Project catch-up

Plans are well and truly afoot to give Northern Ireland’s PFI/PPP market a leg-up. Stuart Cairns gives the lowdown on the changing face of projects

After an initial flurry of projects in the mid to late 1990s, the PFI/PPP market in Northern Ireland is perceived by many to have gone quiet. In February this year, finance minister Ian Pearson MP announced detailed plans for a range of projects under the Strategic Investment Programme.

With a potential total value of more than £2bn, it was suggested that approximately £785m of this has already been earmarked by the UK Government for consideration as PPPs.

The evidence of renewed confidence in PPPs is certainly there to be seen. In recent months a number of high-profile projects have been announced. In November last year, two bundles of schools projects with a total capital value of approximately £55m were announced. In addition to this, four additional schools projects with a combined capital value of around £134m, and two further education projects with a total value in excess of £100m, have now been identified.

It is not just within the education sector that the need for investment has been identified. In his statement in February, Pearson emphasised the need for “massive investment” in waste water treatment, hospitals and transport systems. He noted that £100m had already been earmarked for a Pilot Rapid Light Transport system for Belfast, as well as funding for upgrading the Westlink and the M1 approach to Belfast.

Subsequent to this, projects have also now been announced for the procurement of new headquarters for both the Police Service of Northern Ireland and Invest Northern Ireland.

New developments
In order to assist the drive towards implementation of such a plethora of projects, the minister announced that a new organisation was to be established to “provide a centre of expertise, working in cooperation with Government departments and other public bodies to bring about change”. The Strategic Investment Board (SIB) has been created to perform the unenviable task of transforming Northern Ireland’s public service infrastructure into one that is fit for the 21st century. Years of neglect during the troubles have resulted in Northern Ireland falling far behind its European counterparts in terms of public services.

The remit of the SIB, although initially uncertain, now appears to have been clarified. The Strategic Investment and Regeneration of Sites (Northern Ireland) Order 2003 (the order) was brought into force on 1 April 2003. The order empowered the Office of the First Minister & Deputy First Minister to create a new organisation in the form of the SIB and regulate further the parameters within which it will operate. The SIB will be responsible for advising on the appropriate use of PPPs in the context of the overall investment strategy for the public sector. Furthermore, in an effort to retain consistency in the procurement process, it will “take responsibility for the project development as an internal consultancy”.

One of the most interesting aspects of the order is that it provides for the SIB to be set up as a company limited by guarantee, the argument being that the company approach would offer a more flexible structure and add value in attracting and securing “the appointment of Board Members and senior executives of the calibre needed to see through the important work of the new investment body”. The benefit of this strategy has to some extent already borne fruit, with the high-profile appointment of an interim chief executive in the form of Andy Carty, who has been seconded from Partnerships UK. His experience in the sector is undeniable and he arrived fresh from carrying out a similar role working on larger projects for the UK Government.

The only fear surrounding the appointment is that, at this stage, it is on a temporary basis. Commentators have suggested that just as his expertise is likely to be most needed, Carty’s tenure in office will run out. It is further intended that membership of the SIB in general will be drawn in the first instance from industry and commerce as a means of ensuring that the relevant expertise is assembled to supervise and develop PPP contracts.

Assembling the team in this manner has proven necessary, because as a comparatively new phenomenon there is a relatively small number of people with specialist training in legal, economic and social analysis skills within this area in the UK as a whole and, given its size, Northern Ireland itself.

Local issues
The majority of projects that have signed in Northern Ireland thus far have, broadly speaking, followed Treasury and other relevant guidance. There are, however, two issues peculiar to Northern Ireland that are not dealt with by guidance and which have, to varying degrees, caused problems.

The first issue arises from differences between Northern Irish and English landlord and tenant law and relates to a bidder’s inability to contract out of the security of tenure provisions. This has implications for the nature of the property interest that can be offered to bidders, and in turn impacts on the treatment of capital allowances on projects. However, it should be less of an issue as more projects proceed on the basis of composite trader status.
The second issue is a legacy of the political situation during the last 30 years and arises because terrorism is a risk that is uninsurable in Northern Ireland. There is a statutory scheme for compensating criminal damage to property, but new approaches have been developed to deal with differences between that compensation and conventional insurance.

However, perhaps the biggest issue for local advisers has been in connection with the process itself. At the inception of PFI/PPP into Northern Ireland in the early 1990s, it was largely accepted by local firms that public sector representation should be provided by City or other major national firms, with little need for input from local lawyers on issues other than those peculiar to Northern Ireland. The expertise and knowledge of PFI/PPP was not yet available locally. This is no longer the case – a fact not always recognised by public sector clients.

One recent notable exception is the appointment of L’Estrange & Brett to advise Invest Northern Ireland on its procurement of a new £50m headquarters. It is hoped that the appointment marks the beginning of a trend to recognise the expertise and resource that has developed locally during the last 10 years. The involvement of local advisers in PFI/PPP has steadily increased over the last 10 years.

In particular, they have now advised either the public sector or the successful bidder in each of the education, health, IT, transport and courts sectors. It is surely vital to the sustainability of the process in a relatively small jurisdiction such as Northern Ireland that the local skills base be developed and utilised. To date, though, the public sector remains perhaps the only body yet to put its faith entirely in local firms.

The future
As has been evidenced in the UK’s mainland, there is a great deal of room for improvement in the way Northern Irish PPP projects are procured. If PPPs are to finally be accepted as a success in Northern Ireland, then the current procurement process will have to lead to the quicker delivery of projects, reduced transaction costs (for all parties) and greater flexibility in the operation of contracts.

The ongoing process of standardising contracts is helping, but more progress and innovation is required. The establishment of the SIB should aid this process.

Stuart Cairns is an associate in L’Estrange & Brett’s corporate department.