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HOSPITAL DESIGN & BUILD
Making PPP work to help deliver new healthcare facilities in Asia Karren Prosser, Head of Social Infrastructure - EC Harris Asia Pacific
......................................................................................................................................................................................................................................................... Healthcare is one of the fastest growing market sectors in the world today. As economies across Asia continue to grow and elderly populations become a bigger concern, it is no surprise to see that healthcare operators are considering innovative ways to help finance new healthcare schemes. Funders are also viewing this market area with great interest and as an area where there could be future opportunities to secure a return.
Global insight from international Public Private Partnership (PPP) schemes across different sectors, coupled with the application of local knowledge of the market, can provide a solution which helps to deliver high quality health infrastructure to support Asia’s healthcare providers in the massive expansion they are facing.
Where can a PPP approach be applied?
PPP is typically adopted on a more partnership based approach and is increasingly being used across the globe to develop capex and opex intensive infrastructure schemes where it is beneficial to adopt the risk sharing approach that is taken on such projects.
Within newer markets there is a strong move to concentrate on complex, large infrastructure projects such as highways, waste treatment facilities and airports and whilst these are definitely suitable, hospitals and schools have also been shown to deliver significant value in terms of quality of building and value for money. With the current desire within Asia for extensive improvements in this type of infrastructure, PPP is certainly worth considering as procurement to support the vast increase that is expected within the region.
From its inception in the UK, PPP as a procurement method has been a controversial one however the move to adopt it in Europe, Australia, Canada and the Middle East has shown that there is not one single model. Lessons can be learnt from each one to enable healthcare organizations to get it right first time and avoid the pitfalls experienced by their counterparts in the rest of the world.
UK and Europe:
Whilst early projects in the UK were not always best value and are now under scrutiny to reduce unitary payments, subsequent projects, when the process became more refined and risks were known, have delivered fantastic facilities which would not havebeen built otherwise, to the regional time frame.
PPP is frequently being used to deliver large investment programmes for social infrastructure that are urgently needed, particularly in Central Europe. In the more mature markets such as Spain and Portugal, projects still exist but the issue is getting the right level of investment. Funders are nervous, particularly in countries that are not as financially stable as they once were, and are now asking for more certainty around the risks that exist. This has led to a significant slow-down in projects moving towards financial close, which is unlikely to change until more stability is achieved.
EC Harris projects in Austria and France around roads and road tolling have required considerable assessment of the technology employed, to ensure that the potential yields can be achieved to deliver the expected income.
The significant equipment costs for Proton Therapy Centres we are working on in Italy and Germany, is creating a new trend. Clients are increasingly using physicists and technical equipment experts to review the equipment solutions offered by the suppliers, to provide comfort to the lenders and the SPV that the equipment meets the needs of the hospital and the contract.
Lesson: risk identification and systems and processes for risk management are vital to project success, including attracting the right levels of investment.
In Australia, there has been a large programme for the delivery of health PPP projects. This has slowed down, partly because the majority of large projects have been completed, but also due to the impact of what is happening politically within the country. This market is one where we have noted a more mature approach to how PPP is delivered, using the best experience from the UK and elsewhere, but carefully amending it to meet the needs of the country. This is a good example for new and emerging markets who want to consider PPP.
Early development of the appropriate legislation and regulations to enable the PPP process to commence smoothly is far better than trying to manage this process once projects are in the pipeline. Where bidders are involved, this becomes far more difficult and time-consuming to do and confuses the private sector who then become nervous about bidding for the scheme. In addition, strong leadership around this on a regional level supports the delivery of best practice to all projects, particularly where there is an emphasis on improving the approach from that which was done before, rather than “reinventing the wheel” each time.
Lesson: ensure region and local regulation and legislation is taken into account prior to the start of the scheme, and define the impact and spell this out clearly to all parties involved. Provide regional support to spread good practice. The investment in this will be returned through faster and more robust project process and delivery.
Our clients in the Middle East have moved from a position where funding came readily for development projects, and are now exploring a PPP approach for new hospital projects in the region. Projects can include both buildings as well as service delivery and therefore requires careful consideration as to what the client wishes to achieve in terms of service delivery versus risk management. Here, there has been a need to simplify things and look to develop the right approach in a region which has never had this type of contract previously.
Lesson: avoid building in unnecessary complexity in the process especially where stakeholders are new to the procurement model. Ensure you understand the impact of this type of contract and how it may affect the longer term outcomes that could be achieved. Consideration also needs to be made as to how to attract international consortia to such new regions to enable true competition to be achieved.
Local knowledge and addressing the issues:
Success within healthcare across Asia is driven by the need to understand the huge differences that apply across the many varied locations. Generalizations based on any other model such as the UK, Australia, Canada, US and even from other countries within Asia, are not appropriate. There is a clear need to have in-depth understanding of local market conditions, including the socio-economic and political situation. Being mindful of the lessons from other regions, coupled with this in-depth knowledge of the local healthcare market, will set Asian PPP schemes up for success.
Our top tips for considering PPP solutions in Asia:
Understand your local market conditions - these include the legislatory, legal and regulatory issues related to PPP type projects that you will need to consider, map how these may be addressed / mitigated to attract investment.
Select the right projects - PPP is not just applicable for major infrastructure investment schemes but can work well in the healthcare market.
Get the right advice - ensure you work with a consultant that understands the PPP procurement structure across many different regions as well as your own market sector. This must be linked to local market knowledge to provide a robust approach which drives appropriate levels of innovation based on how healthcare services are delivered.
Identify project risks and set out a robust risk management programme to ensure you mitigate such risks appropriately.
Carefully consider how delivery risks should be transferred to your private sector partner. Transfer of risk should provide value to the project, not just additional cost.
Secure the appropriate investment - understand the expectation of institutional investors and commercial lenders in terms of the risks they will accept and the returns they expect.
Illustrate that you are learning best practice from other international PPPs and are capable of adapting these for the regions where the projects will occur. This will provide comfort to lenders who see a stable position on which a project will be based.
About the Author : Karen is a Partner and Head of Social Infrastructure for EC Harris across the Asia Pacific Region. She began her career within the Health Service in the UK, working as a Radiographer including research at Addenbrookes Hospital in Cambridge as well as undertaking clinical work in a number of major teaching Hospitals in London. She then moved to lead the development of equipment solutions for PPP and other major health developments for a major equipment supplier prior to moving into consultancy. Her wealth of international experience includes many major projects across the UK, Europe, Australia, the Middle East and Asia, many using private investment to deliver world class hospitals.