications are no longer required or aspects of the contract are obsolete (including risk transfer). Where there are aspects that can be removed, or reduced, these have been negotiated using the change mechanism
- Contract management strategy – inadequate resourcing at key points in the contract life has often resulted in value leakage. In PFI contracts, the benchmarking and market testing provisions provide a point at which to renegotiate the cost of soft services. This should be approached in the same way as other commercial negotiations; providing adequate preparation to hold the contractor to account
- Termination – In some instances, for example where the original terms of the contract are inadequate for current needs or where the authority requirement has fundamentally changed, it may be appropriate to voluntarily terminate the contract. Given the typical termination compensation provisions (equity compensation, repayment of senior debt and redundancy costs), it may however be challenging to justify this
Knowledge facilitation and cross-sector sharing of lessons learnt also played a vital role in the implementation of the programme and in 2013 signed savings reported to HM Treasury by departments totalled £1.6 billion.
Mike Pugsley set up and led Local Partnerships Operational PFI/PPP team.
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