Ask MOF

PPP is part of the government's continual search for better value for money and better ways of delivering public services. As an alternative procurement method public agencies can consider, PPP offers the government an additional source of quality services through tapping on the capabilities of the private sector in service delivery.

Services that are privatised are those that can be effectively and appropriately provided by the private sector and where Government's role is that of a regulator. PPP is appropriate for those services that are provided by the government. PPP is therefore a means of sourcing for government. The public will continue to obtain the same service from the government.

The government will ensure that public service quality will not suffer due to PPP. The government will specify the service standards and appropriately incentivise the private partner to meet these standards.

PPP allows the government to tap on to the private sector's experience and efficiency in producing goods and service. In particular, the private sector has greater flexibility to innovate during the course of the contract. PPP by focussing on the output also enables the PPP partner to bring together the design, building and maintenance and other relevant services to achieve more efficiencies and synergies in the delivery of the desired outputs. Studies in other countries, notably the UK, show that considerable savings are possible.

PPP will be able to help us deliver services to the public at the best value for money. This means that the users can benefit from the efficiencies of both the public and private sectors.

Users can also look forward to more innovative designs or service delivery modes as private sector innovation is introduced into the delivery of public services.

When the private sector is engaged to deliver services to the public on behalf of Government, the public agency will ensure that service continuity is not adversely affected.

The public agency will also ultimately be accountable for the services that are delivered by our private contractors. Hence, the public can be assured that proper mechanisms will be put in place to monitor the performance of private sector providers to ensure that the public's needs are met.

Financing cost depends on the allocation and management of the project risks. If these risks are properly managed and allocated, the cost of borrowing for the private sector can be very low. In any case, financing cost is just one component of a capital project. The total cost over the life-cycle of a project is a better indicator of the overall cost than simply focusing on the cost of borrowing. The PPP approach will be adopted if the total life-cycle costs and other benefits compare favourably with those expected under the traditional procurement mode.

PPP is one of the possible approaches for new development projects that are estimated at more than $50 million. Nevertheless, projects below $50 million can also be considered for PPP, depending on the nature of the project and the ability of PPP to deliver value for money for it.

For certain projects where there is commonality of core services, it will be sensible to combine the PPP contract in order to achieve economies of scale and other cost benefits. The key consideration is to find the best project scope and the procurement model to achieve the best value for money, and not to combine projects simply for the sake of increasing its scale.

The main difference between a PPP and a conventional project is that the private sector will raise financing and lead in the turn-key project. The private sector will take on a bigger role from the onset and exert more decisive influence during the process which will result in more innovations in design, specification, financing, construction method and management. Because a variety of capabilities is involved beyond just construction, PPP projects overseas are often handled by consortiums, where there is room for various parties, including construction firms. These companies can be brought together to perform a useful role.

PPP will create new business opportunities for interested firms to develop multi-disciplinary skills and form partnerships and consortiums. We can also expect new expertise to develop (eg. life-cycle costing & designs, integrated design and construction methods to suit future needs in relation to service delivery, operation and maintenance of the facilities, and better risk management). Such new skills and expertise will also be useful when firms venture overseas.

In general, firms established in Singapore already have the capability in various aspects of PPP. There are firms offering multi-disciplinary services. Some companies have built up experience in design-and-build (D&B), build-operate-transfer (BOT) or similar arrangements locally or overseas. Some have engaged in new businesses such as property development and maintenance works. The private sector can build up good capability for PPP projects with time and experience.

Many joint ventures have been formed in the industry for major construction projects and we can expect similar joint ventures to be formed for PPP to incorporate all sectors of the industry from the developer to the consultant, the contractor and the facilities management professional.

Because of the complexity and long term nature of PPP contracts, there are greater planning and administrative costs involved. More significant savings will accrue to the bigger projects. Hence, the Ministry of Finance has set the guideline that , projects above $50 million be actively considered for suitability as PPPs. Nevertheless, some projects less than $50m can also be considered for PPP if the circumstances justify it.

SMEs can participate in the PPP consortiums as partners, contractors or subcontractors. In addition, SMEs can continue to contract directly with the government for projects below $50 million where PPP is generally not applicable.

All interested parties can put in bids. The PPP providers will be selected through the tendering system which is open and transparent to all potential providers.

The length of the procurement period depends on the scale of the project and the level of expertise within the project team. It can range from 12 months in relatively simple projects to about 2 years for more complicated ones.

The government procurement regime is one of transparency, fairness and openness. Similar to conventional procurement, the government will award the tender to the PPP provider who can provide the best value for money to the government. To determine value for money, the government will evaluate PPP tender proposals not only in terms of price, but also in terms of design, quality, and reliability of the prospective contractor.

It is a general rule which governs all tenders and bids for government projects that negotiations are not allowed. This rule shall apply to PPP tenders also. Otherwise it will undermine government's policy on transparency and even-handedness.

The PPP procurement process has been designed to allow public agencies to gather private sector feedback in a transparent manner before calling for tenders. In particular, the Market Sounding and Market Feedback phases provide the opportunity for interested PPP partners to give their comments on the features of the PPP proposal before government agencies issue the final invitation to bid for the project.

The cost of PPP procurement incurred by the private sector depends on the size and complexity of the project, the level and availability of in-house skills and experience. The procurement costs, however, need to be seen in the context of the overall value of the project and the length of the contract.

Unless there are exceptional circumstances, the Singapore government will not refund bidding costs to unsuccessful bidders. The government is mindful of the need to keep down the cost of bidding and will employ various measures, eg, shortlisting the more promising bidders so that fewer bidders need to go through the whole process and take on the cost of making the full bid.

Projects incurring capital cost above $50m would be surfaced to MOF and MOF would work with the relevant agency on exploring PPP.

Similar to the concept of UK PPP taskforce, there is a unit within MOF that creates awareness of PPP, handles PPP policy and provides guidance on PPP matters.

MOF is working closely with procurer-agencies for each of the upcoming PPP projects. For specific issues on each PPP project, MOF and the buying agency will jointly approach the relevant agencies to resolve inter-agency issues.

MOF will be conducting PPP briefing sessions for public agencies. The objective is to provide more focused assistance to those which may be embarking on PPP projects in the near future, as well as allow other agencies to increase their understanding of the salient features of PPP.

There cannot be a standardisation of the whole PPP contract because a lot depends on the nature of each project. However, wherever feasible, standardisation will be applied to the relevant sections.

The PPP contracts will typically include provisions for price review and adjustment.

During the construction phase, if the public agency initiates changes to the project, there will be provision for both parties to review and adjust the price arising from such changes. This is no different from contract variations in direct government contracts.

The price payable by the government agency during the operational or service delivery phase is dependent on the service availability and service levels. The price adjustment may be carried out in two ways, i.e. (a) a pre-determined rate for an increase or decrease in capacity; and (b) an agreed set of procedures to vary the price for other changes in scope or other requirements. Either party may initiate changes to the scope of the contract, e.g. the PPP partner may propose changes to take advantage of innovation and technological advancement.

Besides the DBFO model, the public sector is open to any other variations or new PPP models that may be proposed by the private sector.

Public agencies will focus on purchasing services, defining and monitoring performance specifications in a PPP project. These specifications can include other design requirements such as aesthetics if they are deemed essential for the project. However, the public agency will avoid over-specifying the design requirements so as to give the private sector room to innovate and/or offer a more cost effective alternative proposal.

In a PPP project, the provider needs to factor in the whole lifecycle cost of designing, building, maintaining the facility for the contract duration. Therefore, the PPP provider needs to consider any upgrading works required and include it in the tender bid.

The government makes regular payment streams for the services delivered accordingly to service specifications. The integration of design-build-maintain provides the PPP provider the economies of scale and incentives to build for maintainability in the long term.

Performance targets, benchmarking and service level review points will need to be specified in a PPP contract to ensure service levels are met. The PPP provider will suffer reductions in unitary payments if the performance targets are not met.

There will be provision for step-in rights for the financiers or the public agency involved. These rights will be spelt out in the PPP contract. The step-in rights are essential to protect the rights of the various parties including the financiers and the public agency. There will also be provisions in the PPP contract to ensure minimal service disruption to the users.

In some PPP projects, the private sector will own the facilities and the land which the facilities sit on. In such cases, the private sector will lease the land from the Government, or other land owners where applicable, to develop the facilities to deliver services to the public sector over the PPP contract life.

However, not all PPP projects need involve land ownership by the PPP provider. In some cases, the Government will choose to retain ownership of land and the facilities (upon completion). The private sector PPP provider will still be engaged to maintain and operate the facilities but the title to the land and properties will remain within the public sector. The PPP provider then does not need to raise financing to pay for the purchase of the land.

The specific arrangements on the ownership of the land and buildings thereon will have to be determined on a case by case basis depending on the nature of the PPP project.

Private companies interested in participating in PPP projects should examine:

- The payment mechanism for the PPP project and the implications on their revenue and cashflow;
- The financing arrangements for the project, especially how to secure low private financing for the project; and
- The termination and compensation arrangements of a PPP project and the potential impact on the bankability of the PPP deal, i.e. whether the banks will be willing to lend to the company. For example, some private financiers might request for step-in rights in the PPP contract, so that they can take over operations in case the private provider fails.

When a public agency announces its intent to purchase services from the private sector through PPP, private companies are encouraged to give their views on how the PPP deal could be structured to enhance the financing of the project.

Normal tax rules will apply.

The government is open to PPP projects planned with refinancing in mind. There is provision for the PPP partner and the public agencies to share the refinancing gains.

Any staff transition with be dealt with on a case by case basis in consultation with with the Public Service Division as per the practice in Best Sourcing exercises.

The Public-Private Co-Innovation Partnership (CI Partnership) is a platform for the Singapore government and companies to co-develop innovative solutions to meet government needs.

Today, in an increasingly complex environment, Government faces many challenges and needs that do not have existing solutions. Singapore companies have the innovation potential to meet those needs. The central idea behind the Co-Innovation Partnership is that Government can better serve the public through innovations borne out of public-private partnership. Companies will also benefit, both through the strengthening of their innovation capabilities upstream, as well as their improved track record for downstream procurement opportunities.

Please visit the CI Partnership website [www.coinnovation.gov.sg] for more information.