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PPP - Parnership or Private Profit

  • 14-01-2021 12:44pm
    #1
    Moderators, Science, Health & Environment Moderators Posts: 17,125 Mod ✭✭✭✭ Sam Russell


    marno21 wrote: »

    PPP = public private partnership. As opposed to directly funded by the exchequer. You can find more information on PPPs on Google rather than me copying and pasting here.

    PPP is better described as Public funds into Private Pockets. There is no partnership - the public takes the risk and the private bit takes the profits.

    Given that current interest rates are zero or thereabouts for direct funding of the Irish Gov, it makes no sense for a PPP to be used to fund this project - or any current project.

    The Gov can explore various EU funding vehicles that would be cheaper and with less strings attached. Internationally, PPPs are falling out of favour in all jurisdictions, as they usually fail and need financing at much higher cost.


Comments

  • Registered Users Posts: 5,294 ✭✭✭ Pete_Cavan


    PPP is better described as Public funds into Private Pockets. There is no partnership - the public takes the risk and the private bit takes the profits.

    Given that current interest rates are zero or thereabouts for direct funding of the Irish Gov, it makes no sense for a PPP to be used to fund this project - or any current project.

    The Gov can explore various EU funding vehicles that would be cheaper and with less strings attached. Internationally, PPPs are falling out of favour in all jurisdictions, as they usually fail and need financing at much higher cost.

    Concession type contracts where the PPP Contractor recoups money directly from the infrastructure built (through tolls or fairbox) have fallen out of favour but DBFOM (or part thereof) are still normal for large infrastructure projects. It creates single point responsibility and removes disputes over whether a problem is caused by a design, build quality or maintenance issue. Having the same company design it, built it and then operate it for 25 or 30 years puts the onus on them to do it right rather than having the builder walk away and having to go through a battle if issues arise later.

    For highly complex systems, like ventilation for an underground tunnel (which also includes things like pressure equalisation, smoke extract in event of fire, etc.), you really need the same company designing, installing maintaining it afterwards. Not doing so just means different companies pointing the finger at each other for any problems, even companies whose involvement ended years earlier. Having one large company ultimately responsible for everything gives a lot of protection to the client.


  • Moderators, Science, Health & Environment Moderators Posts: 17,125 Mod ✭✭✭✭ Sam Russell


    Pete_Cavan wrote: »
    Concession type contracts where the PPP Contractor recoups money directly from the infrastructure built (through tolls or fairbox) have fallen out of favour but DBFOM (or part thereof) are still normal for large infrastructure projects. It creates single point responsibility and removes disputes over whether a problem is caused by a design, build quality or maintenance issue. Having the same company design it, built it and then operate it for 25 or 30 years puts the onus on them to do it right rather than having the builder walk away and having to go through a battle if issues arise later.

    For highly complex systems, like ventilation for an underground tunnel (which also includes things like pressure equalisation, smoke extract in event of fire, etc.), you really need the same company designing, installing maintaining it afterwards. Not doing so just means different companies pointing the finger at each other for any problems, even companies whose involvement ended years earlier. Having one large company ultimately responsible for everything gives a lot of protection to the client.

    Privatisation of the Public Purse is not in the interest of the public who pay into the purse through their taxes, while the private purse makes withdrawals.

    I can see the point you are making, but I think that is oversimplified. The funding should be under public remit as the sovereign Gov gets better rates. The risk always seems to fall to the public. If it does not, the private body disappears into the ether, leaving debts and a receiver - so even more cost laid at the door of the public. A well drawn contract, with clear responsibility used to be the way these things were done.

    However, on the other hand, the printer ordered by the Dail committee at a cost of €900k, but installed cost came to €2 million or so as it did not fit the building which had to be rebuilt, and is still not working because .... well you get the idea.

    Just look at how the Crossrail line is working (or not) out in London, or their HS2 railway.

    It appears there is no right answer, but Barcelona and Madrid did Metros without huge problems.

    Why are infrastructures in Ireland so expensive?

    Edit:
    I think I should open a new thread on PPP, rather than taking this off-topic, although it is relevant to Metro if they are thinking of PPP funding.


  • Registered Users Posts: 5,294 ✭✭✭ Pete_Cavan


    Privatisation of the Public Purse is not in the interest of the public who pay into the purse through their taxes, while the private purse makes withdrawals.

    I can see the point you are making, but I think that is oversimplified. The funding should be under public remit as the sovereign Gov gets better rates. The risk always seems to fall to the public. If it does not, the private body disappears into the ether, leaving debts and a receiver - so even more cost laid at the door of the public. A well drawn contract, with clear responsibility used to be the way these things were done.

    However, on the other hand, the printer ordered by the Dail committee at a cost of €900k, but installed cost came to €2 million or so as it did not fit the building which had to be rebuilt, and is still not working because .... well you get the idea.

    Just look at how the Crossrail line is working (or not) out in London, or their HS2 railway.

    It appears there is no right answer, but Barcelona and Madrid did Metros without huge problems.

    Why are infrastructures in Ireland so expensive?

    Edit:
    I think I should open a new thread on PPP, rather than taking this off-topic, although it is relevant to Metro if they are thinking of PPP funding.

    Not sure why you mention the Dail printer as it was certainly not a PPP. The PPP (or PFI as they call it) element of Crossrail was for the rolling stock only, as will be the case with Metrolink. The Barcelona and Madrid metros were developed over decades, not sure what they have to do with anything. None of which says anything about PPPs.

    The vast majority of public construction works are carried out by the private sector, PPP is just another form of doing that. I assume that you are not suggesting that the state build the metro itself using direct labour, I doubt even Paul Murphy would go that far! A PPP can be "a well drawn contract" as much as a non-PPP can be a badly drawn contract.

    Whether financing from the private company should be included in the contract or financing is directly from the government can be debated but without it, a PPP just becomes a DBOM. Not including financing probably actually makes it easier for the private company to "disappear into the ether" as they will have been paid for works completed much earlier. If they are getting paid over a longer period, repayments can cease for any under-performance.

    For Metrolink, the PPP element is for the rolling stock. If the PPP company finances the manufacture of the rolling stock but only gets paid a portion of that every year over the life of the contract, the client is in a much stronger position should problems arise. See here for an overview of the proposed PPP for Metrolink;
    A proposed PPP with the following scope:
    • The design, manufacture, supply, testing and commissioning and maintenance of Rolling Stock;
    • Fit out of the Depot and Operations Control Centre;
    • The design, manufacture, installation, testing and commissioning of the Platform Screen Doors and Command & Control Signalling; and
    • Operation and maintenance of the automated driverless railway for a period in the range, approximately, of 15 to 25 years from the operations commencement date. In relation to fares, an approach similar to that used for the Luas services in Dublin is intended. In terms of payment mechanism, an availability-based approach is being considered but the detail of this approach is yet to be finalised.

    This is what I was getting at previously, to procure everything separately and then try to manage and coordinate all these separate contractors would be a nightmare and everyone would blame each other for any problems. Much easier to have one contract and single point responsibility for these elements. It is easier to procure, and leads to simplified contract administration, having one large contract than have multiple highly interdependent but separate contracts.


  • Moderators, Science, Health & Environment Moderators Posts: 17,125 Mod ✭✭✭✭ Sam Russell


    The Dail printer is an example of public procurement that fell flat on its face with transparent incompetence. It is not unusual for such examples to come to light, but not all do.

    What I understand by PPP is where the state hands over control of a project - funding, design, construction, implementation, and then operation.

    Now - funding - it is almost certain that the state can provide funding at lower cost because they are a sovereign state - and certainly in the current environment. It is this aspect I am most against.

    Design - well the state does a lot of contracting out during design, but oversees the result. This is usually achieved by a succession of tender/contract deals with specialist design teams. It is unlikely this would change.

    Construction - a problem area because of 'increased costs' arising because of inflation, design changes, chancers pulling a fast one, etc. That is where a good tight contract come into play, and it is this that gets the public side trying to get out of the blame region early.

    Implementation is fairly straightforward, and if everything has gone well, only delays are a problem.

    Finally operation - well, just look at the West Link Bridge on the M50. Built for IR£10 million opening in 1990, with a second bridge being built opening in 2003. The state was left building the motorway to connect to it. NTR got the right to charge tolls for 30 years. After 28 years, the state bought out the rights for €500 million.

    Now there is a scandal behind this, but it is in the public record that NTR allowed huge traffic backups in both directions because they were unwilling to put in barrier free tolling, or alleviate the traffic problems in anyway. Now if there ever was an example of a bad deal for the state and a very good deal for the operator this is it. It was the first PPP in this state. (Of course that term only got used later).

    We should be very careful giving over too much control to private consortiums that might be allowed to operate with limited oversight. Just look at Carillion.


  • Registered Users Posts: 5,294 ✭✭✭ Pete_Cavan


    Just to say, I don't actually agree with this being separated into a separate thread. There are many factors which influence the most appropriate contract strategy for any individual project and there is not much point in a broad hypothetical discussion as it is the specifics of the project which determine the appropriate strategy.

    If this thread is just going to be some posters making blanket statements that PPPs are awful and making up other terms for it using those letters then there is no discussion to be had. I was pointing out how such contractual models can be appropriate for a project like Metrolink but I suspect my position will be presented as PPPs are universally wonderful, which is absolutely not the case. The title of the thread already suggests one extreme or the other.

    I purposely tried to keep my posts on the subject relevant to Metrolink and I think these posts are more relevant there. I suspect that this thread will descend to people arguing from either extreme of the spectrum with little room for nuance so I will be stepping away.

    The fact that the Dail printer is still being talked about despite it not being a PPP says it all.


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  • Moderators, Science, Health & Environment Moderators Posts: 17,125 Mod ✭✭✭✭ Sam Russell


    I accept your point and your are free to bring up PPP in respect to Metrolink on that thread, but I think it is worth discussing PPP on a broader basis.

    The PPP model has been used in many third world countries as a way of enriching a class of investor at the states expense. If the project fails, the PPP partner ups the charges or walks, leaving failing infrastructure that is hard to rectify - if at all. Look at the Flint Water System.

    Now there are a number of major projects either on stream or about to come on stream. National Broadband, Dart Expansion, Metrolink, Cork NRR, and the M20. One could add the Busconnects project to this list. Now it would be useful to examine each of these and consider whether the application of PPP would be appropriate.

    Now another set of projects that are not PPP are those associated with housing - which are not exactly PPP but share a number of aspects. Add in the 'shared living' and 'shared ownership' mortgages and we are following the failed UK housing model.


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