Evaluation of the Promotion of Through-Life Management in Public Private Partnerships for Infrastructure
2. Research Question and Strategy
- a description of the PPP procurement route and its TLM rationale
- a definition of effective TLM
- evidence from large scale studies and systematic reviews on the implementation outcomes of TLM in PPPs
- evidence from two case studies on the problems of implementing TLM on both a PPP and a non-PPP procurement route
- a critique of the TLM rationale for PPPs, based on a synthesis of the PPP literature with insights from management and organisation theory
- an analysis of the effectiveness of TLM implementation, using the definition of TLM developed above, as a standard
- a discussion of the significance of the above for the implementation of TLM in future public procurement
3. Public Private Partnerships
3.3. Espoused Rationale
3.3.1. Through-Life Management as the Core of the Economic Rationale
- engaging contractors more closely in the management of public sector projects, promotes levels of efficiency comparable to those pertaining in the private sector;
- a single contract for the production and service phases of infrastructure life-cycle enables these to be more closely integrated, facilitating design for (and learning from) use;
- risk is better apportioned.
3.3.2. Financial and Fiscal Motivation for PPPs
4. Through-Life Management
4.1. Approaches to through-Life Management
- The earliest approach involved the minimization of life cycle costs. Seminal initiatives taken by the US Department of Defense in the 1960s  shifted the focus from acquisition costs to the total cost of the product over its life cycle, thus covering the costs of R & D, design, production, operation, maintenance and disposal. The long life cycles of built environment products have made them a particular focus for life cycle costing (LCC) and an ISO standard for LCC analysis of buildings is currently under preparation. The basic principles are now widely known and agreed upon, but not commonly applied in practice, at least in Europe . The approach has been extended to take into account environmental impacts through life cycle assessment (LCA), a predominant tool within industrial ecology . LCA refers to “compilation and evaluation of the inputs, outputs and the potential environmental impacts of a product system throughout its life cycle” . Total cost of ownership is a further related method for products with a shorter life time, such as cars and software . As cost is uncertain in many aspects, it is imperative that any life cycle model incorporates the treatment of uncertainties .
- Life-cycle value includes the consideration of benefits in addition to costs, thus seeking to optimize the benefit/cost ratio over the life-cycle. The whole life value method [33,34], has been proposed in order to support investment decisions throughout the life of an infrastructure asset. This has led to much discussion of the ratios between the respective costs of producing, maintaining and operating buildings, with the implication that relatively small increases in production costs can leverage much larger savings in maintenance and operation, though reliable ratios remain elusive [35,36,37]. There is evidence of improved healthcare outcomes arising from improved hospital design [38,39]. Such considerations have also led to consideration of the subjective aspects of value and an emphasis on value exchanges between the wide range of stakeholder groups [34,40].
- The first two approaches are concerned with investment and design decisions. The next change of focus concerns the optimization of management processes throughout the whole life cycle and includes methods such as whole life systems engineering  and total asset management . Other approaches, originating in marketing, strategy and product development and seen to promote this shift of focus include product service systems  and integrated solutions . Process models, depicting life-cycle stages and their interactions, have emerged as a popular way of implementing through-life management. RIBA (Royal Institute of British Architects), CABE (Commission for Architecture in the Built Environment, OGC (Office of Government Commerce) and MOD (Ministry of Defence) have all produced their own models, though their efficacy is yet to be proven.
- Operations management, traditionally subscribing to a static view of the managerial situation , has also evolved a dynamic approach, in which the elimination of waste and continual learning and improvement are emphasised . This can be seen as part of a broader movement away from a simple view of production as an input-output relation, to one in which the temporal flow of materials and product are emphasised, along with the specification and delivery of value . In production management terms, through-life management is about producing an artefact and then producing the services, which accompany it. In this conception, production is a continuous and developing flow of value generation among a variety of stakeholders , which calls for a lean life-cycle approach to management .
- Originating in sustainability economics and company valuation, an approach emphasising the preservation and increase of capital value has been proposed . This capital approach can be implemented at different levels, ranging from global to a single company . One important issue that arises is the identification of the different types of capital and the ways in which they can substitute for each other. Four such types are: the (physical) artefact itself; codified information about the artefact (in form of drawings, instruction manuals, maintenance history, etc.); uncodified knowledge and skills required for using and maintaining the artefact; and (influences on) the natural capital (depletion of minerals, pollution). A merit of this approach is that it brings hitherto disparate aspects of sustainability, information management and learning into the same conceptual framework.
- The product-service conception represents a further approach, in which the emphasis shifts from one-off transactional costing of a product (sale price) to the continual temporal cost of service (rental). This conceptual shift is seen as having particular benefits for environmental impact through continuous innovation supported . Four possible product-service strategies are outlined, namely: selling a result, rather than a product (e.g., travel miles rather than roads); shared utilisation (e.g., renting office space by the hour); product-life extension services, including maintenance, upgrading and recycling; and demand side management, involving strategies to reduce demand (such as distributing low energy light bulbs) . Important benefits for manufacturing and service companies, as well as the environment are identified , but it is also observed that considerable changes in social organization will be required in order to realise these.
4.2. Framework of Understanding of through-Life Management
- at each stage, activity and decision, the impacts on later stages, activities and decisions are taken into account in order to optimise through-life cost, value and material flows;
- unavoidable uncertainty is taken into consideration and counteracted when feasible;
- real asset capital is preserved and increased;
- managerial action is geared towards continuous improvement in terms of waste reduction and value creation;
- when feasible, the business model is redesigned to support continuous innovation towards through-life benefits.
5. Do PPPs Deliver through-Life Management?
5.1. Evaluations in Prior Literature
5.2. Explorative Case Studies on through-Life Management
5.2.1. A Hospital Redevelopment
5.2.2. A New Build School Programme
6. Evaluation of the Espoused Rationale Regarding through-Life Management
6.1. Do PPPs Create a Single Point of Responsibility?
6.2. Can a Single Point of Responsibility be Maintained throughout the Life-Cycle?
6.3. Providing Appropriate Incentives
6.4. Is There Readiness for Implementation of Through-Life Management?
6.4.1. Impacts on Later Stages Taken into Account
6.4.2. Uncertainty Considered and Counteracted
6.4.3. Capital Preserved and Increased
6.4.4. Continuous Improvement Pursued
6.4.5. Business Model Supporting Continuous Innovation
6.5. Synthesis of the Evaluation of the Rationale
Conflicts of Interest
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|HM Treasury ||An agreement between two or more entities that enables them to work cooperatively towards shared or compatible objectives and in which there is some degree of shared authority and responsibility, joint investment of resources, shared risk taking and mutual benefits.|
|The World Bank ||The term “public-private partnership” has taken on a very broad meaning. The key elements however are, the existence of a “partnership” style approach to the provision of infrastructure as opposed to an “arms-length” supplier relationship […] Either each party takes responsibilities for an element of the total enterprise and they work together, or both parties take joint responsibilities for each element […] A PPP involves sharing of risk, responsibility and reward and it is undertaken in those circumstances when there is a value-for-money benefit for the tax payers.|
|European Commission ||A partnership is an agreement between two or more parties who have agreed to work cooperatively toward sharing and/or compatible objectives and in which there is shared authority and responsibility; joint investment of resources; shared liability or risk-taking; and ideally mutual benefits.|
|Canadian Council for Public Private Partnerships ||PPP is a cooperative venture between the public and private sectors, built on the expertise of each partner that best meets clearly defined public needs through the appropriate allocation of risks and rewards.|
|From investment cost to life cycle costs||From consideration of investment costs only, to minimization of life cycle costs of an artefact delivering an assumed level of benefits.|
|From cost to value||It is not enough to look at the costs, but the value provided by the artefact should also be taken into account.|
|From design focus to life cycle focus||From (optimization in) design to management throughout the whole life cycle.|
|From static black box to dynamic open box||From a static understanding of production to a dynamic flow view (with continuous focus on waste elimination and value maximisation through fostering learning and improvement).|
|From flows to capital||From looking at the flows of value and costs to a broader view that acknowledges the need to preserve and increase associated capital.|
|From considering product realisation to design of a business model||From managing at the level of product realisation only, to designing the business models where product realisation is embedded.|
|RICS Construction and Property Conference ||395 secondary schools in England, from which 33 were identified as being PFI. The service costs over nine years were examined, covering core hard and soft FM services.||“…total facility services costs in PFI schools are higher (though not significantly) in six of the nine elapsed years. Total facility services costs are broadly similar over the nine elapsed years following renewal in rebuilt and refurbished schools.”||The results do not provide evidence for reduced operational costs as a result of improved TLM.|
|European Investment Bank ||227 European road projects, of which 65 are PPPs. The ex ante (that is, budgeted) construction costs were examined.||“We estimate the ex ante cost of a PPP road to be, on average, 24% more expensive than a traditionally procured road, all other things equal. This estimate corresponds by and large to reported ex post cost overruns in traditionally procured public roads. To the extent that the two measures are representative, this suggests that the largest part of the ex ante construction cost difference originates from the transfer of construction risk. This, in turn, implies that other possible sources of higher PPP construction costs, including bundling, seem to be of second-order importance in the road sector.”||The results do not provide evidence for increased construction costs due to TLM considerations.|
|International Journal of Economics, Management and Accounting ||108 papers on PFI and PPP published in 26 selected public sector journals||“Concerning the VFM of PFI/PPP projects, there is no one study which found conclusive evidence that PFI/PPP has offered better VFM.”|
“Pertaining to affordability and cost saving, most if not all studies reported evidence that was not in favour of PFI/PPP.”
|Public Management Review ||46 published journal articles focusing on PPPs in the health care sector||“although PPPs are used to address internationally emerging public health issues, questions as to their actual effectiveness, efficiency and convenience, still remain unanswered.”|
|Facilities ||64 published articles from 32 journals||“More often than not, the studies were based on one or two stages of PFI projects rather than the whole life cycle of project: from feasibility to handover.”|
|“…there was still no absolute conclusion whether PFI deliver more VfM than traditional procurement approach”|
|Social Science and Medicine ||1400 publications from a wide range of disciplines over a 20 year period||Finds three themes in the literature, policy, practice and outcomes, with little research spanning across the three. Policy papers mainly focus on anticipated benefits, while practice papers highlight the disadvantages.|
|Suggests a need for further research into: the strategically appropriate circumstances for creating PPPs; “the impact of incentive mechanisms and risk management procedures on health service performance throughout the extended project life-cycle”; and the fostering of environments conducive to learning across projects.|
|In creating a single point of responsibility||Fragmentation typically remains, taking new forms.|
|and a long temporal involvement,||Involvement is often short term.|
|the public private partnership model provides an effective incentive||Competing incentives exist.|
|Incentives do not reach all parties or get diluted.|
|to implement through-life management.||The organizational learning required by TLM is often neglected.|
|The necessary ability regarding TLM is often not in place.|
© 2016 by the authors; licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC-BY) license (http://creativecommons.org/licenses/by/4.0/).
Koskela, L.; Rooke, J.; Siriwardena, M. Evaluation of the Promotion of Through-Life Management in Public Private Partnerships for Infrastructure. Sustainability 2016, 8, 552. https://doi.org/10.3390/su8060552
Koskela L, Rooke J, Siriwardena M. Evaluation of the Promotion of Through-Life Management in Public Private Partnerships for Infrastructure. Sustainability. 2016; 8(6):552. https://doi.org/10.3390/su8060552Chicago/Turabian Style
Koskela, Lauri, John Rooke, and Mohan Siriwardena. 2016. "Evaluation of the Promotion of Through-Life Management in Public Private Partnerships for Infrastructure" Sustainability 8, no. 6: 552. https://doi.org/10.3390/su8060552