● And there are those partnerships that deliver and then manage new public sector property buildings. This would include the whole range of PFI projects initiatives such as LIFT and BSF.
These partnerships are about cost savings, service change, and levering in private expertise and funding. But on reflection, I wonder whether they have often worked against both value for money and efficiency agendas. That is certainly a criticism of PFI and I am hearing more and more negativity about the cost of LIFT projects. Consequently none of the current partnership models really feels adequate to meet the challenge that we now face. If partnerships are to be part of our equipment, they need to deliver more.
New Approaches to Partnering
The challenge now is to take partnership working to the next level. I think this is essential if we are to deliver the change that is now required. We need partnerships that can
● Meet the challenge of service change ● Meet the challenge to deliver property investment
● And meet the challenge of delivering property efficiencies.
These new partnering methods need to be broadly based but a number of questions will arise.
● How are public sector property assets best used to support these new partnerships?
● Do long-standing public sector attitudes to owning assets need to change?
● How will success be measured?
● And related to measuring success; how will the private sector be rewarded? For example, how is the private sector to be incentivised to reduce service costs year on year? How is the private sector incentivised to manage a property portfolio when the aim is to reduce the size of the portfolio and the costs of managing it year on year?
Creating Value
Partnerships will only work if the private sector can make a profit. So partnerships must create value. Only then will the private sector engage in a proactive, meaningful and long term way. Currently this is challenging, but there are some positives to consider.
The covenant strength of the public sector does have real value and needs to be fully exploited. The private sector has never been more interested in investing in buildings leased by the public sector.
The value of prime accommodation has actually held up very well. This could create some ironies because the success of partnerships may depend on the public sector making the case to move into well located, grade A, BREEAM excellent buildings, despite general funding constraints. Critically, value needs to be looked at over the long or longer term. My suspicion is that in many current partnerships, the private sector is looking for a relatively short-term exit. This needs to
26 John Keyes ASSET - Liverpool-10
change but it might need the private sector and their funders to re-visit their current business models.
And finally, the public sector will need to provide incentives to encourage new approaches to partnership working. I believe that central government will need to play a key role and will have to provide funding for the changes that are needed. Also central government will have to be active partners.
Clearly, local authorities need to consider how they use their property assets. This means looking at your most valuable assets not just the rump of your property portfolios. Your value as a tenant is going to be a key driver of value creation.
Legal Structures
I think that it is no coincidence that in March 2010 the Treasury re-issued guidance about the role of joint ventures between the public and private sectors. They must be expecting greater use of JV approaches. The guidance is comprehensive and considers all of the issues involved in setting up Joint Venture Companies. It is not an exciting read but a document that you should be looking at. It focuses on the three main options for Joint Venture companies:
● Companies limited by shares ● Limited partnerships ● Limited liability partnerships
I will no go into the full details of each, as that needs to be left to the lawyers. However the guidance discusses how to choose the right option for you and the pros and cons of each approach.
The Treasury Guidance, Joint Ventures, will confirm that creating a JV can be a long process and much effort is needed even before the JV partner comes on board. The guidance identifies a five-stage process.
● Initial planning ● Looking at options ● Creating the business case ● Selecting the actual partner ● The on-going management of the JV to make it successful
In my experience, the management stage is often neglected but Joint Ventures do not run themselves. Selection of the partner will probably involve a Competitive Dialogue process. If you have been through it you will know that Competitive Dialogue can be a complex, bureaucratic and resource intensive process in its own right. We need to get better at creating these vehicles, share best practice and expertise. And we need to do it quickly.
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