Understanding the Public Services Industy

Public Services Industry Review
PPP/PFI and the transfer of risk has been a key enabler for the commitment to longer term
relationships and successfully delivering public service projects.
Finally, a number of respondents mentioned DH’s social enterprise programme and its
Social Enterprise Fund as a positive way of encouraging third sector involvement.
Q3. What are the biggest barriers to the private and third sectors entering and operating in
the PSI?
Respondents suggested that the biggest barriers to entering and operating in the PSI were
often the reverse of those factors which had been effective, so a lack of clear objectives, a
lack of a pipeline of packaged projects and increased political uncertainty all contribute to
unwillingness to enter the PSI market.
The procurement process was frequently mentioned as a barrier, particularly for smaller
private and third sector operators. This was often seen as long, costly, susceptible to delay
(during the procurement process and awaiting final approval), and inconsistent across
similar markets.
The was also a general criticism of the lack of skills, expertise and resources within the
public sector and supply side commissioning teams with concerns that commissioning
teams learn as they go and lessons learnt are not shared. Further skills weaknesses were in
decision making and negotiation.
Responses suggested that service provision within large asset-based contacts is a barrier
for smaller PSI operators, because of the significant bidding costs involved. Respondents
also noted that service providers recover their bid costs over a much greater timeframe than
construction contractors, amplifying the effect cost of bid costs.
Commercial barriers include service bundling not matching market capacity (e.g. IT and
facilities management) and inappropriate risk transfer. Where PSI operators are expected to
shoulder much of the risk, without commensurate reward opportunity, then PSI participation
is likely to be constrained. There was also a concern expressed that commissioning models
which require subcontractors (which may be the only way for small and third operators to
engage with the PSI) can lead to excessive risk from the prime contractor.
Problems of an uneven playing field were raised as a hindrance, with examples including
tax treatment and pension arrangements, and incumbent advantage.
Q4. Which procurement models apply best in what circumstances and why?
The overriding sentiment from respondents was that all procurement models should be built
on the principle of partnership, and the suitable contracting model should be appropriate to
the specific requirements and circumstances of the procurement.
Responses described numerous procurement models, from simple contracting (e.g.
Catalyst) to PFI/PPP arrangements, with a range of alternatives including alliancing,
framework agreements, multi-service contracts and joint ventures. The geographical
element was an important aspect of the procurement ranging from local procuring driven
by the need to stimulate the local economy, regional procuring where some economies
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