Tuesday 22 April 2008

Be Prepared:PFI Update

As you may know I recommend that APC candidates have a stratgeic answer prepared for a range of questions or 'hot topics' related to their faculties and a common area is PFI/PPP for qs,bs, pm and the like.Below I give a comprehensive 3 part example answer to such a question. My 'model' answer to this common question has of course been affected by the recent launch of an investigation in to competition surrounding this process. I would suggest that you continue to use the same format but where I mention the inherent lack of competition in projects of this size you may wish to illustrate this with the above news as there are often a limited number of potential tenderers for some projects and of course these tenderers know each other and do talk through a variety of formal and informal channels. This 'chatter' will include such issues as how keen they are to secure contracts but of course these contractors are constantly monitoring the competition anyway and would be wary of'misinformation'. The process is also complicated by the belief among tenderers that if they do not put in a tender, even an uncompetitive one, this may affect the client's attitude to future projects. Be very wary of giving a 'tabloid' answer that implies the whole system is corrupt, especially as no contractors have actually been found guilty of anything, yet.

How to answer questions.

Part 1 Define the question, what exactly is the assessor asking. Not all assessors are good at asking questions! Even well thought out questions can be ambiguous if the assessor is coming from a different background to the candidate.

Part 2 Answer the question

Explain the problem, legislation, professional technique etc.

Part 3 Professional opinion

‘I think this is a good think / effective / not the only way / new and requires some modification based on my experience/ appears to be working etc

Assessors questions often follow general introductory route to find some common ground on which to go in depth.

Example Q: What is your opinion of PFI /PPP as a means of procuring developments?

Ask yourself what is the point of this question. To the ‘man in the street’ a typical answer would focus on the widespread criticism of the concept, anecdotal stories of high end-user costs of hospital car parking and the like or maybe the recent liquidation of Metronet.

Your focus must be on such issues as

What is it?

What is it designed to achieve?

What are the advantages / disadvantages / alternatives?

Does it achieve the client objectives?

This is complicated and can only be successfully achieved if anticipated and practiced before the interview.

Answer

Part 1

The Private Finance Initiative or as it is sometimes now called the Private Public Partnership is primarily a risk transfer mechanism whereby the risk of providing projects or services which would traditionally have been provided by the public sector is transferred to the private in return for a future anticipated income stream.

It has been mainly concerned with public facilities such as schools and hospitals and infrastructure and transport including motorways, railways and bridge construction. The systems tend to be characterised by an ongoing involvement in the operating of the facility by the private sector in the form of maintenance and facilities management roles.

Part 2

There are a number of ways in which this can be achieved and the risk ‘priced for’ will reflect the certainty of the future income entitlement.

Low risk example would be the provision of a number of schools for a local authority for which the private funder would receive an inflation-proof rental income from the authority typically for 20 or 25 years. This is relatively low risk and the tendering competitiveness should reflect this.

For a scheme which depended on the use of the facility such as a motorway toll or the famous Skye road bridge PFI contract the income is uncertain and again this would be allowed for in the agreement and reflected in the competitiveness of the pricing mechanism.

Part 3

It would appear that the system is here to stay and from what I have read there is little incentive to return to the old way of funding such schemes. There are many benefits and a major one is the fact that there is an inherent tendency to build quality and low running costs into the scheme, not for altruistic reasons, but because the contracting organization or consortium who are awarded the contract is generally also responsible for the maintenance and facilities management throughout the contracted period.

There are problems of course. One example here is the very high cost of tendering. This has two main effects; firstly most contractors cannot afford the risk of tendering for such schemes thus inherently reducing competition within the system and excluding the majority of contractors from this potentially lucrative and expanding area of operation. Secondly the high tender cost has to be passed on to future schemes- many tendered schemes have never gone ahead even after reaching the preferred bidder stage.

It has certainly had some very adverse publicity and this is ongoing with the proposals for the London Underground and problems which are emerging on the FM side of completed projects but the best evidence of its benefits comes from a survey in 2005 in which over 85% of local authority clients were generally satisfied and thought it was their preferred procurement system for future projects.

This is not put forward as ‘the perfect answer’ to this particular question but we would suggest that if representative of their performance on the day, it would represent a more than satisfactory response.

IT WILL NOT ALWAYS BE APPROPRIATE OR EVEN POSSIBLE TO GO THROUGH A COMPLETE ANSWER IN THIS WAY, HOWEVER IF THE CANDIDATE HAS PREPARED ANSWERS TO A RANGE OF QUESTIONS IN THIS FORMAT HE OR SHE WILL BE ABLE TO BEGIN AT THE APPROPRIATE STAGE AND MOVE UP AND DOWN THE FORMAT.

EXAMPLE USING THE PFI QUESTION ABOVE:

AN ASSESSOR ASKS YOU WHETHER PFI WORKS? -

effectively straight in at Level 3.

WRONG ANSWER: YES OR NO

RIGHT ANSWER: YOU SAY YES ON BALANCE AND BASE IT ON THE MAIN ELEMENTS OF PART 3 ABOVE . QUALIFY YOUR ANSWER BY BRINGING IN THE QUESTION OF RISK AND COMMENTING ON HOW THIS MAY IMPACT ON WHETHER IT ‘WORKS’ AND HOW THIS RISK IS REFLECTED IN THE COSTS.

( Don’t forget to mention what the acronyms PFI or PPP actually stand for!)

This approach is only possible if you have done your homework –

Remember the adage: Failing to Prepare is Preparing to Fail

Practice this technique with a range of topical issues from your range of competencies.

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