DOCTOR OF PHILOSOPHY Risk transfer in operational public private partnerships in the education sector Flynn, Caroline Award date: 2020 Awarding institution: Queen's University Belfast Link to publication Terms of use All those accessing thesis content in Queen’s University Belfast Research Portal are subject to the following terms and conditions of use • Copyright is subject to the Copyright, Designs and Patent Act 1988, or as modified by any successor legislation • Copyright and moral rights for thesis content are retained by the author and/or other copyright owners • A copy of a thesis may be downloaded for personal non-commercial research/study without the need for permission or charge • Distribution or reproduction of thesis content in any format is not permitted without the permission of the copyright holder • When citing this work, full bibliographic details should be supplied, including the author, title, awarding institution and date of thesis Take down policy A thesis can be removed from the Research Portal if there has been a breach of copyright, or a similarly robust reason. If you believe this document breaches copyright, or there is sufficient cause to take down, please contact us, citing details. Email: [email protected] Supplementary materials Where possible, we endeavour to provide supplementary materials to theses. This may include video, audio and other types of files. We endeavour to capture all content and upload as part of the Pure record for each thesis. Note, it may not be possible in all instances to convert analogue formats to usable digital formats for some supplementary materials. We exercise best efforts on our behalf and, in such instances, encourage the individual to consult the physical thesis for further information. Download date: 02. Oct. 2021 Risk Transfer in Operational Public Private Partnerships in the Education Sector Caroline Flynn This thesis is submitted in fulfilment of the requirements of the degree of Doctor of Philosophy from the Queen’s University Management School, Belfast. June 2020 ACKNOWLEDGMENTS I would like to thank my supervisor Professor Ciaran Connolly for all his help, advice and support over the years, it is very much appreciated. Despite being Subject Leader and having lots of other commitments he has always been very generous with his time and for that I am most grateful. I would also like to thank DIT (now TU Dublin) for their financial support during my PhD. Last but not least I would like to thank my Mam and Dad, my brother Stephen and sisters Linda and Anita for all their love and support over the years. However, the biggest source of love and encouragement throughout my PhD journey has been from my husband Danny and my little baby son Aaron – thank you so much! i TABLE OF CONTENTS ACKNOWLEDGEMENTS (i) LIST OF ABBREVIATIONS (ix) LIST OF TABLES (xi) LIST OF FIGURES (xii) ABSTRACT (xiii) CHAPTER ONE: INTRODUCTION 1.1 INTRODUCTION 1 1.2 BACKGROUND AND CONTEXT 1 1.3 THE RESEARCH OBJECTIVES 4 1.4 THE RESEARCH FOCUS 4 1.5 THE RESEARCH CONTRIBUTION 6 1.6 THESIS STRUCTURE 8 CHAPTER TWO: BACKGROUND AND CONTEXT 2.1 INTRODUCTION 10 2.2 PUBLIC SERVICE DELIVERY 10 2.3 TRENDS IN PUBLIC SECTOR SPENDING IN 12 EDUCATION IN THE UNITED KINGDOM AND REPUBLIC OF IRELAND 2.3.1 Public Sector Spending in the United Kingdom 12 2.3.2 Public Sector Spending in the Republic of Ireland 13 2.4 NEW PUBLIC MANAGEMENT 15 2.5 CONCLUSION 16 ii CHAPTER THREE: PUBLIC PRIVATE PARTNERSHIPS 3.1 INTRODUCTION 17 3.2 WHAT ARE PUBLIC PRIVATE PARTNERSHIPS? 17 3.2.1 PPP models 18 3.3 WHAT IS TRADITIONAL PROCUREMENT? 19 3.4 RATIONALE FOR PPP ADOPTION 20 3.4.1 Advantages associated with PPPs 21 3.4.2 Disadvantages associated with PPPs 24 3.5 THE INTRODUCTION OF PPPS IN THE UNITED 26 KINGDOM AND THE REPUBLIC OF IRELAND 3.5.1 Introduction of PPPs to the United Kingdom 27 3.5.2 Introduction of PPPs to the Republic of Ireland 29 3.6 ACCOUNTING TREATMENT FOR PPPS 31 3.6.1 UK Generally Accepted Accounting Principles 32 3.6.2 International Financial Reporting Standards 32 3.7 PROCUREMENT PROCESS FOR PPPS 34 3.8 CONCLUSION 36 iii CHAPTER FOUR: THE THEORY OF RISK 4.1 INTRODUCTION 39 4.2 THE CONCEPTS OF RISK AND UNCERTAINTY 40 4.2.1 What is Meant by Risk and Uncertainty? 40 4.2.2 Different Views on Risk and Uncertainty 41 4.3 RISK ALLOCATION THEORIES 45 4.3.1 Economic Theory of Insurance 46 4.3.2 Law and Economics Theory 47 4.3.3 Principal Agent Theory 48 4.3.4 Transaction Cost Economics 51 4.4 APPLICATION OF TRANSACTION COST ECONOMICS TO PPP CONTRACTS 4.4.1 Transaction Cost Economics and PPPs 60 4.4.2 Lonsdale’s Framework 63 4.4.3 Relational Contracting and PPPs 69 4.5 KEY PPP RISKS 74 4.6 CONCLUSION 81 iv CHAPTER FIVE: RISK TRANSFER – A REVIEW OF PREVIOUS EMPIRICAL STUDIES 5.1 INTRODUCTION 84 5.2 ROAD AND TRANSPORT SECTOR 84 5.3 HEALTH SECTOR 91 5.4 OTHER SECTORS 97 5.5 EDUCATION SECTOR 103 5.6 COMPARISON OF PPP AND TRADITIONALLY 111 PROCURED PROJECTS 5.7 CONCLUSION 112 v CHAPTER SIX: RESEARCH METHODOLOGY 6.1 INTRODUCTION 116 6.2 RESEARCH OBJECTIVES 116 6.3 RESEARCH DESIGN 117 6.4 PHILOSOPHICAL APPROACH 118 6.4.1 Ontology 121 6.4.2 Epistemology 121 6.4.3 Human Nature 122 6.4.4 Methodology 122 6.5 PHILOSOPHICAL ASSUMPTIONS ADOPTED FOR 123 THIS STUDY 6.6 RESEARCH METHODOLOGY: QUALITATIVE AND 125 QUANTITATIVE RESEARCH 6.6.1 What is Qualitative Research? 126 6.6.2 What is Quantitative Research? 126 6.6.3 Choosing between Qualitative or Quantitative 128 Research Methods 6.7 RESEARCH METHODS 129 6.7.1 Research Methods Considered 130 6.7.2 Justification for the Research Methods Adopted in 134 this Research 6.8 CONCLUSION 156 vi CHAPTER SEVEN: DOCUMENT ANALYSIS – A REVIEW OF PUBLIC PRIVATE PARTNERSHIP AND TRADITIONALLY PROCURED DOCUMENTATION 7.1 INTRODUCTION 158 7.2 ELEMENTS LINKED WITH RISK TRANSFER IN PPP 159 PROJECTS 7.3 RISK ALLOCATION 165 7.4 ANALYSIS OF TRADITIONALLY PROCURED 177 DOCUMENTS 7.4.1 Northern Ireland Traditionally Procured 178 Documentation 7.4.2 Republic of Ireland Traditionally Procured 179 Documentation 7.5 PPP VERSUS TRADITIONAL PROCUREMENT 179 7.6 POST PROJECT EVALUATIONS 182 7.6.1 Post Project Evaluation findings for PPPs 183 7.6.2 Post Project Evaluation findings for Traditionally 185 Procured projects 7.7 CONCLUSION 186 CHAPTER EIGHT: INTERVIEW CHAPTER 8.1 INTRODUCTION 187 8.2 APPLICATION OF LONSDALE’S FRAMEWORK 191 8.3 RELATIONAL THEORY OF RISK 201 8.4 RELATIONAL CONTRACTING 203 8.5 RISK ALLOCATION 205 8.6 CONCLUSION 237 vii CHAPTER NINE: CONCLUSION 9.1 INTRODUCTION 239 9.2 ALIGNMENT OF CHAPTERS TO RESEARCH 240 OBJECTIVES 9.3 SUMMARY OF FINDINGS 242 9.4 CONTRIBUTION TO KNOWLEDGE 246 9.4.1 Lonsdale’s Framework 248 9.4.2 The Relational Theory of Risk 250 9.4.3 Relational Contracting 251 9.4.4 Expected versus Actual Risk Allocation 254 9.5 IMPLICATIONS FOR POLICY AND PRACTICE 257 9.6 RESEARCH LIMITATIONS AND SUGGESTED AREAS 262 FOR FUTURE RESEARCH LIST OF APPENDICES APPENDIX 1A: Northern Ireland PPP and Traditionally Procured 264 Post-Primary Schools APPENDIX 1B: Republic of Ireland PPP and Traditionally Procured 265 Post-Primary Schools APPENDIX 2: Document Analysis Checklist 267 APPENDIX 3: Detailed Risk Allocation Table for Northern Ireland and 274 Republic of Ireland PPP School Projects APPENDIX 4: SPSS 277 APPENDIX 5: Semi-Structured Interview Checklist 279 APPENDIX 6: List of Anonymised Code Names for Interviewees 288 APPENDIX 7: Risk allocation of Traditionally Procured School projects 289 in Northern Ireland and Republic of Ireland REFERENCES 290 viii LIST OF ABBREVIATIONS ASB Accounting Standards Board C&AG Comptroller and Auditor General CIMA Chartered Institute of Management Accountants CP Cost Plans DA Document Analysis DB Design Build DBF Design Build Finance DBFO Design Build Finance Operate DBO Design Build Operate D&C Co Design and Construction Company DE Department of Education DOES Department of Education and Skills DPER Department of Public Expenditure and Reform EA Economic Appraisal ESA European System of Accounts EU European Union FBC Full Business Case FM Facilities Management FM Co Facilities Management Company FOI Freedom of Information FRC Financial Reporting Council GDP Gross Domestic Product GFC Global Financial Crisis HMT Her Majesty’s Treasury IFRIC International Financial Reporting Interpretations Committee IFRS International Financial Reporting Standards IMF International Monetary Fund IPSAS International Public Sector Accounting Standards ITN Invitation to Negotiate JV Joint Venture KPI Key Performance Indicator LEA Local Education Authority LTE Long Term Enrolment NAO National Audit Office NDFA National Development Finance Agency NESC National Economic and Social Council NHS National Health Service NI Northern Ireland NIAO Northern Ireland Audit Office NIC National Insurance Contribution NIPPPES NI PPP Education Service NPM New Public Management OECD Organisation for Economic Co-operation and Development OHMG O’Hare McGovern OJEU Official Journal of the European Union PA Procurement Agency PAT Principal Agent Theory ix PFI Private Finance Initiative PF2 Private Finance 2 PIM Project Information Memorandum PPE Post Project Evaluation PPP Public Private Partnership PQQ Pre-Qualification Questionnaire PSB Public Sector Benchmark PSC Public Sector Comparator RAM Risk Allocation Matrices ROI Republic of Ireland SBM Shadow Bid Model SEEP South Eastern Education Partnership SOA Schedule of Accommodation SPV Special Purpose Vehicle SSI Semi-Structured Interviews TCE Transaction Cost Economics TP Traditionally Procured TPA Template Project Agreement UK United Kingdom