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CIPFA in the Midlands

Shackleton's Voyage of Endurance. . . Men wanted for hazardous journey, small wages, bitter cold, long months of complete darkness, constant danger, safe return doubtful. Honour and recognition in case of success. Sir Ernest Shackleton". Partnerships The Name of the Game. Private FinanceJoined

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CIPFA in the Midlands

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    1. CIPFA in the Midlands The Winds of Change Mike Ellsmore Bexley Council

    2. Shackleton’s Voyage of Endurance

    3. Partnerships – The Name of the Game Private Finance Joined up Working Procurement/Gershon

    4. Private Partnerships Leisure Schools

    5. Partnership Working – Key Issues Relationships Risk allocation Control Policy

    6. Why Involve the Private Sector? Pre prudential code Capital investment Off balance sheet Risk transfer Long term maintenance Drive Expertise

    7. Why - Need for Change

    8. Why - Need for Change

    9. Why - Need for Change

    10. Welling

    11. Bexleyheath

    12. Partnership Structure - Leisure

    13. Background - Complexity 15 Signatories Project Agreement and 29 Schedules Over 100 other documents 3 sets of lawyers Ł30m capital investment Ł210m cash flow Sport England Leisure Link Certification Issues

    14. Doing the deal!

    15. Financials/Affordability Capital investment of Ł30m Unitary charge - Ł2.1m (up by Ł1m) 3% annual increase Benchmarking Turnover share Up Front Contribution Council Ł3m Sport England Ł2.5m Release of 3 valuable sites

    16. Financing the Scheme Capital investment of Ł30m 87% Loan Debt (return x%) 12.9% Subordinated Debt (return x%) 0.1% Equity (return x%) Average Cost of Capital 6.8%

    17. Payment Mechanism 16% of Unitary Charge based on performance 79% of Unitary Charge based on availability 5% of Unitary Charge based on social inclusion

    18. Making the Numbers Work Cost to Council - PPP route Ł2.1m per annum less turnover share (?) Cost to Council – traditional procurement Current budget Ł1.1m plus Cost of borrowing Ł1.7m Total: Ł2.8m

    19. Allocation of Risks Council Latent defects – transferred properties Interest rates to financial close Throughput [turnover share] Rateable value Shared Planning Boxwood Construction cost Design Operating costs Throughput Business rate poundage

    20. Crook Log Sports Centre

    21. Erith Sports Centre

    22. Financing Sidcup Leisure Centre Council financing option Consortium/Bank finances construction Council `bullet payment’ on completion Prepayment of Unitary Charge Reduces interest by 2% per annum

    23. Partnership Structure - Schools

    24. Financing the Scheme - Schools Capital investment of Ł30m 89% Loan Debt (return x%) 11% Subordinated Debt (return x%) 0.03% Equity (return x%) Average Cost of Capital 7.1%

    25. Payment Mechanism Council makes annual payment Separate calculation for each school 55% fixed, 45% subject to RPI Deductions for unavailability Further deductions for performance failures Whole payment at risk No penalty if failure rectified in agreed timescale

    26. Risk Allocation Council Utilities/energy price rises Business Rates Changes in law Latent defects IIC Increase in construction cost post financial close Design Operating costs Failure to deliver the Council’s requirements Routine and long term maintenance

    27. Bexleyheath School

    28. Welling School

    29. Final Business Case

    30. Public Private Partnership Advantages Off balance sheet Risk Transfer Certainty Disadvantages High procurement costs Prolonged process Possible loss of operational control Cost of finance is higher

    31. Partnerships in UK Report Schools Post Signature Review 55% thought LEA FM was better Resources for monitoring increase Pricing of variations expensive Payment mechanisms complex (35%) Performance reports poor Dissatisfaction with output specification

    32. Working with the private sector Understand their pressures Need to make a profit Motivate Place risk appropriately Be flexible Don’t seek to win No to Macho management

    33. Issues Higher financing costs Significant risk transfer construction cost delay operating costs throughput Certainty in financial planning

    34. Issues Was there a Business Case? Is VFM achieved? Are risks allocated appropriately? Is the payment mechanism robust? Is there effective client monitoring? Changes to specification

    35. Auditing Payment Mechanisms Ascertain base position Deductions for availability quality service delivery Indexation Refinancing profits Audit trail of changes

    36. Lessons for Accountants/Auditors or How Dolly Parton saved the day Check the obvious

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