Transition Planning for PPP Project Handbacks

Introduction

My personal experience as a PPP consultant has revealed in many cases that public authority PPP project managers seem to minimize the reality that infrastructure PPP project assets or the operation of assets will eventually undergo a handback transition phase once the contract period of performance is completed. 

 This ostrich head in the sand burying approach will never bode well for public authority.

 Denial and ignorance of contractually defined handback provisions, schedules, necessary strategic mitigation steps to follow, and lack of awareness of the need to mobilize the necessary resources to manage and assume the operational management and maintenance of infrastructure or operations, when it is returned by the private sector project company to the public sector, will have major impacts on the sustainability and resilience of the project.

 Lack of proactive project handback preparation poses considerable risk to the public sector which in many instances does not have ability or even the will to accept this inevitable step.  A potential thirty-year performance horizon before the handback phase occurs often lulls the responsible public sector party into a sense of complacency and denial about the necessary preparation actions that  can have unfortunate consequences if ignored. A last-minute reactive mobilization of resources will seldom be successful.

Mitigating the Challenges of a PPP Project Handback

 The Global Infrastructure Hub (GIH) suggests that a proactive project handback approach is necessary. This should be prescribed in the original project contract.  Unfortunately, the key provisions for this stage are often very vague and can lead to an asset being handed back that has deteriorated, or deteriorates rapidly after a less than satisfactory asset handback transfer.

 To avoid this scenario, the following recommendations are made by the GIH and most implementing  organizations. The focus of the recommendations is ensuring that the PPP contract contains protections around asset handback and that those protections are understood and utilized; and that plan for a handback (or the transfer to a new project company or operator) is prepared well in advance of the end of the PPP contract.

 Contract Handback Protection Provisions

 Key provisions GIH recommends that will protect the procuring authority include:

• PPP contracts having clear and well-defined asset handback standards that leave less room for the Project Company to hand back an asset in a substandard condition

• Requiring a contingency fund for any maintenance requirements after handback that incentivizes  the project company not to ‘sweat the asset’

• Requiring the project company to hand the project back to the procuring Authority in a condition that would meet the handback standards as defined in the PPP contract for a specified period

 Handback Planning

 The size and complexity of the project will most certainly determine the scope of the handback strategy as well as the handback phase duration. This requires considerable planning and mobilization of the necessary resources which are focused on ensuring an accountable process and could be initiated a few years (1 to 3) before the contract period of performance closes.

 The following procedural recommendations are made by the GIH regarding transition consultation with the private sector project company:

• The procuring authority should revisit the PPP contract and understand what the contractual obligations and entitlements are when the asset is handed back.

• The procuring authority should have a clear understanding of its goals for the end of the contract term, what the contract requires, and what condition the asset is in leading up to handback.

• The procurement authority should complete an asset assessment (testing and inspection of the asset) and inventory list which will ensure the asset condition is in compliance of the standards defined in the PPP contract

• The procurment authority should also have a plan for how it will ensure service continuity and who will be responsible for its implementation

 Conclusion

 Complacency regarding the handback of a PPP project to a public authority will result in a depreciated asset or service that will cost the public sector additional funds to mitigate. In addition, failure of a project at this stage will certainly have a ripple effect that will impact users who are often dependent on the asset.

 Proactive approaches to and public sector authority knowledge of handback terms is the only option that will protect the ongoing sustainability and resilience of a public asset post PPP.