PPP in the UK Ian Rylatt, Chief Executive Officer, Balfour Beatty Investments

Agenda  Origins of PPP in the UK  Balfour Beatty’s experience of PPP  Lessons learned  Summary 2

ORIGINS OF PPP IN THE UK Overview

Public sector procurement in the UK in the 1980s / ‘90s  c.75% of public procurement under traditional methods was delivered over budget  c. 70% was late  The reasons were many but included: ● Poor specification ● Poor project management ● Design creep ● Etc, etc 4

Aging infrastructure 5 EDUCATION

6 Aging infrastructure HEALTHCARE

The creation of PPP in the UK 7  Launched in 1995, PPP was introduced to modernize the way in which some public infrastructure and services were delivered in the UK  Provide the public sector with access to the discipline, skills and expertise of the private sector.  Put ‘controls’ around procurement

The original PPP procurement process  PPP was enabled by central government legislation  Government announced a commitment of spend per market  Local authorities competed for a subsidy (‘PFI credits’)  Credits are allocated to successful projects  Projects were approved based on a ‘value for money’ test 8

A typical UK PPP project  Design, construct, finance and maintain for 25 years  Raise non-recourse finance: ● Bank finance ● Bond finance ● Pension fund investment  Private sector invest equity in the project  Proposals developed based on client output specifications  Private sector takes on risk for project delivery and maintenance of the asset against client output specifications for the duration of the contract 9

10 UK Investment in PPP is extensive

11 Investment in PPP in the UK

PPP Performance in the UK since 1995  Over 80% were delivered on time. (Costs associated with the 20% that overran were funded by the private sector)  Design and construction quality improved  94% of projects ‘always or almost always met agreed service levels’  In many cases improved design led to improved service outcomes  Facilities were safer, designed with operational safety in mind 12

PPP procurement in the UK Advantages  PPP has enabled the UK to undergo the biggest investment in infrastructure since the 1900s.  Projects are completed on time, to the agreed specification  Design became a key component of PPP investment and has led to the creation of exceptional community facilities  Delivered savings in design, lifecycle and hard FM 13

PPP procurement in the UK 14 Challenges  A complex procurement model which is difficult for the public to understand and became political  The procurement process became increasingly complex in a world of austerity

 Greater transparency of information, making information more publicly available  Launch of the operational PPP Savings Program in order to improve the cost effectiveness  Introducing new arrangements for the assurance and approval of major projects to strengthen scrutiny and control PPP Reform in the UK 15

BALFOUR BEATTY’S EXPERIENCE OF PPP About us

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PPP enabled Balfour Beatty to:  Take a holistic approach to project development delivery and operation  Incorporate design with construction, FM and lifecycle  Develop new asset management skills across a wide range of project types  Transfer and develop best practice  Allow clients to focus on service delivery 19

20 Birmingham Hospital, c. $800m

21 M25, c. $1.5bn

22 Knowsley BSF, c. $240m

A UK PPP EXPERIENCE Lessons learned

Where does the process sometimes go wrong?  Lack of definition of requirements / expectations / bolting on of inconsequentials / extra cost  Over optimistic expectation of risk transfer (lack of private sector control)  Client’s lack of quality resource / lack of employment  Lack of public sector understanding of constraints of leveraged finance 24

What makes a successful project?  Strong and focused public sector leadership and support for the project: ● Establishment of the need and the value of the approach in the public’s mind ● Understanding and focus from public and private sectors on the real partnering examples needed to carry the project through ● Experienced, properly resourced and properly incentivized team approach to development and delivery  Clarity of economic estimates and understanding of the real project economics  Shared understanding of risks 25

SUMMARY PPP in the UK

Summary  PPP can offer significant benefits as a procurement model  It offers: ● A holistic outsourcing opportunity ● Greater certainty of project delivery (schedule and budget) ● A transfer of risk to the private sector ● Greater accountability for performance 27

PPP in the US  Encouraging to see expansion of PPP as a procurement strategy ● Offers same benefits that we have experienced in the UK ● Potential for local economic boost and job growth – priorities expressed by Governor Scott  Might consider adopting successful structures used in other jurisdictions ● No need to “reinvent the wheel” ● Standardized (i.e. Known to the private sector) processes can reduce procurement costs and improve timing ● Many experienced resources are available 28