1. An introduction to the Hub initiative in
Scotland
Euan Pirie
October 2015

2. hub territories and participants
• Scotland divided into 5 hub Territories
each with approximately 1 million
people and a dedicated "hubco"
• Territories based on boundaries of pre-
existing (local) municipalities and
(regional) health authorities
• National ambulance, fire and police
authorities join municipalities and
health authorities as “participants” in
each Territory
• Urban regeneration companies and
housing associations also participants
in later Territories – significant overall
public sector participation and
representation

3. What is “hubco”?
• Institutional public (to public and) private partnership
– Public Sector Bodies (PSBs) along with Private Sector
Development Parter (PSDP) and Scottish Futures Trust
Investments (SFTI) are shareholders in corporate joint venture
company (hubco)
• Delivers services to PSBs (through PSDP)
• Long term partnership not one off project procurement
– 10 year exclusivity period for primary care projects; 20 year
overall framework; and 5 year extension option
• Costs benchmarked to ensure value for money (enhanced by
tendering at supply chain level)
• Secure supply chain but not fixed for duration of framework
• Offers PSBs capital or revenue funded (PPP) project
development options

4. Corporate structure for hubco and new
projects

5. Key objectives for the hub initiative
• Achieving faster and more cost effective
procurement
• Offer more flexible procurement solutions
• Improving community buildings and the
“user experience”
• Delivering the “ultimate” PPP
• Creating employment opportunities and
community benefits

6. Faster and more cost effective
procurement
• At outset PSBs in each hub Territory advertised PSDP role in OJEU and tendered hubco
establishment documents and PSDP services under detailed competitive dialogue process
• hubco appointed on framework contract basis and faster procurement achieved through
– removal of requirement to advertise individual projects
– replacing competitive dialogue procedure with streamlined new project development process under
TPA allowing PSB and community involvement at early stage and throughout project development
– project planning improved and project progression facilitated through partnership approach and
“adversarial” environment present in some PPPs removed
• Pricing protection ensured through
– capping cost of key elements in new projects by reference to tendered sample projects included in
original bids (adjusted for inflation)
– requiring hubco to tender key supply chain roles to minimum pool of 3 potential providers
– supply chain bidding for more than single project and hubco subject to loss of exclusivity and TPA
termination if it does not perform, strengthening PSB negotiating position
• Repetition of new project development process across all new projects and involving a
consistent supply chain facilitates efficiency and continuous improvement in quality and
speed of responses and significantly reduces tender costs
• PSBs supported by centrally appointed “Territory advisers” addressing “experience gap”
• Speed of procurement and cost reduction further aided by mandatory use of standard form
contracts

7. Offering more flexible procurement
solutions
• hub provides PSBs with flexible contract options
– appoint hubco to design and build works under “design and build development
agreement” (and pay for works from capital budgets or via PSB borrowing)
– appoint DBFM Co to design, build, fund and maintain (DBFM) facilities under DBFM
Project Agreement (DBFM Co borrowing to finance works and PSB paying service
payment over 20 years+)
• 10 year exclusivity for primary health care projects applies but PSBs option to
procure other projects through hubco
• hubco’s services also include services relevant to preparation for future projects,
including feasibility studies, option appraisals and concept designs
• Smaller projects may be “bundled” to form single larger project
– justifying costs associated with DBFM structure and supporting project finance funding
solution
– option to group PSBs own projects or “bundle” with smaller projects of another PSB
– significant reduction in construction and operational costs compared to progressing
projects on an individual basis

8. Improving the user experience
• hubco delivers “state of the art” modern facilities to replace old and
poorly maintained buildings
• Collaboration between PSBs promotes sharing of facilities or co-
location on single site
– users benefit from improvements in community services, delivered from
better community buildings
– users also enjoy convenience of multi agency solution/integrated service
provision from single location
– scope to align with transport policy
– better public services at lower overall cost to public sector
• Continuous improvement targets (underpinned by KPIs) drive
innovation and learning from previous projects
– KPIs include “user benefit” tests at both Territory and individual project
levels
– Knowledge transfer between projects procured under hub

9. Delivering the “ultimate” PPP
• hub encourages “public to public” partnerships
– PSBs (within same Territory) encouraged to undertake joint procurements and share
accommodation, delivering lower construction and operational costs
• Each hubco is a corporate joint venture (limited company) with 60:30:10 ownership model
– PSBs invest for shares in and provide working capital to hubco alongside PSDP
– PSBs appoint 1 director to hubco board and participate in management of company
• Relationships between hubco shareholders regulated by contract (Territory Shareholders’
Agreement)
• Relationships between hubco and individual PSBs regulated by Territory Partnering
Agreement
• TPA and TSA secure right (but not obligation) for PSBs to invest in DBFM projects
• PSB also appoints director on project company board
• hubco incentivised to successfully deliver projects
– payment of hubco’s return deferred until financial close
– hubco’s performance measured on ongoing basis by KPIs at individual project level and also across
whole of Territory
– no annual service payments due on DBFM facilities until construction complete and buildings
comply with service requirements
• hubco develops relationships with PSBs and may propose projects to them

10. Contracts structure for new projects

11. Creation of employment opportunities
and community benefits
• Method statements for performance of new project
development services include commitments to tender
minimum percentage of works and services to local
supply chain and SMEs
– Compliance with method statements measured by KPIs
• KPIs also incentivise creation of employment and
training opportunities and community engagement by
hubco
• Achievement of hubco against these requirements key
aspect of reports to TPB
– TPB made up of representatives from all Territory
PSBs/encouraging spread of opportunities across the Territory

12. Successes achieved in hub and should
Lithuania consider adopting the initiative?
• Use of hub to deliver projects is increasing in Scotland - HM advised on 13
completed projects with combined value of £275m+ since April 2012
• Clear evidence of reduced transaction costs
– legal fees in hub DBFM c25% of those in other similar PPP projects
– other fees also lower and payment deferred until financial close
– advisers accept lower fees due to repeat business opportunities and greater
efficiency in processes
• FWT health bundle project delivered c£100k annual operational cost
savings for PSBs compared to costs if procured individually
– PSBs could achieve further savings by reviewing staffing in shared
accommodation
• Kittybrewster project evidences faster procurement times
• hub is flexible delivering projects in sectors other than primary health
• Early involvement of community and PSBs and “open dialogue” approach
allows PSB to properly scope the accommodation and services that are
needed and refine requirements pre-close in non adversarial environment

13. Contact details
Euan Pirie
Partner and Head of Infrastructure & Projects
t: +44131 247 2505
m: +447795100183
e: euan.pirie@harpermacleod.co.uk