Project management and the private finance initiative

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to secure the contract. In the early stages of procurement it is more closely related to what the public sector do, and as it progresses to preferred bidder stage the pendulum swings towards the private sector. In contrast, an external consultant involved in a public sector education project stated that in getting to preferred bidder: ‘The bidders are always on the front foot, they are always pushing to win, they are pushing to show themselves off, and they’re pushing to get the deal moved along.’ Thus, overall it appears to vary between the public and private sector. However, in terms of project management it is therefore less important for the public sector to have a project manager because the deal would be pushed along regardless by the bidder’s motivation. At preferred bidder stage the tables turn, because the public sector has selected one contractor and there is pressure to agree a deal. This is a difficult stage for the public sector because it comes down to negotiations, and in general the private sector will try to obtain concessions after they are made preferred bidder prior to financial close. On the client-side, one project sponsor involved in a judicial project suggested that pre-contract all parties drive forward the PFI project because there is a mutual interest to try to reach a satisfactory conclusion. Post-contract, during the construction phase, the driver is very much on the SPV side because they want to get the building operational and income-producing. However, during construction the public sector side will be pushing things such as design development. Overall the view was that there are different drivers from the various parties, but in general the drive to get the building ready for use comes from the SPV construction side. However, a Director of an SPV in the health sector pointed out that although the private sector has a vested interest in driving the PFI forward, whether in the bidding process or post-contract, project managers are not well skilled at driving things forward. 3.6 Understanding PFI success Success is measured at different levels, depending on the project stage being measured. In general, success is dependent on understanding the other party’s needs and drivers for success. An SPV representative for a health project suggested that the long period of the relationship and how to maximise benefit is not necessarily understood: ‘A client doesn’t always latch on to it because they can’t quite get out of the more conventional way of thinking about "I’m going to get as much as I can out of this contractor" and it’s a problem for the contractor because they don’t realise how much they need to do to make a relationship work.’ Success is measured at several levels within PFI schemes. The main contractor is responsible for completing the construction stage, which is one measurable outcome, but performance of the contract once the building is ready for occupation and use is as important in terms of gauging success. 17 chapter three Interviews with PFI practitioners Project management and the private finance initiative One external consultant to a health project stated that there is an attitude in the public sector that contractors should be denied access to profitability, and in the private sector there are still contractors that just want to throw buildings up with no thought for the clients’ changing needs. Although success priorities might be different, a project must be fit for purpose and commercially viable. According to an external consultant for an education project: ‘What constitutes success is an innovative arrangement that seems to work, and it has a pragmatic and balanced approach to the payment mechanism.’ 3.7 Future changes The interviews showed that: • There needs to be improved public sector understanding of project management roles and expertise available; • Project management needs to be involved early in the PFI process, both from the public sector and private sector points of view; • There needs to be greater standardisation in terms of streamlining processes and agreeing standard contract documents; and • There needs to be better skills transfer within the public sector which can be founded on learning from experience. Very often public sector organisations do not provide adequate resources to manage PFI schemes. They need to provide the right level of administrative support for PFI projects. One respondent stated that a culture change is required in terms of the public sector informing staff about what is involved in PFI and accepting that it is a huge drain on resources and time. Proper training for project managers in the public sector should also be undertaken in the future. According to one respondent, the PFI process is long drawn out and wasteful in resources, because five or six companies might bid for a project, with each company employing different teams and project managers. More standardisation and greater control at senior level of how contract risks are apportioned, so that control is kept at the principal level, not at the legal level, will clearly make a difference. One respondent suggested that the Private Finance Unit (PFU) should produce guidelines about the services of project management for hospital trusts, and advise trusts on the PFI process by producing a central knowledge base that can be bought into schemes to set them up or help them along. 3.8 Conclusions The main findings from the interviews are summarised as follows: Management structures and the project manager’s role • All six case study projects had similar management structures that followed the conventional PFI model, comprising the project sponsor, the SPV and the fund, which employed various specialist consultants.
• All the organisations had a project sponsor, and this tended to be the Chief Executive in the NHS and a Project Board/Steering Group in the public sector. • The Project Director oversaw the project manager who headed up the day-to-day detail and was directly accountable to the project sponsor. • Although (within local authorities) internal project managers were seen as the best option, the traditional boundaries between in-house and external consultants were becoming blurred within PFI structures. • One of the dangers of using an external project manager was that ‘loyalty’ may be missing. • Members also tended to be principally involved in the inception, bidding and construction stages of a project, where project managers from a construction and property background could provide the most valuable input. Project management knowledge and expertise • Public sector project management in PFI does well when it comes to client understanding, process understanding and political skills, but is relatively weak in negotiating and management skills. The public sector also lacks skills in whole life cycle costing (including FM); construction, financial modelling, stakeholder management, and people skills. • Private sector project management in PFI does well when it comes to PFI and construction experience, financial modelling and technical and legal advice, but is relatively weak in specialist knowledge such as healthcare. Skills are also lacking here in whole life cycle costing (which includes FM), client understanding, and people skills. • PFI is increasingly seen as a partnership which should marry the best skills from the public and private sectors, and project management skills have a key role to play in this. Responsibility and drive in PFI Projects • Driving forward PFI projects varies by project stage. For example, at ITN the client is the driver; at bidding stage it is the public sector client; at pre-contract and preferred bidder stage it is all three parties; at post-contract construction stage it is the SPV; at occupation it is the SPV and Client. • Opinion is split as to where overall responsibility lies, whether with the public sector, private sector or the partnership. • From the SPV and the client’s perspective, both think that they are the overall driver of PFI projects and the response depended on who was asked. • Funders’ influence starts only at the preferred bidder stage. Funders are focused primarily on risk management, although they also bring discipline in terms of due diligence to PFI. • Understanding PFI success • Different drivers arise at different stages of the PFI process. • The public sector is more concerned with getting the right mix and ensuring that their positions are protected. • Project managers are frequently not adequately skilled at driving projects forward. • Future changes • There needs to be improved public sector understanding of project management roles and expertise available. • Project management needs to be involved early in the PFI process, both from the public sector and private sector’s points of view. • There needs to be greater standardisation in terms of streamlining processes and agreeing standard contract documents. • There needs to be better skills transfer within the public sector which can be founded on learning from experience. Project management and the private finance initiative chapter three Interviews with PFI practitioners 18
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