Project management and the private finance initiative

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For example, very few clients would have the same level of construction skill and knowledge as the construction arm of an SPV. According to a project manager acting on the client side (central government custodial sector): ‘The funding providers, the private sector, the management are much more specialised. They’re specialised in their area whereas I think that the project manager from our side (i.e.) myself and my predecessors have had much broader based skills because we multi-task.’ However, the current research also found that the private sector, and the SPV in particular, is accustomed to conducting commercial negotiations, whereas in general the public sector lacks these skills. Fundamentally the public sector needs to be able to match the skills found in the private sector in order to lead them through the complexities of the PFI process. In the private sector there also needs to be an awareness of the political processes that underpin all decision-making because there is always a chain of command to follow. It was noted that the skill that is most beneficial is actual ‘first-hand knowledge’ of how PFI works, how the project is structured, and the way in which the relationships are arranged, particularly within public sector organisations. In essence the PFI contract is a partnering type contract that is in place for many years, and therefore building up relationships that will be maintained is a crucial aspect of the success of PFI. According to an external consultant project manager (central government judicial sector), both sectors need to be aware of the roles and responsibilities of their counterparts. On the commercial side there needs to be an awareness of what makes the public sector ‘tick’, and what can slow down the process. Conversely a public sector project manager needs to understand the commercial nature of PFI, especially the impact of time. To be able to agree an extremely complex contract such as a PFI scheme, irrespective of size, building relationships that are going to last and be effective is absolutely essential. Thus, the PFI process requires: ‘… Project managers who can negotiate and persuade and influence rather than just express an opinion.’ With regard to risk appreciation, a Director of Development for SPV (NHS) stated that risk appreciation is considered very important. Allied with understanding the client’s business and understanding the other party’s business, it was suggested that: ‘…If you understand the client then you’ve got a very good handle on understanding his risks.’ On the whole the private sector generally has a greater awareness of risk and is better at assessing risk, but not exclusively. According to one external consultant (local government education sector), the public sector tends to comprise ‘safety first’ people who take a more conservative view and often look at risk in quite an advanced way. A number of respondents in both the public and private sector stated that there is a lack of personnel with adequate 15 chapter three Interviews with PFI practitioners Project management and the private finance initiative negotiation skills, and that this is an area where people need training because they are not skills that come naturally. Furthermore, the ability to communicate effectively was highlighted as an important factor in PFI. Generally there is a lack of project managers with adequate ‘people skills’, yet project managers need to be able to manage their consultants in an efficient way and communicate effectively. In terms of the public sector, it was suggested that the two key skills that are required for managing PFI are people skills and organisational skills. Specifically with regard to project management skills, a project manager on the client side (central government custodial sector) stated that training in PRINCE and project finance is essential for working in PFI, and commented that: ‘… What I’ve ended up is being a sort of "Liquorice Allsorts" of PFI…’ In addition, it is the private sector’s experience and familiarity with construction and PFI projects that is their real strength. Private sector project managers also need to have a wider ‘all-round knowledge’ of the PFI sector because they are more heavily involved in managing the financial advisors, the legal advisors, the technical side and operational elements. The research found that the private sector provides the skill of managing large construction contracts, but the different stages of a PFI project require different management qualities. For example, during the bidding stages an all-round project manager/salesman is required, and at the preferred bidder stage commercial and legal skills are needed to finalise the contract. It was suggested by a Director of an SPV (NHS) that the private sector side brings more added value to PFI because it goes that ‘extra bit further’. Specifically, in the private sector it is about focusing on the outcome of the resource resulting to a degree more speed and skill in arriving at the solution. A consultant project manager to an NHS project articulated that: ‘The private sector brings a lot of commercial skills. That is often married by the public sector skills in terms of consultations through very large and unwieldy client organisations with lots of layers, lots of stakeholders and lots of management decisions being made.’ 3.4.3 Other skills shortages According to one external consultant (local government education sector) many project management skills are in short supply in the public sector. Clearly the public sector is at a disadvantage because it is inexperienced in the type and extent of commercial negotiations involved in PFI. One project sponsor (central government custodial sector) stated that expertise in financial modelling is in very short supply and considerable savings could be made if this skill was developed. People who are more conversant in the language of PFI on the public sector side are still in comparatively short supply. In particular, there is a shortage of people familiar with the commercial and financial issues associated with PFI. However, those in the public sector very often only undertake one PFI project in their career and consequently, according to one
espondent on the SPV side, they tend to be inexperienced, naïve and, on occasion, ‘semi-disinterested’. What is in short supply are people with rounded experience who can appreciate the other party’s point of view and can effectively negotiate. A Director of an SPV (NHS) noted that on occasion there was a lack of project management skills on the client side in terms of setting programmes, breaking the work down, and monitoring progress. It was suggested that all parties in PFI should involve project management as early as possible to help mitigate the problem. However, experienced project managers on the client side are in short supply. It was highlighted that personnel within an authority or trust with PFI experience are highly marketable in the industry and tend to be headhunted. This results in a lack of continuity. According to one external consultant (local government education sector): ‘On one of my projects … I’ve only been involved with the job 21 months, I’m on my fourth PFI project manager for the authority so there is definitely a skills shortage in the public sector.’ Traditionally FM providers were employed once a building, facility or infrastructure had been constructed and was ready for occupation. Because of the nature of PFI, FM providers are being consulted pre-construction or during the construction process with regard to design, programming replacement costs and on-going maintenance. According to one Director of an SPV (NHS project), FM providers are currently not good at responding to requests to comment on designs for a building because historically they inherit the building on completion rather than inputting into its design. Clearly, the input required from facilities managers will increase as the PFI market expands, and the skill of whole life costing needs to be developed. A General Manager for an SPV (NHS project) pointed out that to truly understand the client’s business and what it means is in itself a complex skill and one that is in short supply. This is particularly true for the health sector, where the complexities of the clinical nature of hospitals has an enormous impact on provision under PFI. Overall the private sector tends to be slightly more commercial than the public sector technical advisors, who tend to be more politically adept at finding their way through the administrative maze of the public sector side. On the SPV side people with the diversity of property and FM skills are in short supply. 3.5 Responsibility and drive for PFI projects 3.5.1 Overview Overall the interviews highlighted that: • Driving forward PFI projects varies by project stage. At: • ITT, the client is the driver; • bidding stage, it varies between the public and private sector; • pre-contract and preferred bidder stage, it is all three parties; • post-contract construction stage, it is the SPV; • occupation, it is the SPV and Client; and • Opinion was split as to where overall responsibility lies, whether with the public, sector, private sector or the partnership. It was also clear from the interviews that: • Different drivers arise at different stages of the PFI process; • Project managers are frequently not adequately skilled at driving projects forward; and • From the SPV and the client’s perspective they both thought that they were the overall driver of PFI projects – the response depended on who was asked. 3.5.2 Responsibility Successful PFI projects require all sides working towards a satisfactory conclusion. Not only should the consortium and client work together, but also each party is dependent on the other party aiming for success. In general, opinion was split with regard to overall responsibility for achieving successful PFI projects. Furthermore, a project sponsor (custodial) suggested that responsibility has to lie with the public sector because they are responsible for spending public money. A project sponsor involved in a health project stated that the private sector side tends to be more concerned with profit, whereas the client requires value for money, quality, and a scheme delivered on time; and although both sides aim for a successful project, the aspirations of the organisation differ. However, overall the public sector client has most responsibility. On the other hand, a number of respondents considered it the responsibility of the partnership. According to an SPV representative in the custodial sector: ‘The private sector has the responsibility to deliver the facility, if you like, which includes both the building and the services, but unless the public sector is working in partnership with them then it’s not necessarily going to be an effective project.’ 3.5.3 Driving forward PFI projects There were some contradictory views in relation to the driver in PFI projects. Overall the consensus was that it fluctuates during the course of the project, but generally the pressure from the SPV and the client is equal. The dynamics tend to flow from one to another; for example, when the SPV pressures the client with regard to a particular financial aspect of the deal, the client in return will pressure the SPV to agree a price. According to an external consultant employed on a health project during the negotiation period, the public sector client drives the PFI process forward. Then when it gets to preferred bidder stage, both sectors drive it forward, with slightly more pressure coming from the private sector because they are keen Project management and the private finance initiative chapter three Interviews with PFI practitioners 16
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