Time to use our blocks when it comes to PPP projects.

The discovery that something called a PPP can delay the opening of a Wexford school is for many the first introduction to the a different way that the state often gets important projects built. It’s likely that soon other concepts might come on the radar, DFBO and VFM.

We don’t have a state construction company. To get anything built in Ireland involves tenders, competitions and time as the private sector bids for work. States could borrow at a lower rate than the private sector. Government departments like education, transport or environment had a construction section, many of the others dealt with the OPW.  So where did the idea for a PPP come from and how could it be better?

We’ve got to go back to the 1980’s and the politics of small government. Involving the private sector in delivering social services and getting it to share the risk and presumably when it worked well, they shared the profits. 

This might mean that it is financed privately or as in the case of Carillion in Wexford, they not only financed but designed, built it and operated the building, or so they planned until the parent company collapsed. Under the conventional construction scheme that we’re all familiar with, the state owns the asset. Not so under a PPP. The company owns the asset (unless it goes to the wall) and the state leases it over a long term contract. The company has privately raised the finance to build and pays off its loan from the rent it receives over the time period of the lease. Part of the contract usually means that the construction not only is responsible for leasing the asset but also can use the asset to make money. I know one school principal in Co Wexford who tells me that when July comes around the company that has the PPP contract has the right to take over his school to use it as it so wishes until the Summer holidays end. That’s what DFBO means.

So in the UK schools built under PPP’s can be used at holiday time to hold conferences. Many in Ireland rightly see just an asset. The logic behind the build has not been explained.

Why is the system of construction attractive? Simply because it allows projects to go ahead that don’t show up on the states accounts for some time.  When the Wexford Loreto school got the go ahead to build, the state was broke. A school was long promised. You can’t blame the local minister for wanting to sort out a long standing local problem.

But it was a system that has served its purpose. The PPP project might be useful in building road building as it has in the past delivered projects on time. The case of GAMA workers in the past in Cork might raise questions as to how in one case this target was met. However O’Deveeny Gardens in Dublin was a collapsed social housing PPP that cost time and money. Risk is priced into PPP scheme’s for a reason, the reason is that it is real.

Let’s get back to VFM, value for money.  When Fianna Fail first brought in PPP’s the initial value for a basket of 5 schools was about €61M, the tender was advertised at about €69M and the deal done about a year later at almost €80M. Poor management of their own scheme put the taxpayer on the hook for a sum that could have delivered more schools if spent conventionally.

So when it comes to building social infrastructure it’s time to park the idea of PPP projects. Let’s get back to building under the supervision of a government department lest the department lose the expertise of actually how you go about building and subsequently having to solely rely on PPP.