Value for Money Integration in the Renegotiation of Public Private Partnership Road Projects
By
Ajibola Oladipo Fatokun
A thesis submitted in partial fulfilment for the requirements for the degree of Doctor of Philosophy at the University of Central Lancashire
October 2018
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STUDENT DECLARATION
I declare that while registered as a candidate for the research degree, I have not been a registered candidate or enrolled student for another award of the University or other academic or professional institution
I declare that no material contained in the thesis has been used in any other submission for an academic award and is solely my own work
Signature of Candidate: ____________________________________________________
Type of Award: School:
________________________ PhD _______________________ ______________________ Engineering ____________________
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ABSTRACT
The governments of various countries have continued to adopt Public Private Partnership (PPP) for infrastructure projects delivery due to its many advantages over the traditional procurement method. However, concerns have been raised by stakeholders about the viability of PPP to deliver Value for Money (VfM), especially for the client. These discussions have generated debates and arguments in policy and advisory documents within the last decade mainly in the renegotiation of PPP water and transport projects and their VfM implications. Poor or non-achievement of VfM in PPP contracts renegotiation has led to this study in PPP road projects with the overall aim of integrating VfM considerations into the renegotiation process of PPP road projects.
Mixed methodology research approach is used to achieve the objectives set for the study. Interviews and questionnaires of professionals involved in Design-Build-Finance-Operate (DBFO) road projects in the UK are used in the study. The qualitative and quantitative analysis of the data collected revealed that technical, contractual and additional works are the categories of factors leading to renegotiations and have an impact on the achievement of VfM. These findings show that renegotiation does not necessarily have to erode the VfM benefits of PPP road
projects for the client and lead to user’s dissatisfaction regarding quality, fees, and charges. The
research shows that the very critical factors leading to the renegotiation of road concessions are changes to works standards, specifications, the scope of works, and additional works. The findings also indicate that design and planning measures such as clear and concise contract documents, a definition of detailed criteria for VfM and performance indicators, and accurate estimation of contract requirements amongst others are critical measures to ensure the achievement of VfM at the renegotiation of PFI (DBFO) road projects. Also, VfM can further be achieved for the renegotiations that are predominantly motivated by technical and contractual factors.
This study developed a VfM renegotiation framework for the UK PFI (DBFO) road projects. The five constituents of the VfM renegotiation framework are identification and establishment of measures and mechanisms, the factors leading to renegotiation and their level of criticalities, impacts of the renegotiation on VfM criteria, the identification of renegotiation outcomes and their natures and the application of remedial actions (if necessary). The concept of the framework is premised on the importance of defining and agreeing on appropriate measures and VfM contractual mechanisms by both public and private stakeholders at the contract inception to guide future renegotiation. An assessment of the factors, impacts, and outcomes of the renegotiation is necessary during the stages of implementation of the PPP road projects to develop an understanding of the implications of the renegotiation on VfM.
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The knowledge of the impacts of renegotiations during implementation will inform the responsible stakeholder's decision on the appropriate actions required to address any observed deviations from the project performance indicators or value for money criteria defined at the inception of the contract. The public and private partners can achieve their respective VfM
objectives while also achieving user’s satisfaction through the adoption of the proposed VfM
renegotiation framework. There is, however, a need for the public and private partners who will be the primary beneficiary of the framework to be proactively involved in the use of the framework from contract inception to handing over of the project residual value to the client. The formulation of measures for renegotiation at the outset of the contract as indicated in the framework is essential to achieving VfM at renegotiation. Also, the client should ensure that flexibility is built into the agreement regarding the contract mechanisms for payment from the beginning, to allow either party to introduce proposals that can enhance the achievement of VfM at renegotiation or change negotiation.
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ACKNOWLEDGEMENTS
I acknowledge and thank the God of all glory, the giver of all wisdom, knowledge and understanding. My great philosopher, helper, protector and provider throughout my academic pursuits to this blessed day.
I appreciate and awesomely thank my Director of Studies, Prof. Akintola Akintoye who started the supervisory responsibilities and saw it through to substantial completion before leaving UCLan. Your initiative as the Head of School of Built and Natural Environment brought other colleagues and me at Yaba College of Technology to UCLan. You are indeed a star, a leader par excellence and an astute scholar. Please accept my thanks for your devotion and commitments.
I am also grateful to Dr Champika Liyanage for working diligently and offering to complete the lead supervisory role. Your painstaking and thorough efforts have contributed to the quality of this thesis. I also thank Dr Godfaurd John for reading the thesis and making valuable comments.
I am, indeed, very grateful to the Tertiary Education Trust Fund of the Federal Ministry of Education, the Federal Republic of Nigeria. All the staff at TET-Fund office Abuja deserve commendation and appreciation. Your timely intervention rescued the research project from failure. I also thank the management of Yaba College of Technology for the grant of study leave with pay (without sponsorship). I also thank all the interviews respondents for the time given.
Many thanks to the management of UCLan for the grant of tuition fee discount in 2012. I am also grateful to the Dean and tutors at every stage of progression: Prof. Rob Wallace, Prof. Ian Sherrington, Dr Chris Lowe, Dr Andrew Smith, Dr Stanley Njuangang and Dr Renuka Thakore.
Big thanks to my parents Pa Kolawole and Ma Christiana Fatokun, my grandmother Florence Olalemi for your efforts and sacrifices during my early career. Your prayers and moral support have contributed to the success recorded to date. I thank God for sparing your lives to reap the fruits of your labour and to witness this day. I also thank my siblings and extended family.
I thank my friends and colleagues, Arc. Akintayo Adeoti, Dr Ayo Fapohunda, Dr Ezekiel Mofoluwaso Awe, Mr Oludare Balogun, Mr Uduak Inyang-Udoh, Mr Fasasi Aderibigbe, Mr Odunnukan O.E., Mr Atere Oladapo, Mr. Adewale Ogunsanwo, Mrs Olubanke Olusanya-Sole, Mr Segun Salisu, Mr Wale Sajowa, Mr Ajilore and others. You are all wonderful.
Last but not the least, I thank and appreciate my lovely wife, Oluwaseyi Fatokun, for her love, understanding, trust and constant words of encouragement. You came into my life during the programme to complete my joy. You are a star and jewel of inestimable value. I love you. v
TABLE OF CONTENTS
STUDENT DECLARATION....................................................................................................... ii ABSTRACT................................................................................................................................. iii ACKNOWLEDGEMENTS...........................................................................................................v TABLE OF CONTENTS..............................................................................................................vi LIST OF FIGURES .......................................................................................................................x LIST OF TABLES........................................................................................................................xi LIST OF ABREVIATIONS ...................................................................................................... xiii CHAPTER 1 INTRODUCTION ...................................................................................................1
Background of the Research ......................................................................................... 1 Statement of the Problem.............................................................................................. 3 Research Questions....................................................................................................... 5 Research Aim and Objectives....................................................................................... 5 Research Programme Flow........................................................................................... 6 Scope of the Research................................................................................................... 7 Contribution to Knowledge and Originality ................................................................. 8 Structure of the Thesis .................................................................................................. 9
CHAPTER 2 AN OVERVIEW OF PUBLIC PRIVATE PARTNERSHIP PROJECTS ............11
Introduction................................................................................................................. 11 The Concept of Public Private Partnership................................................................. 11 Models of Public Private Partnership and Contract Types ......................................... 16
Classification of PPP Models According to Stage of Project ............................. 16 Classification of PPP Models According to Ownership of Facility.................... 17 Classification of PPP Models According to Method of Repayment................... 18
Public Private Partnership in Infrastructure Project Delivery..................................... 20
Concessions......................................................................................................... 21 Divestitures or Full Private Participation............................................................ 21 Management Contract......................................................................................... 21
Public Private Partnership Projects in the Transport Sector ....................................... 22 Procurement of Public private partnership Road Projects .......................................... 27 Road Projects in the UK.............................................................................................. 29
The Type of Public Private Partnership for UK Road Projects........................... 31 Characteristics and Stakeholders of PFI Road Projects in the UK ..................... 32
Challenges Associated with Public Private Partnership Road Projects ...................... 37 Summary of the Chapter ............................................................................................. 41
CHAPTER 3 RENEGOTIATION IN A PUBLIC PRIVATE PARTNERSHIP ENVIRONMENT
.....................................................................................................................................................43
Introduction................................................................................................................. 43 The Concept of Contract Renegotiation...................................................................... 43 Renegotiation from Public Private Partnership Projects Perspectives........................ 44 Classification of Renegotiation Types ........................................................................ 46
Renegotiation Types According to Contract Implementation Stage................... 46 Renegotiation Types According to Public and Private Partners Initiative.......... 47
Renegotiation Objectives of the Stakeholders ............................................................ 51 Process of Renegotiations........................................................................................... 53 Compensation Measures in Concession Contract Renegotiation................................ 55 Experience of Public Private Partnership in Transport Projects ................................. 55 Factors Leading to Renegotiation in PPP Road Projects ............................................ 58
Design and Planning Factors............................................................................... 64 Technical Factors................................................................................................ 65
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Economic Factors................................................................................................ 66 Contractual Factors ............................................................................................. 67 Tendering and Bidding Factors........................................................................... 67 Administrative and Managerial Factors.............................................................. 69 Institutional Factors............................................................................................. 70 Regulatory and Legal Factors ............................................................................. 71 Political Factors................................................................................................... 72 Environmental Factors........................................................................................ 73 Social Factors...................................................................................................... 74
Outcomes of the Renegotiations ................................................................................. 74 Summary of the Chapter ............................................................................................. 79
CHAPTER 4 VALUE FOR MONEY IN PUBLIC PRIVATE PARTNERSHIP PROJECTS ...80
Introduction................................................................................................................. 80 The Concept of Value for Money ............................................................................... 81 Stakeholders Value for Money Perspectives............................................................... 82
Clients Value for Money Perspectives................................................................ 82 Private Partners Value for Money Perspectives.................................................. 83 Financial Lenders Value for Money Perspectives............................................... 84 Road Users Value for Money Perspectives......................................................... 84
Evaluation and Measurement of Value for Money..................................................... 85 Value for Money Achievement in Public Private Partnership Projects ...................... 87
Preliminary Assessment of Value for Money ..................................................... 87 Assessment of Value for Money during PPP Implementation Stages ................ 89
Value for Money Criteria............................................................................................ 91 Value for Money in the Renegotiation of Public Private Partnership Projects........... 92
Impacts of PPP Renegotiation on Value for Money Criteria.............................. 95
Contract Mechanisms for Payment........................................................................... 100
Shadow and Direct Toll Payment Mechanisms ................................................ 101 Availability Payment Mechanisms ................................................................... 102 Active Management Payment Mechanisms...................................................... 103
Measures to Achieve Value for Money at Renegotiation ......................................... 103 Summary of the Chapter ........................................................................................... 105
CHAPTER 5 RESEARCH METHODOLOGY ........................................................................106
Introduction............................................................................................................... 106 Research Design........................................................................................................ 106 Perspectives and Philosophy of the Research........................................................... 109 Research Methodology ............................................................................................. 110
Qualitative Research ......................................................................................... 111 Quantitative Research ....................................................................................... 114 Mixed Methods ................................................................................................. 122
Choice of Research Methodology............................................................................. 124
Operationalisation of the Mixed Method of Research Approach ..................... 129 Mixed Method Research Variables................................................................... 130
Research Framework................................................................................................. 131
Stage 1- Theoretical Stage of the Research Framework (Literature Review)... 133 Stage 2- Qualitative Research Survey and Data Analysis................................. 134 Stage 3- Quantitative Research Survey and Data Analysis............................... 142 Reliability and Validity of the Data Collected.................................................. 145 Stage 4- Triangulation, Development and Validation of the Framework......... 148
Summary of the Chapter ........................................................................................... 150
CHARACTERISTICS AND RENEGOTIATIONS PERSPECTIVES.....................................151
Introduction............................................................................................................... 151 Case Studies Respondents Profile............................................................................. 151 Overview of Case Studies......................................................................................... 153
Case Study 1 (CS1)........................................................................................... 153
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Case Study 2 (CS2)........................................................................................... 156 Case Study 3 (CS3)........................................................................................... 162 Case Study 4 (CS4)........................................................................................... 165 Case Study 5 (CS5)........................................................................................... 169
Cross-Case Analysis ................................................................................................. 173
Renegotiation Characteristics and Types.......................................................... 173 Factors Leading to Renegotiation ..................................................................... 175 Initiator of Renegotiation.................................................................................. 181 Main Impacts of the Renegotiation................................................................... 182 Outcomes of the Renegotiations ....................................................................... 187 Value for Money Enquiry on the Renegotiation............................................... 191 Contract Mechanisms for Payment................................................................... 198 Measures to Ensure the Achievement of Value for Money .............................. 201
Summary of the Chapter ........................................................................................... 207
PROJECTS ................................................................................................................................208
Introduction............................................................................................................... 208 Preliminary Responses of the Questionnaire ............................................................ 208
Category of Public Private Partnership Stakeholders ....................................... 208 Current Position of the Respondents................................................................. 209 Years of Experience of the Respondents .......................................................... 209
Project Specific Renegotiation Characteristics......................................................... 210
Incidence of Road Project Renegotiation.......................................................... 210 Characteristic Type of the Renegotiation.......................................................... 211
Factors Leading to Renegotiation ............................................................................. 212 Impact of the Renegotiation on Value for Money Criteria ....................................... 217 Outcomes of the Renegotiation................................................................................. 220
Remedial Actions.............................................................................................. 224
Measures to Ensure VfM at Renegotiation............................................................... 227 Appropriateness of the Reliability and ANOVA Test Statistics............................... 233
Reliability and ANOVA Test of the Factors Leading to Renegotiation ........... 234 Reliability and ANOVA Test of the Renegotiation Impacts on VfM Criteria.. 237 Reliability and ANOVA Test of the VfM Measures at Renegotiation ............. 238
Discussion of General Findings ................................................................................ 243 Summary of the Chapter ........................................................................................... 244
CHAPTER 8 DEVELOPMENT OF A VALUE FOR MONEY RENEGOTIATION FRAMEWORK..........................................................................................................................246
Introduction............................................................................................................... 246 The Need for a VfM Renegotiation Framework....................................................... 246 The proposed Value for Money Renegotiation Framework...................................... 247
Section 1 – Establishment of Measures and Mechanisms for Payment............ 250 Section 2 - Identification of Factors and their Criticality Level ....................... 252 Section 3 - Establishment of Renegotiation Impacts on VfM Criteria.............. 254 Section 4 - Identification of the Outcomes and their Characteristics................ 256 Section 5 – Evaluation and Application of Remedial Actions.......................... 259
The Use of the Framework for the Renegotiation of PPP Road Projects ................. 261 Validation and Refinement of the VfM Renegotiation Framework.......................... 263
Preliminary Questions of the Interviews........................................................... 266 Relevance and Ease of Understanding of the Framework ................................ 267 Applicability and Usefulness of the Framework............................................... 269
Significance of the Value for Money Renegotiation Framework ............................. 272 Summary of the Chapter ........................................................................................... 273
CHAPTER 9 CONCLUSION AND RECOMMENDATIONS ................................................275
Introduction............................................................................................................... 275 Achievement of the Research Objectives ................................................................. 275
Research Objective One – PPP Infrastructure Projects..................................... 276