UK: Building Flexibility. New Delivery Models for Public Infrastructure Projects

Last Updated: 14 March 2006
Most Read Contributor in UK, August 2017

Foreword

Infrastructure development remains at the heart of the modernisation of UK public services. From the upgrade of secondary schools to the development of new IT systems, the public sector has rarely been under such pressure to deliver effective and efficient improvements in its infrastructure.

The public sector has always worked with private sector partners to help deliver its infrastructure requirements – typically through so-called ‘conventional procurement’. Recent years have seen the private sector play a new role in the Private Finance Initiative (PFI), and the partnership models of Local Improvement Finance Trusts (LIFT) and Local Education Partnerships (LEP). However, these schemes continue to be subject to considerable discussion and debate.

This report focuses on assessing alternatives to conventional procurement. It attempts to evaluate the PFI and LEP/LIFT models and describe the conditions in which they are likely to work best. It proposes five new delivery models that Deloitte believes have the potential to offer improved outcomes in situations where neither PFI nor LEP/LIFT is suitable.

We believe that the PFI and LEP/LIFT models will go on being good options in many situations, but that they need to be supplemented by alternative approaches if the public sector is to achieve its infrastructure objectives. Our aim is to raise the awareness of the public sector to a broader range of delivery models than those commonly considered and to provide a rough and ready guide to their selection.

Michael Kerr
Head of Specialised Finance
Deloitte & Touche LLP

Executive summary

Existing models such as the PFI and LEP/LIFT are not sufficient to meet the public sector’s infrastructure needs. While both the PFI and LEP/LIFT models work well in many circumstances there is a range of situations for which they are unsuitable. The PFI works best for large projects in conditions of relative certainty. The LEP/LIFT model can be more flexible than the PFI, but concerns have been expressed regarding its value for money owing to a lack of competitive pressure. Importantly, there are significant risks from using either of these models where uncertainty is serious and cannot easily be reduced.

New policies and likely changes to accounting rules are putting increasing pressure on the use of these models. The introduction of market mechanisms is bringing new uncertainties into the provision of health and education services, while possible changes in the accounting treatment of PFI may mean that some off-balance sheet schemes come back on-balance sheet. In addition, the nature of the infrastructure challenge is evolving. In many sectors there is now a need to deliver upgrades (rather than new build), and infrastructure solutions that are subject to considerable future risks and uncertainties (e.g. in technology or waste). These are areas in which the PFI and LEP/LIFT are either untested or unsuitable.

New models are emerging which can help to meet some of these challenges. In some circumstances the affordability of PFI schemes is being improved through a more selective transfer of risk to the private sector partner. The LEP/LIFT model is being adapted through a stricter separation of the project development and delivery roles. It can also be modified by using a structure that puts private sector partners in competition with each other. These are referred to as the ‘Integrator’ or ‘Competitive Partnership’ models. Where uncertainty over the future needs is serious and unavoidable the ‘Alliancing’ or ‘Incremental Partnership’ models are being used to enable projects to go forward.

The level of certainty the public sector has about its infrastructure and service requirements should be a key determinant of the choice of model. A high level of certainty suggests that the main options are a Private Developer Scheme, PFI or conventional procurement. The Integrator, LEP/LIFT or Competitive Partnership models should be considered where there is more limited certainty. A low level of certainty suggests the use of Alliancing or Incremental Partnership.

By applying a broader range of models in the right circumstances, public sector organisations can improve the likelihood of achieving their infrastructure objectives. The PFI and LEP/LIFT models will continue to be good options in many situations. But if public sector organisations are to meet the challenges posed by ongoing uncertainties amid a changing policy environment, increasingly they will need to utilise a broader range of delivery models. If they do so, they will increase the likelihood of meeting their infrastructure objectives in the future.

Why new models are needed

Emerging problems, policy reforms, and uncertainties

The United Kingdom has been at the forefront in developing innovative models for the delivery of public infrastructure projects. Since its emergence in the early 1990s the PFI has evolved and adapted to meet changing needs and requirements. More recently, the LEP/LIFT model was developed to help meet challenges for which PFI was seen to be unsuitable. This section explains why the PFI and LEP/LIFT models will not be sufficient to meet the public sector’s needs, and therefore why this innovation must continue. A description of the PFI and LEP/LIFT models together with a fuller description of their merits and demerits can be found in the Appendix.

Where PFI works

The PFI has many advantages. It enables public sector organisations to spread the cost of infrastructure investment over the lifetime of the asset, avoiding some of the uncertainties present in conventional procurement. In addition, because the payment mechanism is aligned with project objectives, PFI offers improved likelihood of projects being on time, to budget, and meeting the original specifications. It also encourages a focus on value for money over the lifetime of the asset. Finally, because of the high level of risk transfer typically involved, PFI projects can be off-balance sheet, which can be desirable from the perspective of departmental budgets and economic indicators.

However it also has some disadvantages that make it unsuitable in some situations. The PFI can be a high cost option owing to the costs of procurement, risk transfer, and private finance. The cost of procurement is high, because of the length of time taken to reach financial close – which is typically two years or more. The cost of risk transfer can be higher than the cost of retaining the risk in the public sector, particularly where uncertainties mean that the private sector partner expects a significant premium to compensate for the possibility of downside risk. Finally, the cost of private finance is typically higher than the cost of public borrowing. For PFI projects to be value for money these costs must be exceeded by the savings.

PFI can also be inflexible due to the length of contracts and difficulty of changing requirements. Although it is possible to build in opportunities to change service requirements during the contract term, this will be cost effective only where the scope of such change is reasonably predictable. This is because, once appointed, the PFI contractor is in a strong position in any future negotiations over contractual changes. Furthermore, in practice the public sector is often reluctant to appoint a new provider because of the consequent complexity and potential for conflict that could be generated.

Due to the cost of procurement, PFI is rarely considered for small projects (less than £20 million in value)1. It works best where the public sector can have a relatively high degree of certainty about future service requirements. Then, the services can be properly specified, and the public sector can achieve the benefits of whole-life costing and strong performance incentives. The public sector can also avoid the costs of risk transfer in conditions of uncertainty and future contractual change. On the other hand, where certainty is lower – perhaps because of a lack of knowledge of the condition of the assets, or of future service requirements – the PFI’s disadvantages begin to outweigh its advantages. (See Figure 2).

Figure 2: Advantages and disadvantages of the PFI 

Advantages

Disadvantages

Ability to spread cost over lifetime of asset

High cost

Greater predictability over cost and time

Length of procurement

Focus on value for money over lifetime of asset

Inflexibility

Strong performance incentives 

 

Potential to be off-balance sheet

 

Source: Deloitte Research, 2006

Where LEP/LIFT works

The LEP and LIFT models were developed partly to facilitate infrastructure development in some of the situations where a conventional PFI scheme might be less suitable. In particular, the aim was to enable a combination of new build and upgrade work to be carried out in successive phases without the need for several lengthy procurements. In addition, there was a need for a model that could allow work to begin where there was continuing uncertainty about the exact timing and scale of the work to be carried out over the lifetime of the project.

It is early days in the experience with the LEP/LIFT model; however it is possible to identify its principal advantages and disadvantages.

It has the advantages of lower procurement costs over the project life (because only one EU procurement is typically required), greater flexibility over programme delivery (because work can be commissioned in separate phases) and an ability for the public sector to continue to influence the direction of investment (because of the joint venture structure). The retention of a single strategic partner throughout the project has the potential to enable continuous improvement through successive phases of work. In addition, there are potentially significant advantages from the commercial input of a private sector partner early in the planning phase.

However, it also has some disadvantages. In the case of both LIFT and LEP there is a potential conflict of interest for the private sector partner. This is because the partner has both the role of seeking to ensure maximum value for the public sector but also of frequently carrying out most of the work.

The effectiveness of the LEP/LIFT model depends on the use of benchmarking2 as a means of ensuring the value for money of subsequent phases of work. To this end, Partnerships for Schools is investing in the development of a comprehensive benchmarking database that it hopes will provide robust data to ensure the value for money of LEP proposals.3 The intention is that the public sector can use this data to establish helpful parameters of cost and quality for their schemes.

While benchmarking of this kind can be a useful tool, in some circumstances it does not offer sufficient assurance that value for money will be achieved. The first phase of work may not provide a sufficiently clear benchmark for further work if subsequent phases are significantly different from the first. Site specific costs and the existing condition of the infrastructure cannot be benchmarked. Furthermore, there are always numerous possible explanations for why a proposal might depart from the established benchmark.4 This means that in practice it may be difficult for the public sector to know whether or not proposals constitute value for money.

Furthermore, although the public sector retains the right to use alternative providers if it is unconvinced of the value for money of the LEP/LIFTco proposals, in practice it is unlikely to do this. This is because if it did so it would immediately lose the primary benefit of the model – the presence of a single strategic partner to manage the programme of work and provide continuous improvement.

In any event, benchmarking is unlikely to offer the same kind of savings that direct competition provides. Data from the Building Cost Information Survey (BCIS) shows that procurements that are carried out without direct competition are on average 11-13 percent more expensive.5

Accordingly, the LEP/LIFT model will work best for projects where benchmarking is an effective tool for ensuring value for money. These are projects whose elements are relatively homogeneous in nature – i.e. of the same kind and subject to the same expectations on cost and quality. Where projects are composed of many different elements, and vary considerably from one place to another, benchmarking will be less effective.

Because the model offers greater flexibility and lower overall procurement cost, it is also suitable for projects in which the infrastructure needs and objectives are relatively clear, but where there is a degree of uncertainty about the timing and scale of the work that will be carried out.

Figure 3: Advantages and disadvantages of LEP/LIFT

Advantages

Disadvantages

Lower procurement costs over project life

Conflict of interest for strategic partner

Flexibility over programme delivery

Reliance on benchmarking to ensure value for money

Ability for public sector to retain influence over strategic direction of investment

Strong disincentives to utilise alternative providers

Potential for continuous improvement throughout successive phases of work 

 

Early commercial input from private sector partner

 

Source: Deloitte Research, 2006.

The problem of uncertainty

Both the PFI and LEP/LIFT models require a degree of certainty about the type of infrastructure or services needed. In the case of PFI, the public sector needs a high degree of certainty about the desired output specification; in the case of LEP/LIFT, the public sector needs relative certainty about the kind of infrastructure required, but can be less certain about the scale or timing of the work.

But neither scheme will work well where there are serious and irresolvable uncertainties over the required infrastructure and services or the cost of meeting those requirements. Such uncertainties might be present as a result of: latent defects (flaws in the infrastructure that are not apparent until work commences), policy changes (which imply a change in service requirements), demand risks (resulting from e.g. the introduction of user choice), changes in public needs, or rapid changes in technology.

The potential implications of applying these models where such uncertainties are serious are one or more of the following:

  • The private sector partner requires a significant risk premium to compensate for the uncertainty.
  • The public sector needs to change its specifications post-contract, leading to extra costs.
  • The public sector is stuck with a contract that fails to meet the public’s needs.
  • In extreme circumstances contracts have to be terminated at considerable public expense.

As it stands, one of the central issues is therefore how to develop infrastructure solutions in situations where such uncertainties are present.

New infrastructure challenges

While these models are least applicable in conditions of serious uncertainty, it is precisely here where many of the remaining infrastructure challenges lie.

For instance, there is a significant need to provide upgrade and refurbishment of existing schools, health care facilities, social housing and road and rail networks. But refurbishment and upgrade projects are less suitable for the PFI because they often involve a risk of latent defects.

In addition, in some areas, the infrastructure requirements are subject to significant technological uncertainties. In the waste sector, there are uncertainties about the optimal technical solution to enable local authorities to meet the EU Landfill Directive. In many areas of defence, it is often unclear what kind of infrastructure solution is technologically possible – let alone whether it would be affordable or value for money if it were possible. Information Technology (IT) projects are subject to well known uncertainties and complexities that make them unsuitable for delivery under a PFI model.

A changing policy landscape

While the limitations of existing models are becoming more apparent, changes in the policy and financial framework are also putting pressure on their use.

For example, in health the government is introducing patient choice and Payment by Results in the secondary care system. This will mean that money will increasingly follow the choices of patients who will seek the best combination of care, convenience, and waiting time. As a result, hospitals may need to be able to adapt their infrastructure and services at relatively short notice in order to meet changing public needs and demands. While this is an issue that could potentially affect all hospitals, regardless of how they have been procured, it may be particularly challenging for hospitals procured under PFI. In the case of PFI hospitals, any future changes to the infrastructure or service requirements would have to be negotiated with the private sector contractor. Given the strong position of the private contractor (see above) this could be difficult and costly. Partly as a consequence of the perceived expense and inflexibility of PFI, the future of several schemes is now in question.6

Similar consequences may result for schools from the implementation of the Schools White Paper.7 If implemented, this may increase pressure on schools to adapt themselves to the changing demands of parents. Again, this would tend to make the long-term service contracts of the kind used under PFI increasingly unsuitable.

Lastly, there are forthcoming changes in the accounting treatment of PFI transactions that may make them less attractive to the public sector. The accounting treatment of PFI transactions and many elements of the LEP/LIFT schemes can often lead to the relevant assets and liabilities being ‘off-balance sheet’ as regards the public sector. This can be seen as helpful with regard to the impact on the capital control budget and also the Net Debt economic control total. However, over the next few years UK Generally Accepted Accounting Principles (GAAP) are expected to converge with the rather different International Financial Reporting Standards. As a result, in the medium-term it may be challenging to achieve off-balance sheet treatment for such projects.8

So, for all these reasons there is an increasing need to think beyond the current delivery models to identify hybrid or amended models which can help meet these challenges.

More specifically, it would be desirable to:

  • Improve the value for money and flexibility of PFI where possible.
  • Develop models that have similar advantages to LEP/LIFT, but with more competitive pressure.
  • Identify models that could be suitable in conditions of serious uncertainty – where neither PFI nor LEP/LIFT work well.

New delivery models to meet today’s challenges

Improving affordability, competition, and flexibility

This section describes five new models that have the potential to help public sector organisations begin to meet these challenges. The ‘De-risked PFI’ has the potential to improve value for money in some situations. The ‘Integrator’ and ‘Competitive Partnership’ models have many of the advantages of the LEP/LIFT model, but provide more ongoing competitive pressure. Lastly, the ‘Alliancing’, and ‘Incremental Partnership’ models can be used in situations where uncertainty is great.

De-risked PFI

In a conventional PFI scheme, significant risks are transferred to the private sector partner. These include the risks of cost over-runs and delays in construction as well as meeting the operational requirements. The decision as to whether or not to transfer particular risks depends not only on who is best able to manage that risk but also on the financial implications of doing so. As a result, in some situations, value for money can be improved by reducing the overall risk transferred relative to a conventional PFI scheme.

One model that has been used in the concession for the DLR Woolwich Extension is to reduce the risk to the contractors by underwriting some of the financial risk during the operational phase (see Sidebar). In this case the contractor adds most value in the construction phase – so those risks remain transferred.

The Woolwich Docklands Light Railway extension: De-risking in action

Docklands Light Railway Limited (DLRL) is extending its network from near London City Airport to Woolwich Arsenal. The project cost is £240 million and involves a new twin bore tunnel under the Thames as well as creating a new DLR station at Woolwich Arsenal.

The primary delivery vehicle is a PFI (Design, Build, Finance and Maintain), but with ‘de-risking’ during the operational phase. The greatest risks in the project are during the construction phase (particularly the creation of the tunnels) – and it is here where DLRL sees the benefits of significant risk transfer. However, DLRL believe that once the infrastructure exists, the costs of transferring significant operational risk outweigh the benefits (because the actual benefit of risk transfer is dwarfed by the cost of private finance incurred). So they are guaranteeing 75 percent of the unitary payment after the infrastructure has been constructed and in satisfactory operation for two years (with 25 percent still at risk). With public sector agencies typically having good credit ratings (Transport for London currently has an AA credit rating), this is enabling the project to go ahead at substantially lower cost. The project will in any event be on-balance sheet, and therefore this enables DLRL to significantly improve affordability.

The advantages and disadvantages of the model are described in Figure 5.

Figure 5: The advantages and disadvantages of De-risked PFI 

Advantages

Disadvantages

Ability to spread cost over lifetime of asset

Inflexibility

Greater predictability over cost and time

Length of procurement

Focus on value for money over lifetime of asset

Impact on balance sheet status

Strong performance incentives

 

Increased value for money, relative to a conventional PFI

 

Source: Deloitte Research, 2006.

Accordingly, this ‘de-risking’ approach is likely to be a good option where:

  • The risks at the operational stage are perceived to be minor relative to risks during construction, or to decline swiftly after delivery.
  • The project would in any event be on-balance sheet.
  • The public sector body can afford to meet the extra costs that are incurred if the relevant risks materialise and/or the public sector is sufficiently confident that the risks will not materialise.

The Integrator

As discussed above, the LEP/LIFT model has important benefits but may not offer optimal competitive pressure over the lifetime of the project. One way of improving the overall competitive pressure is to retain the basic structure but to separate the role of the strategic partner (the ‘Integrator’) from that of direct delivery (design, construction and so on). We refer to this as the ‘Integrator’ model.

The distinctive element of the Integrator model is the inclusion of a private sector partner who has responsibility for project development (taking significant project risk) but has a less direct role in service provision. The Integrator is rewarded according to overall project outcomes wherever that is possible (with penalties for lateness, cost over-runs, poor quality etc). The Integrator then undertakes to arrange the necessary delivery functions, potentially using a variety of procurement options, including PFI and conventional procurement, as appropriate.

In some cases the Integrator is barred from being involved in direct delivery at all. In other cases, the Integrator is appointed to carry out the first phase of work, or specified works, but then barred from carrying out subsequent phases (see MoDEL below). The purpose of this prohibition is to remove the potential for conflict of interest between achieving best value for the public sector and maximising returns through the supply chain.

The advantages and disadvantages are set out in Figure 7.

Figure 7: Advantages and disadvantages of the Integrator 

Advantages

Disadvantages

The procurement costs over the project life are lower

If the appointment of the strategic partner takes place before any fixed price tender for works there is less assurance about their skills and capacity to commission the appropriate services

Flexibility over programme delivery

The lack of an integrated supply-chain

Ability for public sector to retain influence over strategic direction of investment

 

Potential for continuous improvement 

 

Early commercial input from private sector partner

 

Clarity of roles and responsibilities (less conflict of interest)

 

Improved competitive pressure 

 

Involvement of a wider range of organisations, including Small and Medium-sized Enterprises (SMEs)

 

Source: Deloitte Research, 2006.

The London Borough of Greenwich has been using an Integrator model to deliver their Building Schools for the Future programme. The Integrator Model has also been used in the recent MoDEL project for the Ministry of Defence (MoD).

The Integrator model works best in similar circumstances to the LEP/LIFT model, but particularly where the work is heterogeneous (composed of different elements whose costs are uncertain), making ongoing competitive pressure over all elements of the work vital.

The MoDEL Project: The Integrator in action

Project MoDEL involves the consolidation of seven MoD sites to a single location in RAF Northolt in London. The consolidation will relocate up to 3,500 military and civilian personnel into modern fit-for-purpose accommodation. This requires creating new facilities to house the personnel, enabling the transfer of staff to the new accommodation, and selling sites that are surplus to requirements. The consolidation budget is around £200 million and it will take up to five years to complete.

Neither a conventional procurement nor PFI would be suitable because of the uncertainty over the costs, work required, and future values of the sites for disposal. Instead, the approach taken has been to appoint an Integrator (termed the ‘Prime Plus Contractor’ in this case) who will take the principal risk on project delivery. All elements of the work are subject to open competition. The integrator competes for the initial specified works, and all currently unspecified works are then competitively procured by the Integrator. The Integrator is barred from carrying out works that are unspecified at financial close.

The Integrator is primarily remunerated through net disposal receipts and is responsible for ensuring that timescales and quality standards are met. This ensures that there are strong incentives for keeping costs down, consistent with other project objectives.

This model offers a potential approach for rationalising and upgrading estates within a single contractual framework, with a partner who can take significant risks on behalf of the public sector.

The project will reach financial close in the summer of 2006. 

Competitive Partnership

In the conventional LEP/LIFT model, if the public sector is dissatisfied with the perceived value for money of future works, it has the option of having that work carried out by another party (after a specified time). But if it did so it would lose the benefits of having a single agency having responsibility for delivery in that area. On the other hand if it does not have the option of going elsewhere the competitive pressure on the private sector partner can be weak.

To overcome this disadvantage, an alternative approach is the Competitive Partnership model in which several LEPs/LIFTcos are appointed separately, in competition with each other. The contracts allow the public sector to reallocate projects between them at a later date as overall performance becomes clear. The public sector can also use the cost and quality benchmarks of each LEP/LIFTco as a benchmark for the performance of the others.

One natural way of doing this would be to split the responsibilities by area. For instance, in schools, this could mean appointing two or more LEPs, each provisionally responsible for a different area. After the first phase of work, the public sector (for instance, local authority) would be able to compare the timeliness, quality and cost of the work carried out by each LEP. It would then be able to shift responsibilities away from the weaker performers towards the stronger ones as appropriate. A significant advantage here is that the work of each LEP can be used as a benchmark for the others – given that they are likely to be working under very similar conditions.

This model is currently being explored in both the schools sector and in housing and regeneration (Oldham and Rochdale). It has also been used successfully in the private sector by the Bank of America. Bank of America has approximately 4800 branches in 22 states. It procured outsourcing contracts to provide maintenance to their branches and allocated a geographical region to each. The contractors were required to achieve continuous improvement of their service, year-on-year and were incentivised through regular review and reallocation of the size of their respective areas.

The advantages and disadvantages of this approach are set out in Figure 9.

Figure 9: Advantages and disadvantages of Competitive Partnership 

Advantages

Disadvantages

The procurement costs over project life are lower

Contractually it is more complex than a conventional LEP/LIFT, and is therefore more demanding for the public sector

Flexibility over programme delivery 

 

Ability for public sector to retain influence over strategic direction of investment

 

Potential for continuous improvement 

 

Early commercial input from private sector partner

 

Competitive pressure is maintained over time

 

Effective benchmarking of costs is possible

 

Source: Deloitte Research, 2006.

This model would work best where the required work was of sufficient scale to make a division of this kind possible, and where the work was reasonably homogeneous and could be divided into sensible and comparable segments (e.g. by area).

Alliancing

All the models discussed so far require at least moderate certainty – about the infrastructure and service specifications; in the case of PFI, a high degree of certainty, in the case of LEP/LIFT, Integrator, and Competitive Partnership models relative certainty about the infrastructure needs, if not the exact timing and scale of the work. 

But what if it is not possible to have even that degree of certainty, perhaps because future developments are extremely uncertain, or because it is unclear what sort of infrastructure is technologically possible? One possible approach is the use of Alliancing. Alliancing is a term used to describe delivery models in which the focus is on encouraging collaboration through the use of payment mechanisms that ensure that the interests of all parties are aligned with the project objectives. The aim is to avoid the adversarial relationships and acrimony that sometimes characterise more conventional delivery models, and instead seek to ensure that all parties work together collaboratively for the good of the project. Common features of Alliancing agreements are:

  • A focus on specifying key project outcomes, rather than inputs, or processes.
  • The use of integrated project teams (which include representatives from the public sector and all relevant contractors).
  • Gain/painshare arrangements, which mean that all parties (public and private) have an interest in ensuring that all elements of the project are a success, and an incentive continuously to strive for out-performance, not simply minimum expectations.
  • Simplified arrangements for managing risk, for example a single insurance policy.

Alliancing has been used in the oil and gas sectors. More recently it has been used by the MoD (see below), and by BAA in the management of its Terminal 5 project. It has also been used for several public infrastructure projects in Australia and New Zealand. 10

The Alliancing model can take a number of forms. Sometimes the output specification and delivery is carried out by a single party. In other cases, it is possible to run separate competitive processes for the output specification and the delivery phase (depending on the extent of competition in the market place, and the synergy between output specification and delivery responsibilities).

The advantages and disadvantages are described in Figure 10.

Figure 10: Advantages and disadvantages of Alliancing 

Advantages

Disadvantages

Enables work to go forward, despite uncertainty

All major risks continue to lie with the public sector

If agreements are designed intelligently, can lead to a more cooperative, less adversarial relationship between public sector and private sector partners

Demanding for public sector in terms of both negotiation and ongoing project management

Source: Deloitte Research, 2006.

Alliancing is not a panacea for infrastructure projects, but can be successful where:

  • There is irresolvable uncertainty about the nature of the infrastructure or services required to meet project objectives (e.g. technological risks).
  • The infrastructure is large, indivisible (cannot be easily separated into discrete elements), and complex.
  • The public sector is an experienced manager of infrastructure projects and prepared and able to retain all significant project risks.

The Future Carrier (CVF) Project: Alliancing in action

The purpose of this project is to replace the current Invincible class of aircraft carriers (which date from the Cold War period) with two larger vessels that could support a more powerful air group. The approximate budget was £3 billion.

The first phase of the project – the Assessment phase – involved the development of several carrier designs. Two contractors – BAE Systems and Thales were appointed.

The decision as to how to procure this resulted in the selection of an Alliancing model in which KBR act as the ally, with BAE Systems and Thales contracted to produce the necessary components. The Alliancing framework aims to ensure that the ally is rewarded for project outcomes, and all parties are incentivised to economise wherever possible.
Source: MoD Major Projects Report 2005, National Audit Office, 2005.

Incremental Partnership

There are other situations in which although there is a high degree of uncertainty, Alliancing would not be suitable because the required infrastructure is smaller and can be built up in successive waves.

Under the Incremental Partnership approach the public sector enters into a framework agreement with a private sector partner who procures the necessary infrastructure and services on behalf of the public sector. The public sector can ‘call off’ specific projects as its requirements become clear. The private sector partner competitively procures the services and infrastructure from sub-contractors but retains overall responsibility for service levels as assessed against clear performance measures. There is no exclusivity for the private sector partner – the public sector retains the right to use alternative providers if it wishes.

Greenwich Council ICT: Incremental Partnership in action

In 2002, the London Borough of Greenwich was faced with reletting its ICT facilities management contract and addressing the increasing requirements for e-enabled service provision. The Council considered but rejected the option of a ‘big bang’ approach which would introduce a new package of infrastructure and services with a private sector partner. This was due to considerable uncertainty about the service requirements, the rapidity with which ICT systems can become obsolete, and the potential risk of entering into a major financial commitment with a private sector partner. It was also wary of entering into a relationship with a private sector partner that was not truly independent and would be constrained to offer its own service solutions.

As an alternative the Council contracted with Deloitte to act as the ‘service integrator’, under a framework agreement lasting for five years. The Council is then able to ‘call off’ individual projects as and when it wishes, without any long-term commitment. Deloitte then sub-contracts on behalf of the Council for the provision of new hardware and software as appropriate – using its procurement expertise to negotiate the best possible deals. The Council is not bound to use Deloitte’s services, but it has continued to see value in the relationship – having now worked on over 40 individual project briefs. Should the contract end, Deloitte’s licences and contracts would simply revert to Greenwich.

Source: Deloitte Research, 2006.

This avoids the weaknesses associated with ‘big bang’, large scale contracts that are difficult to reverse and which require a long-term commitment from both parties. This ‘Incremental Partnership’ model has been used successfully with Greenwich Council for the provision of new Information and Communication Technology (ICT) infrastructure (see sidebar).

Note that although this has similarities to the ‘Integrator’ model (discussed above) it differs in some crucial respects. In an Incremental Partnership (but not with an Integrator), the private sector partner has no exclusivity, the term of the agreement is much shorter (the partner is not necessarily responsible for the assets over their lifecycle) and there is typically no need for project finance structures such as an SPV (as the private sector partner does not provide capital).

The advantages and disadvantages are described in Figure 11.

Figure 11: Advantages and disadvantages of Incremental Partnership 

Advantages

Disadvantages

Low procurement costs (because typically only one OJEU11 notice)

Major risks continue to lie with public sector

High flexibility to meet changing Requirements

 

Does not require a long-term contract; relationship can be formed gradually

 

Competitive pressure is maintained

 

Source: Deloitte Research, 2006

Accordingly, the Incremental Partnership model is potentially beneficial where the infrastructure in question is divisible (can be built up in discrete phases) where it has a short life, and where there are ongoing uncertainties about the requirements. It is also suitable for smaller organisations that lack the internal capacity to manage the infrastructure procurement themselves. In these situations, the high level of flexibility of the model makes it attractive – allowing the public sector to build up the infrastructure it requires, without the need for a long-term agreement.

To read the next part of this article please click on the Next Page link below

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

This article is part of a series: Click Building Flexibility. New delivery models for public infrastructure projects (Continued) for the next article.
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.