discusses history of PPP in uk, its background, developments, some national audit reports, Failure of PPP projects, recommendations and conclusions.

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Contents
1.0 INTRODUCTION........................................................................................................ 2
2.0 DEFINATION................................................................................................................... 2
2.1 History of PPP in UK....................................................................................................... 2
2.2 PPP WORLDWIDE ......................................................................................................... 4
3.0 Advantages of PPP......................................................................................................... 5
3.1 Successful delivery in Time and Cost.............................................................................. 5
3.2 Better Risk Management................................................................................................. 6
4.0 Dark Side of PPP Projects .............................................................................................. 6
4.1 Additional hidden Public debt .......................................................................................... 7
4.2 Oxgangs School debacle ................................................................................................ 7
4.3 Earliest Failure of PPP Project in Scotland Isle of Skye Bridge ....................................... 8
5.0 Recommendations .......................................................................................................... 9
5.1 Flexible ........................................................................................................................... 9
5.2 Additional control............................................................................................................. 9
5.3 Value for Money............................................................................................................ 10
5.4 Setting upper Limit for Profit.......................................................................................... 10
6.0 Conclusion .................................................................................................................... 10
7.0 References.................................................................................................................... 11

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1.0 INTRODUCTION
Public infrastructures are integral components of all thriving societies, they are vital to offer
essential services and add value to the lives of Citizens and its inhabitants. These include
Roads, Railways, well-connected network of services, water and power infrastructures. These
all need an uninterrupted flow of cash to be constructed for the continuous operational use and
their maintenance throughout their lifespan. This permanent need for consistent public
financing is always crucial and often public funding is not sufficient to construct, rebuilt,
maintain, upgrade or successfully continue projects. (Leviäkangas, Ojala and Töyli, 2016).
The World Economic Forum estimates a global need for $3.7tn in infrastructure investment
each year, while mostly governments invest only $2.7tn. Therefore, the infrastructure-funding
gap is roughly at staggering 1 trillion dollars. Funding Gap would be 20 Trillion Dollars in next
15 years in G20 countries only. This permanent need to fund deficit has forced governments to
look for other ways of financing apart from loans it is Private Financing.
2.0 DEFINATION
There is no single agreed definition of PPP nor there. Since it involves extensive range of
agreements of diverse nature between public and private sector entities thus leading to different
definitions in different countries (Tang, Shen and Cheng, 2010).
According to Benjamin, J. and Jones, T. (2017), PPP can be defined as “agreements where
public sector bodies enter into long term contractual agreements with private sector entities
for the construction or management of public sector infrastructure by private sector entity or
the provision of the services (using infrastructure facilities by the private sector entity to the
community on behalf of a public sector entity.”
This type of contracts are made through a Special Purpose Vehicle (SPV), which is mixture of
private sector, Investors and Facilities Manager. Finance is usually 90 % debt and 10 % equity
by member companies. Usually Banking Finance is commonly of 25 years for smaller projects,
large Projects are financed by bonds (Spackman, 2002).
2.1 History of PPP in UK
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Under Thatcher Government in 1979, Government started to higher private sector starting from
basic public services likes of cleaning and refuse collection etc. This led to ‘Ryrie Rules’ which
were quite inflexible therefore could not offer greater success in adoption by public.
In 1986, Government overruled ‘Ryrie Rules’ as approved Dart for Motorway crossing leading
to formal abolishment of rules in 1989. At the same time, perception of ‘inclusion of Private
finance maximise efficiency of project’ gained some popularity, enabled government to revise
their strategy as even the abolishing the ‘Ryrie Rules’ did not able to generate any notable
progress in terms of capital flow. Hence, further legislation in 1992 gave birth to ‘Private
Finance Initiative’ (PFI) in 1992.
In 1994, with introduction of ‘Universal Testing Rule’ further paved the flow of Capital from
Private Investors as every Public project was meant to be considered for Private financing
under this rule, therefore surge in private financing starting from 2 in 1994, 11 in 1995 to 39 in
1996. In 1997, Labour Government amended the rules and introduced Public Private
Partnerships (PPPs) which included introduction of Complete or partial privatisation,
contracting out as PFI or selling government services with collaboration with private sector
companies (Spackman, 2002).
Figure 1. History of PPP in UK (Spackman, 2002)

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2.2 PPP WORLDWIDE
It is an estimate worldwide 1300 highway, bridges, transit lines and other public infrastructure
were developed between two decades through PPP arrangement models, which included rough
capital cost of around 650 Billion US Dollars (Leviäkangas, Ojala and Töyli, 2016). According
to World Bank, more than 92 Countries so far have signed PPP types of contract (Benjamin
and Jones, 2017). Under this arrangement, UK Government pays a fee to use infrastructure
constructed and built or run by consortium of private investor and it pays over certain period
of length usually decades and then it get ownership of its assets. Figure 2 shows PPP contracts
in Billions from 1990 z to 2014.
Figure 2. UK PPP contracts 1992-2015 (Benjamin and Jones, 2017)
Similarly, Figure No 3 shows Pie chart of PPP usage in different departments of UK
Government.

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Figure 3. Use of Private Finance by Project and Department Type (National Audit Office, 2009)
3.0 Advantages of PPP
Researchers have suggested the advantages of various aspects of PPPs, which include enhanced
partnership between the public sector and the private sector. Some of main advantages have
been summarised as follow.
3.1 Successful delivery in Time and Cost.
According to National Audit Office (2009), most of the PPP projects were completed close to
their agree time, price and specifications. Between periods of 5 year 2003 to 2008 since 65
percent of Projects were delivered on agreed time. Among late projects, 42 percent were
delivered within Six month of agreed time. Highly level of positive feedback from parties are
reflected in National Audit Report. Private Financing shifts risk to Private Sector hence present
better value for money, which has to be part of contract for better results.
National Audit office has carried out number of PPP/PFI studies from 1997 to 2001; its reports
are quite sound and objective. Its reports shows great proportion of parties involved with
PPP/PFI Projects are satisfied with the progress of project and value for money which it extracts
lessons from 121 projects before 2000. Out of which 98 projects boosts the projection of Public
authority claim for Value of Money, 6 % rate excellent, while 46 % good, 29 % satisfactory
and 15 % marginal and remaining 4 % poor.

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Although it may not be enough endorsement, National Audit Office reports clearly vindicates
20 top high profile projects and deduce that they are better alternative to feasible options
available to the Authorities. (Spackman, 2002). Since, PPP projects leaves the decision and
management of Projects in non-profit and private hands, this considerably reduces the
politicisation of project as compared to the hands of public bodies, especially in developed
countries where public institutions are increasingly getting politicised last ten years.
(Leviäkangas, Ojala and Töyli, 2016).
3.2 Better Risk Management
Better risk management Clearer government policies. Revealed critical success factors.
Improved maturation of contract. More appropriate financial analysis. (Tang, Shen and Cheng,
2010).
PPP arrangement offers the opportunity to maximize the efficiency of project by exploiting
capabilities, technical developments and expertise of private sector. It present alternative
source of funding for current demands of infrastructure by postponing immediate required
funds .So PPP acts as an effective route for Governments to offer high quality public series
despite reduced funding regardless of recent recession and austerity measures. Sharing of
responsibility means lower burden on Government services thus improving monitoring of
project resources by Government. (Roman, 2015)
4.0 Dark Side of PPP Projects
PPP are normally long terms contracts tend to have very complex set contractual terms which
makes overall understanding of contract difficult especially about risks share and overall Value
of Money for public. (Leviäkangas, Ojala and Töyli, 2016). Much of the financial risk remains
with the public body concerned (Benjamin and Jones, 2017). Roman (2015) indicates overall
benefits of PPP projects are overstated, he believes lack of knowledge and political advantage
behind the notion.
Secondly, PPPs are not new funds either its only allows Government to continue high cost
projects without being acquiring further loans but this arrangement could be quite costly as it
could have high mark up. In addition, inaccurate or misleading information could be shared at
start by consultants or contractors to continue with projects.

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Thirdly, due to challenging nature of procurement contracts, since there is no perfect model for
value evaluation, most organizations or governments have their own ways of assessing whether
standard procurement route is to be taken or opting PPP. (Roman, 2015). Therefore, it is not
clear decision to opt for PPP and lack of enough information makes it daunting task.
4.1 Additional hidden Public debt
Although one of key advantage of PPP by Government is, they can simply not have to borrow
directly, so usually a good alternative however with PPP arrangement Government still had to
make annual payments to private companies involved. Moreover, PPP projects financed by
banks charge higher risk premium in case construction can go bankrupt, once construction is
completed, premium rate drops. Which means an overall higher rate of interest on payments as
compared to Government borrowing at lower rate due to lower risk.
Benjamin, J. & Jones, T (2017) quoted example of 12 PPP projects between 1999-2005 which
resulted in a $1788.25 Million earned by companies as compared to just $ 34.1 Million for
public sector contract, hence they argued Public sector is paying higher interest rates, while
companies can make additional benefit due to refinancing of projects.
We can notice similar trend for Norfolk and Norwich Hospitals, where PPP refinancing helped
private contractor to make a windfall gain of whopping $145 Million. This additional burden
is then passed on public taxpayers. Hence, PPP projects are not cost effective in long run.
Moreover, due to extreme financial pressure of PPPs, it does effect performance of
management staff as variable cost could be reduced to meet debt repayments. In addition, some
PPP financed buildings or facilities are now empty, but due to inflexible nature of PPP, as
Roman (2015) indicates Government still have to pay due to very strict conditions of contract.
As in the case of Belfast PPP School closed permanently only after seven years, while
contractor was still to be paid $462,500 a year for next 16 years for this unused facility.
4.2 Oxgangs School debacle
Moreover, Benjamin, J. and Jones, T. (2017) also criticised PPP projects due to lower
democratic accountability in public service delivery due to complex nature of PPP, as it
imposes additional barrier and hence reducing chances of direct accountability and public

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scrutiny. As we see the example of Edinburgh Scotland, where in March 2016 Oxgangs
Primary School external wall collapsed, which was work of Miller construction (PPP based
Project) who was allowed to self-assess the quality of their works. In order to finish their
projects as sooner as possible, Builders forget to leave wall Tie for structural stability of walls
and hence that led to collapse of Wall. It was Sunday so there was not casualty. Therefore,
authorities had to carryout survey of their additional works resulting in closure of 17 PPP
Schools.
Figure 4. Collapse of brick wall (façade) of Oxgangs Primary School (Benjamin, J. & Jones,
T. 2017).
4.3 Earliest Failure of PPP Project in Scotland Isle of Skye Bridge
One of the earlier failure of PPP project was Toll Bridge of Isle of Skye, in this project unlike
other PPP projects repayments were not be paid by Government but rather via Toll income,
Bridge which first opened in 1995 at cost of $48.8 Million charging very high toll fee, of $14.25

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per kilometre. Which caused great public outcry, resulting to 500 arrests and 130 member of
public prosecuted and jailed for not paying Toll tax, so in 2014 Scottish Government bought it
from Bank of America for $33.8 Million, who has already earned $41.6 Million in Toll Tax
and running cost was only $ 4.4 Million. Again, Public or Government paid large sum for PPP
projects. Similarly, we can review the case study of Calderdale Royal hospital built between
1998 to 2001 at the cost of £63.18 Million against the initial planned cost of £32.84 Million,
so under fixed terms of PPP, Health services now have to pay £304.2 Million over next 30
years. If government has borrowed directly, it would have only been £124 Million pounds,
which is less than half of PPP’s agreed amount (Benjamin, J. & Jones, T, 2017).
5.0 Recommendations
It is clear from literature review, PPP are very complex in nature project with long term
financing solutions to public projects, we have now understanding PPP are complex due to
nature of contract, its conditions are strict, excessive interest rates as compared to Government
borrowing. Based on our literature review, we have seen examples of infrastructure after being
built not been used and Government still had to pay for next two decades as discussed the case
of Belfast School. We have also found due to low control of public and increased finance
pressure, in some cases it can lead to poor quality of construction works at Edinburgh by Miller
construction. In case of Isle of Skye Bridge, we have seen whopping profit by financier. So
based on all these case and our observations as detailed in Literature review we can suggest
following changes to PPP Contract.
5.1 Flexible
PPP reformed contracts should be made flexible so that changes can be made to save cost and
time and conditions are set in such a way that even project fails or facility does not generate
any income in future, Private parties should also drop their profit or waive off long-term
payments accordingly. Therefore, profit should be linked to success of project.
5.2 Additional control
We have noticed additional control of Government over SPV or special purpose vehicle to
oversee the progress of Staff in facilities and contract should make sure there is a public
scrutiny and check on projects as poor quality PPP work is collapsing like of Oxgang School
and other PPP projects where quality control was left for PPP partner Miller Construction.

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5.3 Value for Money
Some of the examples as we discussed in literature review, we have seen large sum earned by
private contractor for some PPP project as compared to Government borrowings, we have
studied example of skype bridge toll which got bad press, additional stress on legal bills and
arrests of people for simply refusing to pay excessive toll fees, when Scottish Government
bought it in 2014, Bank of America already earned excessive profit leaving this project as worst
failure of PPP Project in Scotland. That indicates error in decision-making and feasibility
studies, if it has been studied in first place, and public borrowing could have been better option
for such project. So better planning and decision making is key to make a choice.
5.4 Setting upper Limit for Profit.
It is clear from several examples; some of PPP contractors have earned exuberant profit even
on empty buildings, which are no more in use. So if required modifications are introduced in
contract to set upper limit of Profit for private investor including reduction in case facility does
not generate enough profit. In this case, consortium of private parties will only attract to those
projects, which has viability for future, they will simply refuse to undertake project, which can
become white Elephant for Government and lowest yield for them.
6.0 Conclusion
Although PPP has been in UK for long time, the generic perception about PPP about its
inflexibility and Complex nature seems true due to large number of Parties involved. It does
involve the expertise of Private sector and sometime become very viable option at times for
governments to finance Projects without adding numbers to their budget deficit, but in long run
Government could end up paying large amount of money. PPP also provides timely
infrastructure required which due to lack of funding could not be completed.
Due to financial constraints, PPP contractor usually deliver structure and service in time as we
have seen in National Audit reports, a large number of Clients are happy, and satisfied over the
timely completion and overall standards. Then we have noticed a sharp downward trend in
adoption of PPP projects in last few years, also since typically PPP projects take up to 30 years
to mature, there is not enough data to make large-scale comparison.It also become increasingly
difficult for Decision makers to make final judgement, we have suggested slight variation of
contract terms can generate better value for money as compared to traditional PPP contract. In

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addition, it is also vital risk allocation in Contractual, better the risk allocation the better value
for Money. WE have also noticed decision-making and choice of alternatives need to be studied
in detail before undertaking projects. We should expect better value for Money in future project
due to updated information in future, as more and more PPP projects are maturing, decision
making would be relatively easier for authorities.
It should be also noticed while private financing option is available, each project should be
assessed for its viability, empty structure or buildings with not future requirements could be
burden on tax payers pockets and plus waste of resources and efforts. Long term planning and
including use of advanced digital technology including future projections with current trends
must be studied along with feasibility of project for project long-term benefits.
We can also take benefit from the experience of other countries data on PPP based project to
make better choice and to make better value for Money. PPP in its current state reformation
and modifications to reflect the demands of current times, with increased awareness and influx
of information easily accessible by internet; decision makers should use all available options
before opting for PPP projects. Excessive Premium on interest rates can be avoided, if correct
decision can be made at the start, contract conditions should be realistic, with greater control
of quality, detailed analysis of all options, comparison of all alternatives including end value
for users can help authorities to make better choice for their projects.
7.0 References
Benjamin, J. and Jones, T. (2017). The UK’s PPPs disaster Lessons on private finance for the
rest of the world. [Online] Jubilee Debt Campaign. Available at:
http://www.jubileedebt.org.uk [Accessed 9 Jul. 2017].
EPEC (2012). United Kingdom - England PPP Units and Related Institutional Framework.
pp.5, 7, 8.
Leviäkangas, P., Ojala, L. and Töyli, J. (2016). An integrated ecosystem model for
understanding infrastructure PPPs. Utilities Policy, 42, pp.10-19.
National Audit Office (2009). Private Finance Projects. a paper for The lords economic
affairs committee. [Online] London: NAO. Available at: https://www.nao.org.uk/wp-
content/uploads/2009/11/HL_Private_Finance_Projects.pdf [Accessed 8 Jul. 2017].
Roman, A. (2015). A Guide to Public-Private Partnerships1 (PPPs): What Public
Procurement Specialists Need To Know. [Online] San Bernardino: The NIGP Business
Council. Available at: http://www.nigp.org [Accessed 5 Jul. 2017].

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Spackman, M. (2002). Public–private partnerships: lessons from the British
approach. Economic Systems, 26(3), pp.283-301.
Tang, L., Shen, Q. and Cheng, E. (2010). A review of studies on Public–Private Partnership
projects in the construction industry. International Journal of Project Management,
28(7), pp.683-694.