MASTER THESIS FOR SYSTEMS ENGINEERING, POLICY ANALYSIS & MANAGEMENT
DELFT TECHNICAL UNIVERSITY OF TECHNOLOGY
FACULTY OF TECHNOLOGY, POLICY & MANAGEMENT
A
UTHOR
F
EDOR
H.L.
VAN DER
P
OST
JULY, 2011
A critical reflection of the decision process and inherent instruments leading
towards the contracting decision for large Dutch infrastructural projects
PRIVATE FINANCING FOR INFRASTRUCTURAL PROJECTS IN
THE NETHERLANDS: ADDED VALUE OR ILLUSION?
PUBLIC VERSION
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TUDELFT |
Personalia
P
ERSONALIA
Author
Drs. F.H.L. van der Post Student number: 1176080 [email protected]
Faculty
Technology Policy & Management 1st Supervisor
Dr. M. de Bruijne 2nd Supervisor Prof. Dr. J.J. Bouma
Section Professor Prof. Mr. Dr. E.F. Ten Heuvelhof
Company Supervisor Ir. A.R. Schütte
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TUDELFT |PREFACE
P
REFACE
Before you lies the final version of my master thesis, written for the TU Delft master program ―Systems Engineering, Policy Analysis & Management‖ of the faculty Technology, Policy and Management within the section Policy, Organization, Law & Gaming. The research has been carried out during the period late March 2011 – July 2011 and indeed emerged from quite an intensive planning schedule.
I started this thesis with hardly any prior knowledge about infrastructures (I have an ICT-domain background) nor about the political procedures around this, which demanded extra effort to become familiar with the material. However, my Erasmus background in Finance & Investments helped me quickly understand financial matters, thereby saving time in that area.
I experienced both doing the research and the analyses on this particular topic as very challenging and therefore mostly enjoyable – and inevitable sometimes frustrating. Furthermore, I am quite satisfied with the results of the study, as they turned out to be of larger relevancy than I had initially expected, before starting with the thesis.
It goes without saying that I would not have been able to deliver this report without the valuable feedback, coaching and flexibility of my four supervisors. Therefore I would like to express my sincerest gratefulness to Dr. M. de Bruijne (TU Delft), Prof. Dr. J.J. Bouma (TU Delft), Prof. Mr. Dr. E.F. Ten Heuvelhof and of course to my mentor at AT Osborne Ir. A.R. Schutte. Furthermore I would like to thank AT Osborne for being very accommodating in my search for data and interesting interviewees.
Since this research has made use of data originating from confidential data sources such as PPC- and PSC-reports, the publicly available version of this thesis blinds the references to these sources. Furthermore, this thesis contains a series of interviews which been conducted for this purpose. Due to the strong nature of the results of this report which are often aided by statements made in interviews, and because we do not intend to damage reputations of interviewees or their organizations we have also decided to blind the identities of the interviewees and not include the transcripts in the publicly available version. The exam committee consisting of the persons mentioned in the paragraph above however have full disclosure in order to evaluate my entire work.
Before starting to read this thesis, I would strongly recommend readers getting a cup of coffee – or 20, more or less corresponding to the daily rate I was on while making it.
Fedor H.L. van der Post Delft, July 2011
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TUDELFT |MANAGEMENT Summary
M
ANAGEMENT
S
UMMARY
This thesis focuses on Public Private Partnerships (PPPs) for infrastructural projects, in which PPPs entail Design Build Finance Maintain (and Operate), or DBFM(O) contracts. The main differences of such contracts with more traditional contracts is the establishment of a project-specific Special Purpose Company (SPC), the need for external financing and governmental payments based on the availability of the infrastructure; indeed, a long-term service contract (20-30 years) rather than a construction/product contract – illustrated in diagram 1 below.
Diagram 1. Cash Flows DBFM-Contract versus DB+M contract
The Dutch government, with infrastructural execution agency Rijkswaterstaat in particular, is ravenous for these DBFM-contracts, since it allows Rijkswaterstaat to transfer risks to the party who is best able to control them. Furthermore, these contract forms relieve Rijkswaterstaat from many responsibilities and duties while making use of market efficiency and the external discipline on the contractors by external financiers which would speed up the construction process and ensure as little maintenance will be performed as possible – since penalties are charged to the SPC for closing off roads.
More importantly, Rijkswaterstaat argues that these contracts warrant a much higher Value for Money than more traditional contracts (e.g. Design & Build); either less costs for the same scope, or more scope for the same amount of money. Rijkswaterstaat bases this conclusion on two important decision instruments:
The Public Private Comparator (PPC): This decision instrument is used for a preliminary comparison on the value of contract costs. Indeed this instrument is based on personal input, experiences and historical figures. With this instrument at least one PPP contract (e.g. DBFM) compared to at least one non-PPP contract (typically Design & Build). The instrument focuses on the design, construction and exploitation costs of the infrastructure but disregards the effects of external financing and therefore the availability based payment structure. A comparison of the Net Present Value of the costs for each contract determines the calculated ―added value‖ of a particular contract – assuming the same project scope for each contract. In case the PPC indicates added value for the PPP contract a tender process on this contract form will be started.
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TUDELFT |RESEARCH Goal The Public Sector Comparator (PSC): The Public Sector Comparator is the determination of a
benchmark versus the private PPP- bids in tender process. It estimates - to a greater detail than PPC - how much it would have cost (in net present value terms) the government to execute a project with the same scope as each of the private bids, but then using a non-PPP contract form (e.g. D&B). The private bids should always be lower than the PSC benchmark, else it will not be chosen. Rijkswaterstaat records the NPV difference between the PSC and the value agreed on in the final DBFM-contract as the ―realized added value‖ of the DBFM contract. The issue here, is that both of these instruments are based on estimations rather than ―hard facts‖, making the use of the term ―added value‖ to the PPP contracts disputable.
R
ESEARCHG
OALFollowing from the latter, the main research goal of this thesis was to examine whether private financing increase the financial-economic Value for Money for infrastructural projects in the way Rijkswaterstaat expects. Since these expectations follow from the way the PSC and PPC work, and how they are used in the decision process, the following two sub-questions were tried to be answered:
1. Are the PPC and PSC based on valid assumptions and methods?
2. Is the decision process – from the PPC onwards – arranged in an appropriate way for selecting the optimal contract for infrastructural projects, from a governmental perspective?
M
ETHODThis thesis was made using the methodology of case study research. A common and robust way of doing research and conducting analyses in case study research is called triangulation, in which the researcher attempts to confirm facts by using different data sources from the same category (e.g. interviewing multiple persons, or comparing academic articles) in combination with data sources from other categories: in example confirming academic findings and governmental publications by means of conducting interviews with relevant people.
Eventually, for this research sixteen expert interviews have been conducted, complemented by investigating governmental publications, confidential PPC & PSC reports and academic research in numerous papers on public finance and risk management.
M
AINC
ONCLUSIONSAfter an intensive research process, the following set of main conclusions could be drawn up1, indicating that private financing - as in PPP contracts - does not add value like the PPC and PSC decision instruments make Rijkswaterstaat believe:
Misuse and (in)transparency of PPC & PSC : There is room for manipulation in both the PPC and PSC, since these instruments are based on subjective input and are undisclosed. Ignorance or underestimating costs of financing in PPC: The costs of financing are
underestimated and more often completely ignored in the PPC. This result in a bias towards PPP-contracts, since these financing costs are substantial.
1
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TUDELFT |RECOMMENDATIONS Inappropriate discount rate in PPC & PSC: The discount rate used for calculating the net
present value in both the PPC & PSC is unjustified; they include a risk spread which – due to the cost - makes riskier projects seem more attractive, leading to irrational decision making.
The costs of scope changes, delays and uncertainties: The impact scope changes, delays and the occurrence of unforeseen risks have on the costs for Rijkswaterstaat in DBFM-contracts is much higher than for DB-DBFM-contracts – due to higher transaction costs and external financing which imposes additional interest rate costs. This is however disregarded in both the PPC and PSC.
Innovation & maintenance costs: Innovation as a result of market incentives is overstated for DBFM-contracts; engineering efficiencies would be a better term. The question to what extent the opportunity costs of network efficiencies in with regards maintenance reduce the efficiencies gained by innovation (or engineering).
Misrepresentation of added value PSC versus PPC: The use of faulty discount rates, and the incorporation of different financial structures and other cost units, makes the comparison of calculated value between the PPC and the PSC unjust. The methodology in the instruments is completely different making ―added value‖ comparisons irrelevant. De-central governments are less able to execute DBFM: Due to the fact that nationwide
infra-projects are embedded in the so called MIRT program, infrastructural projects using a availability based payment structure suitable. Since smaller projects carried out by de-central governments are not embedded in the MIRT program, the financing of PPP contracts is much more problematic for budgetary reasons.
Lack of competition and bad negotiation position: During both the contracting phase as well as the exploitation phase, there is a lack of competition (i.e. market efficiency) which negatively affects the negotiation position of Rijkswaterstaat.
R
ECOMMENDATIONSWith regards to solving the issues concluded above we propose the following recommendations (amongst others):
Be careful with personal preferences in PPC/PSC interpretation and team selection Disclose PPCs and PSCs to the general public
Attach greater importance to qualitative arguments in the PPC Do not overestimate the value of innovation in the PPC
Decrease transaction costs of tender process by standardization Take charges on inflexibility and delays into account in valuation Take financial costs into account in PPC
Try pilot project of asking double prices in tender process
For the full set and explanation of conclusions and recommendations, I would like to refer to the original document.
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TUDELFT |TABLE of Contents
T
ABLE OF
C
ONTENTS
PREFACE ... 3
MANAGEMENT SUMMARY ... 4
TABLE OF CONTENTS ... 7
1.1 The Development of PPP projects ... 11
1.2 Problem Description ... 14
1.3 The Special Purpose Company/Vehicle ... 15
1.4 Value drivers of DBFM ... 16
1.5 The Decision Process ... 19
1.5.1 OEEI ... 19
1.5.2 Public Private Comparator ... 20
1.5.3 Public Sector Comparator ... 20
1.6 Problem Statement ... 21
1.7 Research Goals ... 22
1.8 Structure ... 22
2. METHODOLOGY ... 24
2.1 Research Design ... 24
2.2 Selection of cases and interviewees ... 26
2.3 The final selection of Interviewees ... 27
2.4 Interviews & preparation ... 28
2.5 Interpretation and validation: Triangulation ... 29
2.6 A Practical Case Example ... 30
3. THE PROCESS TOWARDS THE CONTRACTING DECISION ... 33
3.1 The MIRT Process ... 33
3.2 The market scan ... 34
3.3 The Social Cost Benefit Analysis OEI-Guideline ... 35
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TUDELFT |TABLE of Contents
3.4.1 PPC in General Lines... 37
3.4.2 Starting Points According to PPC Manual (Rijkswaterstaat Kennispool PPC, 2009) ... 39
3.4.3 PPC in Practice ... 40
3.4.4 Module 1. The Preparation Phase ... 42
3.4.5 Module 2. Qualitative Analysis ... 42
3.4.6 Module 3.The Quantitative Analysis ... 43
3.4.7 Module 4. Final Report ... 44
3.5 Budgetary Integration Model ... 46
3.5.1 Context Budgetary Integration ... 46
3.5.2 Budgetary Integration in Practice ... 48
3.6 The Public Sector Comparator & the Tender Process ... 49
3.6.1 PSC in general lines ... 50
3.6.2 Project Team ... 50
3.6.3 Step 1: Definition Reference Contract Variant ... 51
3.6.4 Step 2-3: Cost Estimations ... 52
3.6.5 Step 4: Risks and uncertainties ... 54
3.6.6 General Risks and Discount Rates ... 56
3.6.7 PSC Indexation ... 59
3.6.8 Step 6: Calculating Added Value and the Tender Process ... 63
3.6.9 Between the best and final offer and financial close ... 64
4. ANALYSIS:CONSIDERATIONS ... 65
4.1 Considerations PPC ... 65
4.1.1 (In)transparency and misuse of the PPC ... 65
4.1.2 The Value of Flexibility: Unforeseen costs and scope changes ... 67
4.1.3 The Impact of Creativeness and Innovation in PPP-contracts ... 69
4.1.4 Network management in-efficiencies ... 70
4.1.5 Effects and Costs of Financing ... 70
4.1.6 Discounting in the PPC ... 73
4.1.7 Further PPC Annotations ... 74
4.2 Inconsistencies Public Sector Comparator ... 75
4.2.1 Confidentiality ... 75
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TUDELFT |TABLE of Contents
4.2.3 Uncertainty versus Risk ... 77
4.2.4 Duration and the impact of the discount rate ... 80
4.2.5 Discount rate determination in the PSC ... 84
4.2.6 Budgetary Integration & the Realized added value in the PSC ... 86
4.2.7 De-central Governments ... 88
4.3 Considerations related to the decision process ... 89
4.3.1 Transaction costs of Tender procedure and Market Efficiency ... 89
4.3.2 Involvement Budgetary Integration Model at a later stage ... 90
5. CONCLUSIONS ... 92
1. Are the PPC and PSC based on valid assumptions and methods? ... 92
2. Is the decision process – from the PPC onwards – arranged in an appropriate way for selecting the optimal contract for infrastructural projects, from a governmental perspective? ... 96
6. RECOMMENDATIONS ... 97
7. REFLECTION &FUTURE RESEARCH ... 101
7.1 Theoretical Reflection ... 101
7.2 Methodological Reflection & Limitations ... 102
7.3 Future Research ... 103
LITERATURE ... 105
WEBSITES ... 108
INTERVIEWS ... 109
APPENDIX Q–PRESCRIBED RISK ALLOCATION DBFM PROJECTS... 111
APPENDIX R–BUDGETARY INTEGRATION MODEL (FROM REAL COSTS TO AVAILABILITY PAYMENTS) ... 114
APPENDIX S–PPCCOMPARISON X ... 115
APPENDIX T–CHARACTERISTICS (NON-)PUBLIC CONTRACTS PER PROJECT PHASE ... 116
APPENDIX U–TIME SCHEDULE PPC FOR THREE EXTERNAL ADVISORY PARTIES, FOR THE SAME PROJECT. ... 118
APPENDIX V-REMARKS PPCX– ... 119
APPENDIX W–SPILTER TOOL (INCLUDING SCREENSHOTS) ... 120
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TUDELFT |PROBLEM Description
APPENDIX YA -FTE’S PREPARATION PHASE X, ESTIMATED BY PPC ... 123
APPENDIX YB -FTE’S EXECUTION PHASE, ESTIMATED IN PPCX ... 124
APPENDIX Z-COSTS OF FINANCING IN FEES,.BASED ON PSC 2011 ... 125
APPENDIX AA–INDICES FOR PSC INDEX AND INDEXATION FORMULA PPP CONTRACT ... 126
APPENDIX BB–MAP PPP ROAD NETWORK ZUID-HOLLAND ... 127
APPENDIX CC–TABLE MIRTPLAN DEVELOPMENT ... 128
APPENDIX DD–TABLE MIRTPLAN DEVELOPMENT (INTEGRATED CONTRACT FORMS) ... 129
APPENDIX EE-THE ROLE OF PENSION FUNDS ... 130
APPENDIX FF-THE 20%AVAILABILITY PAYMENT BUFFER ... 131
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TUDELFT |PROBLEM Description
1.
P
ROBLEM
D
ESCRIPTION
1.1
The Development of PPP projects
Public Private Partnerships (PPP or P3) are collaborative contract forms between a governmental authority and one or more private parties, that aim to deliver a public service or project. This type of contracting can be utilized in virtually any sector, as long as it serves a public goal. In the Netherlands, examples of these project forms are mainly to be found in infrastructural improvement or expansion2,
public construction works3 and public area development4, this thesis will focus however on
infrastructures in the Netherlands. Like the other areas, infrastructural projects have traditionally been tendered out separately per developmental stage, thereby closing individual procurement contracts with private parties. The four most distinct stages of a public project are defined by the government as the:
Design stage(D);
Building/Construction stage(B);
Maintenance of the project (M), and lastly;
The operational stage (O) – parallel to the maintenance stage.
Traditionally, the Dutch government engages a public tender process per project stage, each corresponding to a separate contract. Its strategy to manage potential interface problems between all these separate contracts was to impose technical specifications on the eventually contracted parties. This was mainly accomplished by using the RAW5-requirements list, in which literately each bolt and nut is specified. Due to the high level of detail for the technical requirements within these procedures, contractors are limited in the execution of their specific responsibilities, thereby foregoing the use of potentially more robust or less costly innovative solutions. Furthermore, a list of technical specifications can in a theoretical sense never be detailed enough, and it also lacks the incentive for the contracted party (designer/constructor) to consider practical consequences of executing their specified task for the party to which the project is transferred in the following project stage. These factors respectively introduce problems such as opportunistic behavior - "work arounds" during the manufacturing phase - and "over the wall designs" (Adler, 1995: p. 152).
The value of overcoming interface problems by combining the design and build project stages for multiple product areas through a so called Design & Build (D&B) or Design & Construct (D8tC) contract was academically confirmed (e.g. Anumba, 1996; Beard, 2001). One of the implications of the integrated nature of the D&B contract is the fact that designers and builders of different companies (or at least different legal entities) are forced to cooperate closely due to the singular point of responsibility for the quality of the end product. This contract form comprises additional advantages compared to the traditionally separated contracts, such as:
Costs Savings & Better Quality; Faster Product Delivery;
2 The HSL Lijn, Verbreding Coentunnel (http://www.ppsnetwerk.nl/Projecten-Database).
3 The renovation of the public office of the Ministry of Finance in The Hague, Kromhout Kazerne in Utrecht (http://www.ppsnetwerk.nl/Projecten-Database).
4 Kustzone Almere Poort (http://www.ppsnetwerk.nl/Projecten-Database). 5 RAW is short for : Rationalisatie en Automatisering in de GWW.
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TUDELFT |PROBLEM Description Reduced Administration;
Principal acquires early knowledge of investment costs of product;
Functional Specifications rather than technical specifications, stimulating innovation
Better risk allocation (e.g. interface risks where transferred to the private side) (Beard, 2001).
This international academic and practical evidence of the value within D&B contracts caused the Netherlands to introduce it as well during the late 1990s. Even though D&B contracts were a big step forward compared to the traditional contracts from a governmental perspective, within these D&B contracts contractors still found ways to claim extra costs during development, thereby frustrating the government (Schol, 2008). This triggered the latter to experiment with even further integrated contract forms which would enable the government to outsource the execution and inherent risks of additional project stages such as the maintenance and operations to the private side as well. An entire range of integrated contract constructions became available, enabling the government to theoretically allocate risks and responsibilities at will. For the Dutch execution organ of the Ministry of Infrastructure & Environment, called Rijkswaterstaat, the most important contract forms are now DB+M, DBM, DBFM or DBFMO contracts:
DB+M: Design and Build are procured in an integrated contract, and maintenance is procured in one, or multiple, separated performance based contract(s). Financing and Operations are still the public responsibility. The difference with a DB contract is that within a DB+M contract the government actually procures the maintenance as well, while in a DB contract a public body takes care of the maintenance;
DBM: Design, build and maintenance are procured in an integrated contract to the same contractor. This is a long-term contract, where the government is still responsible for the financing and where maintenance remains the responsibility of the contractor. Quality warrantees and performance incentives are built in for this contract form. However, this contract form is still in an exploratory and experimental phase compared to the more integrated version, the DBFM contract;
DBFM: The builder/contractor is responsible for the maintenance, but does not operate or exploit the infrastructure itself. Additionally, the contractor is obliged to (pre)finance the contract himself, which serves as a product quality and development speed incentive. In general, the infrastructural projects the government wants to realize have this structure6. This contract form enabled the government to transfer many risks to the private sector, whereby synergies would be created because the risks would be borne by the one who is best able to control them. The contractor will be remunerated by the government, based on a performance linked service fee during the exploitation of the project;
DBFMO: Like DBFM, only the contractor also operates the project. Within an infrastructural context Tol-roads are an example of DBFMO. In the case of Tol-roads the contractor earns back his investment (at least partially) by charging the users of the infrastructure, and therefore assumes market risk. Of course there exist hybrid forms in which contractors only assume part of the risk and get subsidies by the government for operating. In real-estate for instance, DBFMO simulates that a contractor builds the building, maintains it and also operates it (facility management), for which it charges costs like in an
6 Please also see framework letter "PPP and innovative procurement" and the reaction on motions 7, 38 and 57 by minister Peijs (HW/UPPS 2004/5862).
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TUDELFT |PROBLEM Description ordinary rental contract. Diagram 1.1 presents a simplified spectrum of public-private partnership contracts illustrating the extent of public (left) versus private responsibility (right), with complete privatization as the most extreme form of private responsibility.
Diagram 1.1: Spectrum Public-Private Partnerships
As we will see later, incorporating the maintenance together with the design and construction into one integrated contract is a fruitful concept, since it allows the government to procure and thereby install certainty about the costs of the entire life-cycle of an infrastructure (or any project, for that matter). In order to incentivize the contractor to keep (infrastructural) maintenance at a minimum during the entire life-cycle, thereby hopefully increasing the product quality, the government makes use of a DBFM contract which comprises private (pre-) financing. Private pre-financing entails that the government only pays the contractor in availability payments, during the entire life cycle, thereby transferring construction risk to the contractor. However, this F component in DBFM has not been without controversy, since private financing is more expensive, for which eventually the government would ultimately also have to pay with tax money. Despite this, Rijkswaterstaat decided to engage several pilot projects like the HSL-Zuid, the A59 and the N31 in order to get acquainted with the DBFM contract form and because it expected more Value for Money. Positive evaluations - projects remained within budget and time - of at least the D&B phase (the maintenance life-cycle was not completed yet) made Rijkswaterstaat change their credo to "The Market, Unless", implying that infrastructure projects should be procured to the market, unless there is a valid reason not to do it7. However these afore mentioned evaluations do not automatically imply that a DBFM contract resulted in higher value for money (e.g. than a DB+M contract) due to the fact that ex-post comparisons of contract forms are not possible, since this would require the exact same project and conditions (e.g. with regards to liability and risk sharing) to be carried out twice with a different contract form. Therefore it is hard to determine whether private financing provides higher value for money, and specifically financial-economic value. This is the central topic of this thesis. Before we can identify the real problem in this, we need to build a better understanding of DBFM contracts itself, and the decision process towards such a commitment.
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TUDELFT |PROBLEM Description
1.2
Problem Description
The first step is to define exactly what a DBFM(O) contract constitutes. As mentioned in section 1.1 DBFM(O) stands for the integration of the Design, Build, Finance, Maintenance (and operational) aspects of the realization of a procured service delivery into one single contract, from a governmental perspective. For this thesis the main focus will be on DBFM rather than DBFMO contracts, since DBFMO for road infrastructures implies Tol-roads, which is politically troublesome in the Netherlands, and therefore very rare8. Essentially, within a DB+M contract the private sector provides assets, on-going operations and maintenance services in respect of the assets after which the public sector pays for the asset on completion and for the services where provided. Within a DBFM contract, the private sector provides the same assets and services as with DB+M, but also arranges debt financing from commercial banks and equity participation from (Institutional) investors for a high share of the cost of the asset and equity for the balance of the funding requirement (Palmer, 2000). Mostly the asset provider gets paid on completion (by the banks) while the public sector pays a (mostly quarterly) capital charge over the contract life which Is used to repay the bank debt and to remunerate the equity (Palmer, 2000). This means a DBFM contract length corresponds to the life-cycle of the infrastructure and typically lasts between 20-30 years. Sometimes the government supplements these capital charges, called ―availability payments‖, by bullet payments upon completion as well, in order to reduce the financing costs of interest which lowers the availability payments over the rest of the life-cycle^ An exemplary cash flows scheme for the entire life-cycle of an infrastructure are depicted in diagram 1.2 below for both DB+M and DBFM contracts. The higher blue bars at the start represent the bullet payments (in years 2011 and 2012), and all the following equally sized bars represent the availability payments. The availability payments are higher than the DB+M maintenance costs during the exploitation phase, since these availability payments in effect also cover the design & construction costs the private party had to make earlier.
Diagram 1.2 Cash Flow DBFM-contract versus DB+M Contract
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TUDELFT |PROBLEM Description
1.3
The Special Purpose Company/Vehicle
Contracted parties create a Special Purpose Company/Vehicle (SPC/SPV) for a specific project, which is a legal entity through which a main contractor is connected with external financiers in order to share and divide risks, liabilities and cash flows. In diagram 1.3 below, an organizational chart of a DBFM(O) contract is presented, at the project start. Important to note here is that the equity providers are the actual owners of the SPC.
The providers of equity (shareholders) are usually part institutional investor/banks and part contractor; external investors require the main contractor to be a shareholder as well, thereby incentivizing proper performance of the main contractor, since it takes on a part of the entrepreneurial risk (Palmer, 2000).
Diagram 1.3 Organizational Chart DBFM(O) Contracts9
As shown, the debt-to-equity ratio within SPCs is fairly high at inception. This ratio will drop when the operational stage has been reached, due to the fact that debt will be paid-off gradually by the SPV, sometimes complemented by the aforementioned governmental bullet payments.
Furthermore it should be noted that the main contractor, which indeed is also shareholder of the SPV, is the main responsible actor for the design, construction and the maintenance. It does not perform all the necessary tasks alone, but signs performance contracts with sub-contractors which typically take care of the design/construction/maintenance tasks which are not in-house or non-core business related duties for the main contractor. External financiers also require parent-company-guarantees and
9 Adopted from: Rijksgebouwendienst, Introductie geïntegreerde contractvorming, juni 2006, Den Haag Special Purpose
Company (for a specific
project)
Main
Contractor CompaniesInsurance
Subcontractors Design & Build
Subcontractors Maintain (and operate) Banks (providers senior debt) Shareholders (equity providers) Principal/ Government
80-90% of EPC DBFM(O) Contract Credit Agreements Shareholder Agreements Performance contracts Insurance Agreements Financiers 10-20% of EPC
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TUDELFT |PROBLEM Description performance bonds10 from the main contractor, which should respectively eliminate exit-options for the main contractor and reduce risk for the financiers (Interviewee 9, 2011).
1.4
Value drivers of DBFM
According to Morallos et al. (2008), the main value drivers of DBFM compared to DBM or DB+M are the following:
The value driver of risk transfer requires some additional explanation. An important reason for governments to move from the traditional procurement (loose contracts or D&B) form towards the more innovative and integrated contract forms such as DBFM and DBFMO is the possibility to transfer risks from the public to the private side. The rule of thumb here is that the risks are borne by the party who is best able to control them.
10 A performance bond is a revolving loan which becomes available to the external financiers when certain project milestones or other contract requirements are not met. This, in order to compensate for the financial loss the external financiers take due to the foregone governmental availability and/or bullet payments caused by project delays.
Risk transfer. The primary driver of Value for Money in PFI projects is optimizing the transfer of risk in a PPP, which is conducted by allocating the risks to the party best able to manage them over the contract period;
Output-based specification. The services provided under PFI contracts are specified as outputs. The payments that the private sector receives are linked to the quality and timing of the delivery of these outputs;
Life-cycle approach. This is seen as a key condition for delivering Value for Money because the contract's time frame should be long enough to recover the initial
investment. The long contract period in combination with the availability payments serve as an incentive for the private party to economize on the life-cycle costs, and allows the principal to lock the costs of the entire life-cycle at the start of the project
Performance measurement and incentives. Such incentives act as a means of ensuring that the standards and specifications set in place through the original deal or contract will be implemented;
Competition & Innovation. A high level of competition among bidders can result in improvements in pricing and alternative means of providing Value for Money; competitive bidders may also be incentivized to come up with more innovative solutions which create additional value compared to the competing bids. (PPC N23, 2011)
Private sector management skills. The private sector's ability to effectively manage the delivery and operations of a project as critical to the success of the PFI.
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TUDELFT |PROBLEM Description Risks
The project risks are to be divided in to different categories. The PSC methodology makes a distinction between pure risks, spread risks and planning risks. Pure risks regard regular execution risks but also extraordinary events, having a probability of occurrence and an estimated impact. Spread risks regards uncertainties in assumptions about prices, execution methods and materials, and necessary quantities (e.g. the estimated amount of concrete needed for a fundament). These uncertainties cause a certain spread around the cost estimation, usually in the shape of a normal distribution. Planning risks consider potential delays in the project. Planning is important since a delay may affect the compensation of the SPC.
Such delays are important since exceeding project deadlines could harm the compensation of the SPC: when the SPC delivers earlier than planned, they will receive payments earlier11 and vice versa; since the contract length remains the same this is an incentive to perform swiftly. Since external financiers also realize this caring about their ROI, they will ensure proper time (and cost) management. This also implies that the government (Rijkswaterstaat) needs significantly less cost/risk management people during the construction phase, which saves costs.
Apart from the earlier mentioned categories, there is a distinction between calamities and listed risks (Dutch: Lijstrisico‘s). Calamities are risks which have a very small probability of occurrence (5%) but may have a significant impact on the project progress. Such calamities include wars, natural disasters (e.g. tornados), airplane crashes, nuclear explosions, etcetera. The government is almost always liable for these risks. Listed risks are risks which have a direct impact on the project and can be influenced by either at least government or the private party. Furthermore, these risks have several allocation categories, which determine who is liable in case one of these listed risks occur.
1. Risk private party (PC) 2. Case of compensation
3. Case of delay (and a compensation therefore)
In case a risk occurs from the first category, the private party is liable. In case a risk occurs from the second category, the government compensates the SPC. The latter risk regards project delays caused by the government; in case the government has trouble obtaining permits, acquiring land or experiences delays in the political decision process, this may prevent the contractor from preceding. In this case, the government compensates the SPC with a daily delay payment, including a compensation fee for the interest of the external financing.
Drawbacks of DBFM
Higher transaction costs
The DBFM contracts are larger, more complex and detailed than D&B or DB+M. This means that both the formation of these contracts as the design process of the infrastructure is likely to be more expensive for both the public and the private party; higher transaction costs . More specifically, the higher transaction costs are due to:
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TUDELFT |PROBLEM Description The formation of performance criteria for very strict specificity on the determinants of the
performance criteria of capacity and especially quality, which may not be trivially measurable (PPC X, 2011).
The more detailed and specified designs, taking a longer time.
The formation of a large tailored contract. The formation of an integrated long-term contract requires both Rijkswaterstaat and the private party to make higher contract development investments. The financial parties hire external technical risk experts which carry out extensive research in order to estimate all the specific risks, and the potential impact thereof on the availability payments in any way. Additionally, lawyers are hired to negotiate the interpretation of risks and to embed all procedures and responsibilities around these risks into one large integrated contract (Grimsey & Lewis, 2005).
The complicated procurement process; not only the contract but also the selection of the private parties and negotiation processes require more time than within a DB+M contract (PPC X, 2011).
This makes the preparation phase significantly more expensive; apart from the internal expenses Rijkswaterstaat makes, the entire tender process for a road typically costs the SPC between €5-10 million, which is eventually also incorporated in the contract price. Furthermore, the government typically compensates 50% of the remaining bidding parties. Finally, it is important to understand the distinction between transaction costs incurred by the public party (allocating own staff on a project/contract, or hiring external people), and transaction costs incurred by the private party. In the first case, the government naturally covers the costs itself, and in the last case, the government remunerates around 50% (or a fixed amount) of the incurred tender costs by the losing parties, as well as the full 100% for the winning party (this is embedded in the availability payments).
Scope changes/flexibility
In case the government requires a change in the infrastructure during the 20-30 years of the contract, this needs to be agreed on by not only the main contractor, but also by the financiers who indeed will again require technical experts to assess the impact of this change on the risk profile. In case this risk would cause a significant change in risk profile, this would require additional negotiations and the expertise of lawyers again, which will need to amend the contract. Furthermore it restraints the own budget flexibility; in more traditional contract forms maintenance could be postponed when times are tight, while the availability payments remain a fixed commitment (Spackman, 2004).
Budget incentives
A more controversial drawback of the DBFM is the perverse incentive it may induce to engage in projects it currently does not have budget for; after all, the payment structure allows the government to postpone the payments to later moments in time. In the UK, where the government currently has committed an amount of £267 billion of government money to payments for PFI contracts until 2035, and currently pays £7 billion in commitment payments annually for PFI contracts (Guardian, 2010, 1). Additionally, the ―lack of budget‖ reason reinforces the negotiation position of private parties, which may therefore be able to negotiate a higher price during the tender process: it was found out that banks charged an extra £1 billion for PFI contracts during the credit crunch, implying that the UK Treasury was not able to negotiate better deals (Guardian, 2010, 2), costing the UK taxpayer. In the Netherlands, this is more likely to happen on a provincial or regional level than on a national level due to the fact that regions and provinces operate based on accrual accounting, while the state does not.
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Costs of External Financing
Another controversial drawback regards the involvement of one or more extra private parties; the external financiers. This inherently signifies that an extra party is to be paid, eventually by the government, e.g. by means of commitment fees for debt and required return on equity for shareholders, which are charged on top of the costs the contractor charges for its duties. Mind you, it may still be that due to the earlier mentioned advantages the DBFM contract is still cheaper, due to more efficient operations for instance.
1.5
The Decision Process
Since each project is unique in multiple dimensions (risk allocation, geography, project alternative, available technology), the impact and presence of both the mentioned advantages and drawbacks differ on a project to project basis, which has implications for the right contract form to use (e.g. DB+M or DBFM). In an attempt to make the right decision and to avoid unnecessary tender costs for private parties the Dutch government installed a decision process towards an infrastructural project alternative and an ultimate contract form called the route alignment (Dutch: ―tracéwet‖). Within this decision process, three main decision methods are used which respectively determine the choice of project alternative and contract form; the Social Cost Benefit Analysis according to the OEEI-directory, the Public Private Comparator (PPC) and the Public Sector Comparator (PSC). Mind you, the outcomes and financial schemes contain sensitive information about cost and risk estimations of the government which could be (ab)used by private parties in their bids. Therefore, these documents remain confidential.
1.5.1 OEEI
This is done by means of a social cost benefit analysis, which estimates the social impact of various infrastructural project alternatives on the general public and digestion. The OEEI-directory (Onderzoeksprogramma Economische Effecten Infrastructuur) is a guideline composed by the CPB (Centraal PlanBureau) and Ecorys12 which prescribes how to carry out this social cost/benefit analysis
(CBA), and is mandatory practice for infrastructural projects in the Netherlands. For each project alternative the social CBA identifies the direct, indirect, external and reallocation effects and quantifies them in terms of costs and benefits to the public sector. Direct costs are an estimation of the monetary investment in the design, construction maintenance of the project for each alternative; direct benefits are measured in terms of convenience experienced by consumers would be allowed to make use of the new infrastructural possibility, thereby increasing their living standard. Another direct effect which is easier quantifiable is the traffic density on a specific highway (in Holland referred to as IC-value), which an extra highway lane might reduce, which in turn should reduce the average amount of minutes spent travelling on a particular route. Indirect effects are effects triggered by direct effects. Examples of indirect effects are the growth of the economy felt in certain areas, or investments in new houses in certain areas because of the new infrastructure. External effects on the other hand, comprise unintended effects on which market pricing is hard to apply. These external effects mostly entail environmental impact (noise disturbance, emissions, changes in biodiversity) and safety considerations (floods, traffic, external safety) (Eijgenraam et al., 1999).
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TUDELFT |PROBLEM Description As mentioned, the main purpose of the social CBA is to identify which project alternative is going to be picked, thereby focusing mainly on social costs and benefits and disregarding the choice of contract. Ultimately the social CBA indicates the optimal project alternative which should contribute the most to the wellbeing and prosperity of the general public. Once the preferred project alternative has been elected, the decision process continues until the point where the decision for a particular contract is to be made. The main tool assisting in this decision is the Public Private Comparator.
1.5.2 PUBLIC PRIVATE COMPARATOR
The Public Private Comparator (PPC) is a comparative methodology weighing the financial costs of potential contract variants to be used for an infrastructural project, prior to actually engaging a tender process. It is mostly engaged by a combination of external technical and financial specialists and internal (Rijkswaterstaat) employees. Effectively, it compares the financial-economical added value of a certain PPP contract (i.e. DBFM(O)) compared to a more traditional contract form (e.g. RAW or DB+M) from a governmental perspective (De Bruijn & Interviewee 3, 2004). The PPC conducts a rough financial estimation of the costs, benefits and risks of the two contracts forms, thereby assuming the same project scope of both contract forms13, and taking preparation, design, construction and maintenance costs over the life-cycle into account. The same scope is assumed in order to be able to compare ―apples with apples‖, and therefore where indicate added value for money can be achieved. PPCs have been made mandatory practice for infrastructural MIRT14 projects exceeding €60 million in
real investment costs, and are conducted by a ―PPC Team‖ consisting of independent external parties, often in cooperation with the public institution Kennispool PPP, which is a unit within Rijkswaterstaat experienced with PPP contracts. The result of a PPC is the added estimate value of a DBFM(O) contract versus a DB(+M) contract in financial-economic terms. This serves as the basis for the contracting decision for Rijkswaterstaat.
1.5.3 PUBLIC SECTOR COMPARATOR
In case the PPC indicates potential benefits for a privately financed contract form a Public Sector Comparator (PSC) is conducted. The PSC will serve as a benchmark for tender bids (for a DBFM contract) before the public tender process is engaged, in which selected SPCs are asked to make an offer for a PPP (DBFM) contract. It is a detailed estimation of the financial costs (and benefits15) of the same project as if it would be executed under public control (i.e. by means of a Traditional or D&B contract). The PSC therefore serves as the financial reference-alternative for the government, and therefore benchmarks the private bids to the estimation from the PSC (De Bruijn & Interviewee 3, 2004).
The PSC consists of a ―Raw PSC‖, which is a cost estimation of the entire life-cycle of the project, and a valuation of risks. The total estimated risks in a project are divided in an attribution of transferable risks by means of the PPP contract and a part of non-transferable risks (See diagram 1.4). Because PPP contracts (e.g. DBFM & DBFMO) are the results of negotiations, the transferrable portion of risks may vary throughout the tender or later negotiation processes. This makes the PSC a living document, which may change when conciliation with private parties discloses new information (Korving, De Bruijn, Gans
13
Implying a same risk allocation, same design and construction thereof. 14 MIRT = Meerjarenplan Infrastructuur Ruimte en Transport.
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TUDELFT |PROBLEM Description et al., 1999). After all bids have been transmitted the economically most attractive option is chosen by Rijkswaterstaat.
Diagram 1.4. Exemplary Comparison Public and PPP Approach. Source: PSC Manual, 2010
1.6
Problem Statement
Even though Rijkswaterstaat is convinced of the added value of DBFM contracts for infrastructures when compared to DB+M contracts16, it is very difficult to determine and prove the realized added value between several two contract forms for a particular contract. This is due to the following issues: 1) Projects are unique, from a physical perspective as well as a risk transfer perspective making them
incomparable;
2) Projects are still in progress which renders ex post evaluations of life-cycle costs impossible especially since certain risks or uncertainties may still occur in the future;
3) Contract arrangement vary per project with regards to risk sharing and liabilities;
4) The confidential nature of the procedure, current financial status and decision tools complemented by the skin-deep online PPC & PSC manuals makes this process a black box for third parties
This, in combination with the fact that the impact of the indicated benefits and drawbacks of DBFM contracts may vary per project makes the validity of the decision to pursue highly disputable. Since budgets of infrastructural projects on a national level run into € Billions, it is definitely worth to investigate whether Dutch tax money is spent wisely in infrastructures.
Due to the four reasons mentioned above, we are not able to carry out ―real life‖ tests, since such data is not available. What we can do, however, is evaluate the decision instruments on which the decision is based for a contract form; the PPC & PSC – excluding the OEEI CBA17. This includes the validity of the assumptions on which these decision instruments thrive, but also whether they are used in a fair and just way in the decision process towards a contracting decision.
16
This was emphasized Hendrik-Jan Dronkers at Conferentie PPS Werkt 2011: DBFM is nu van jou!
17 The specific workings of the social cost benefit analysis are disregarded since it does not impact the contracting decision. However, it is necessary to understand what it is, in order to understand the decision process.
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1.7
Research Goals
In line with the latter, the purpose of this study is to make an academic contribution to the current knowledge level about DBFM contracts for infrastructural projects as well as on the decision instruments and -process leading to the contracting decision. Thereby we focus on the estimated
financial-economic costs and benefits of DBFM contracts versus DB+M contracts18 as defined by the PPC
and PSC. The main research question of this thesis will therefore be:
Does private financing increase the Value for Money for infrastructural projects in the way Rijkswaterstaat expects?
Rijkswaterstaat calculates the Value for Money of privately financed contract by means of a Public Sector Comparator (PSC) and decides on the contract form by means of a Public Private Comparator (PPC). Rijkswaterstaat expects these instruments to be accurate and objective indicators of the costs and risks associated with the contrasted (non-) privately pre-financed contract forms. Therefore, appropriateness engagement of these instruments is of vital importance to answer the main question. The main focus of this thesis will therefore be on the workings of the PPC and PSC instruments and their role in the decision process, leading to the following two main sub-questions:
Two main sub-questions can be identified which combined to answer the main question.
3. Are the PPC and PSC based on valid assumptions and methods?
4. Is the decision process – from the PPC onwards – arranged in an appropriate way for selecting the optimal contract for infrastructural projects, from a governmental perspective?
1. Are the PPC and PSC based on valid assumptions and methods?
2. Is the decision process – from the PPC onwards – arranged in an appropriate way for selecting the contract with the best possible value for money for infrastructural projects, from a governmental perspective?
It should be emphasized that this thesis considers the financial costs borne by the principal – often Rijkswaterstaat or ProRail depending on the type of infrastructure. Our focus lies in particular on rail and road infrastructures, of which the latter is prevalent simply because there are, and have been, many more road- than rail projects. From this point forward, when we refer to ―infrastructures‖ we aim at both rail- and road infrastructures, unless specifically mentioned.
Outcomes of this thesis are not per definition exclusive to infrastructures alone since governmental real estate projects (procured by the Rijksgebouwendienst) also work with DBFM(O) projects and thereby make use of a comparable decision process prior to contracting.
1.8
Structure
In the next section, the methodology used in this thesis is explained, which attempts to illustrate how the final research question can be answered. Section 3 contains an elaborate explanation of how the
18 DM(F)M contracts are mainly used in infrastructural situations, while DB(F)MO contracts are mostly used in real estate, in the Netherlands.
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current procedures and methods work which eventually work towards the contracting decision. As will be explained in the methodology, this section is already a part of the results, due to the fact that acquiring this information and connecting all the dots can be considered quite a hassle. Moreover, this section would be too lengthy to put in the introduction, and serves as a preparation for section 4, in which the consequences will be discussed of the choices made for these – in section 3 defined - current procedures and methods. After that, section 5 contains the most important conclusions of this report and thereby attempts to answer the main and sub- research questions identified above.
Eventually, the answers on the research questions will be complemented by a set of recommendations in section 6 to improve the decision process and -tools towards the contracting decision. The outcomes of this thesis are therefore of direct interest to the PPP expert unit called ―Kennispool PPS‖ within Rijkswaterstaat, and indirectly to the Dutch population since their tax money is spent on these contracts. Also, it may also help project managers and consultants entering - or dealing with – PPP constructions to better understand the implications of private financing for public (infrastructural) projects. Finally, in section 7 we present a short theoretical and methodological reflection complemented by future lookouts and suggestions for further research, relevant to the development of DBFM contracts which we expect to be useful for decision makers.
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2.
M
ETHODOLOGY
As section 1 indicated, data availability on this topic is an issue. This means that in the attempt to accomplish the main research goals, validating assumptions in the PPC and PSC and investigating the appropriateness of the current decision process, we are in fact subordinate to data availability. The intuitive way to cope with this is trying to ―gather as many bits and pieces of information as you can‖, analyze them, identify potentially interesting paths for further investigation, and see where those lead you. The method, Yin (1994) suggests, is similar to the detective who must sift evidence (some of it relevant and some of it not) to build inferences about what has happened, why and in what circumstances. This detective work is undertaken not only to understand the particular features of the case(s) but also to draw out an analysis which may be applicable on a wider basis. This method of researching is called exploratory case study research (Hartley, 2004). How this thesis approaches this case study comes to light in the following section.
2.1
Research Design
Robert Yin (2006) defines three basic steps for a case study design. The first step is to clearly define the case we are studying. For this, we have earlier reviewed literature and governmental publications which led, after several revisions, to the definition of the research questions presented in section 1.7. These research questions have been revised throughout the process in order to match the findings and process of the thesis, which is not unusual for case study research (Yin, 2006).
The second step is to decide whether we investigate a single case study or multiple case studies. For this thesis we use multiple sub-cases corresponding to data collection from various DBFM projects as well as to its PPCs and PSCs reports where available, eventually embedded within a holistic case study. These multiple cases will then either replicate and therefore confirm each other, or to contrast in the comparison.
The third step involves the decision whether or not to use theory development to select your case(s) (Yin, 2006). For this thesis, the theoretical fundamentals used are the earlier defined value drivers and drawbacks for DBFM contracts when compared to DB+M contracts; the assumptions the PPC and PSC are based upon. These case studies have attempted to either build, extend and challenge these assumptions. However, it should be noted that this was merely a starting point, as we had to remain flexible in our research design in order to be able to explore both planned as well as emergent theory (Robson, 2002). Stake (1995: p. 55) put this as follows: ―Most researchers find that they do their best work by being thoroughly prepared to concentrate on a few things, yet ready for unanticipated happenings that reveal the nature of the case‖.
As mentioned above, the strategy was to depart from the theoretical assumptions about the added value and pitfalls of DBFM contracts (compared to DB+M contracts). Since no ―real life‖ operational data is available (confidential), and since contracts have not culminated yet, a qualitative approach was chosen. Semi-structured interviews were carried out, in which respondents were asked to reflect on the value drivers and pitfalls of DBFM, with Rijkswaterstaat documentation complemented by literature research as the theoretic fundament. Contrasting with regular single-case study research, we realized that selecting interviewees having experience with multiple projects, and especially with both privately financed as well as with non-privately financed infra-projects, could express their opinions from a broader perspective. This knowledge was used to our advantage, and enhanced the validity and robustness of our findings; the experiences and opinions of a junior policy analyst working on his first
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project, compared to those of an experienced in-the-field veteran could be refreshing, but will remain single observations –which is normal for case study research.
In line with the research questions, the interviews will not only regard the value drivers and drawbacks of DBFM (and therefore the assumptions of the PPC and PSC), but will also be used to gain a better understanding of the decision process in which the PPC and PSC play a role as well as of the way these tools work. The latter is necessary since the information on the decision process (tracéwet) in relation to the decision instruments (i.e. PPC & PSC) is quite incoherent, dispersed over the internet and only sporadically detailed, which makes understanding the process an objective by itself. As a result, section 3 provides a description of the current decision process, the way the involved decision instruments work and which assumptions they make.
Accordingly, the assumptions made in the decision instruments and the current flow of the decision process will serve as a starting point for further study. The aim is to analyze and discuss the consequences of the assumptions made in the PPC and PSC as described in section 3, and thereby question its appropriateness for selecting the optimal contract form. Again, the eventual financial economic estimations on added value will remain the main theme here, in line with the main research question.
On a more process related note, we will critically reflect on the inferred consequences of the current decision process towards the eventual contract. Both these sections will be supported by quantitative illustrations fed by data from ―real life‖ PPCs and PSCs. This is quite a scoop, since PPCs and PSCs are confidential documents; which are normally are only evaluated by governmental people itself, or external experts which signed a confidentiality agreement. All in all, critical reflection on the consequences of the procedures, assumptions and methodologies with regards to the PPC and PSC as they currently are currently in place will be the aim of section 4.
As Yin (2006) suggested, the process in case studies is often the most challenging task, and requires more thought and consideration due to the fairly ―soft‖ nature of the research approach. A schematic representation of the research design as described above has been depicted in diagram 2.1 below. The grey boxes represent the sections in this thesis, while the blue boxes represent the activities or documents which served as input for them. Moreover, the grey arrows indicate that the preceding sections also served as input for one another, which corresponds to the description above.
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2.2
Selection of cases and interviewees
Selecting the cases and interviewees serves as a critical step in case study research (Stake, 1994: p. 243). A common misconception is believing that case studies represent a sample from a larger base, and that generalizations depend on statistical significance (statistical generalization). Instead, as Yin put it (2006: p. 114): ―generalizing from case studies reflects substantive topics or issues of interest, and the making of logical inferences (analytic generalization)‖. This means that it is rather the choices we make on the particular cases and people make the difference, rather than striving for a large amount of cases and people; it is about the quality rather than the quantity.
When regarding the SPC scheme earlier depicted in diagram 1.3, the variety of involved actors indicate the presence of many different interests, opinions and motives. These actors are all involved in different ways in the DBFM contract which means they may relate to the effects of either public or private financing in a different manner. Despite the fact that the designers, builders, financiers, maintainers and operational (for DBFMO) stakeholders are connected through the SPV, which could bundle their interests, they still take care of different aspects of the project, have internal contracts and liabilities within the SPC, and therefore have different cash flows and run different risks throughout time, which could possibly influence their perception of DBFM contracts. The right response to this knowledge is adopting a multi-actor approach. It goes without saying that this influences the nature of the interview (on which we will elaborate in the next section): one should not ask a contractor about the governmental motivations behind the assembly of a PPC-task force, nor would it be useful to a ask external financiers on his experiences with DB+M contracts, as external financiers do not play a role in those contracts. What could be interesting however, is contrasting assumptions made by actors from across the organizational DBFM chart with statements made by authorities from the other side of the organizational chart, and observe their reaction. Actors who are forced to re-assess the situation, and thereby possibly driven outside their comfort zone, may uncover valuable insights which transcend the surface and could lead to new ―clues‖. However, during the case studies this only occurred on a rare basis since this is not CSI: Miami, and because experienced people are hard to drive out of their comfort zone when it concerns their topic of expertise.
Corresponding to the multi-actor approach, we want to at least interview people involved in all groups of the SPV, as identified in diagram 1.3 thereby avoiding a one-sided picture. Most involved actors in the SPV have fairly straight forward roles and, on top of that, we may assume they have bundled interests within their private organization. The private parties will mainly be asked about their preferences and experiences with the tender process, the negotiation process, and about contractual arrangements, risk allocation and other responsibilities within the SPV and its external financiers. Furthermore, the government is an important actor. For this thesis especially the infrastructural execution authority Rijkswaterstaat is an important actor; they deliver project managers for these projects, have contract managers, cost managers and have specific PPP experts in the Kennispool PPS which help carrying out the PPCs and PSCs. Furthermore, the Ministry of Finance was the initiator of PPPs in the earlier days, when the ―Kenniscentrum PPS‖ still existed. Interviewing people from all these categories was a key objective. Additionally, even though they are not involved in the SPV or contract setting in a direct sense, external advisors and engineering specialist companies play a significant role in the decision process towards a contracting decision. As external advisors they may have a different view on the projects. In short, this comes down on the following categories of interviewees.
Page 27 TUDELFT |METHODOLOGY > Government a) Rijkswaterstaat o Kennispool PPS o Projectmanager o Contractmanager
b) Involved representative Ministry of Finance (Kenniscentrum PPS) > Designers > Builder/Constructors > Maintenance > Advisory > External Financiers > Academics
Experience with multiple projects and contracts was an additional requirement when selecting people, since they are able to draw from a larger experience.
2.3
The final selection of Interviewees
Of course it is easier to draw up with a list of all the people one wants to talk to, but actually arranging a (pro bono) interview is a step further, depending on goodwill and connections. Conveniently, advisory company AT Osborne was very accommodating in suggesting interviewees from the above categories and introducing them to me when appropriate: at times the decision was made to approach an interviewee rather as a student than as an AT Osborne representative, due to potential commercial conflicts of interest which may negatively impact the amount of valuable information the interviewee was willing to convey. The advisory company ―Rebel Group‖, for instance, was approached independently which led to a very fruitful interview. The exact opposite scenario also occurred for approaching key people at the currently running infrastructural project A15 Maasvlakte-Vaanplein; first, I would have probably had a hard time finding the right people without the backup of an advisory agency. Second, the reputation of the one who introduced me helped in the way that interviewees (i.e. Interviewee 12 & Interviewee 10) were prepared to free up time and respond in a relatively ―open‖ manner, compared to governmental people who were interviewed which were barely familiar with the person who suggested the interviewee. Finally, I decided that academics from my own faculty TPM could shine a light of their experiences with PPPs, which could help me ―kick- start‖ my grasp of understanding the decision process towards, and reasons why to use, DBFM contracts. The final list of interviewees is presented below, in chronological order:
1) Executive Director, European Investment Bank, interviewee 1 2) Project Director RWS, for HSL-Zuid & Noord-Zuidlijn, interviewee 2
3) PhD, Faculty TPM, TU Delft, writer for Committee Duyvestijn Report, interviewee 3 4) Ministry of Finance, Kenniscentrum PPS, interviewee 4
5) Co-owner Rebel Group, Commissie Ruding, Dutch Economical Institute, interviewee 5 6) E-mail conversation Rabobank Director Public Project Financing, interviewee 6 7) Project Director A12 Lunetten-Veendendaal, interviewee 7
