Analyzing Irish Schools PPP: Traditional vs. PPP Procurement Methods

This report provides a detailed analysis of the Irish schools Public-Private Partnership (PPP) project, focusing on the procurement of school infrastructure in Ireland. It begins by outlining the advantages and disadvantages of PPP procurement, including cost savings, risk transfer, and innovation, while also addressing potential drawbacks such as increased monitoring costs and complex contractual arrangements. The report then examines the specific case of the Irish Department of Education and Skills' (DoES) PPP program, which involved the construction and operation of multiple schools through various bundles. It compares PPP project contract procurement with traditional procurement methods, highlighting the differences in terms of financing, risk allocation, and project delivery. The analysis includes an evaluation of whether PPP procurement was appropriate for both Bundles 1 and 2, considering factors such as project complexity, financial benefits, and the need for rapid infrastructure development. The report references relevant literature to support its arguments and provides insights into the mechanisms that can mitigate the disadvantages of PPP procurement. This assignment is a comprehensive analysis of the Irish schools PPP, offering valuable insights into the complexities of public-private partnerships in social infrastructure projects. The report also provides a comparative analysis of the traditional and PPP project contract procurement methods.

Running head: IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
Irish schools: Sovereign risk in social infrastructure PPP
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
Table of Contents
Answer to question 1:......................................................................................................................2
Answer to question 2:......................................................................................................................5
References:......................................................................................................................................8

IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
Answer to question 1:
A number of recognized advantages is suggested by the advocates of PPP that mobilizes
private capital along with the ability to raise additional finance in a budgetary restriction
environment. Advantages of public private partnership (PPP) procurement are as follows:
 Building of infrastructure by making arrangements of PPP procurement came as an
attraction to the government because of benefits attributable in terms of efficiencies and
innovation brought by the private sector. In addition to this, the accounting benefits
brought by the off balance sheet financing was another beneficial factor that make such
arrangement popular amongst government for building infrastructure. It was estimated
that such arrangements would enables cost savings through bundling of operations,
construction and maintenance in a single entity.
 Transfer of risk is considered as central issue of any public private projects and the
procurement of PPP helps in optimizing the risk transfer level by allocating it to the
parties that are well equipped to handle such risk. The whole life costing approach of the
project is encouraged and its execution is expedite over a long period of time by
transferring the risk to the private sector and this potentially helps in increasing the value
of money (Demirag and Burke 2016).
 The introduction of PPP by the government of Ireland intended to service deficit more
rapidly compared to traditional procurement methods alone and the procurement of such
arrangements would serve the inefficiencies, slow delivery and cost overruns of many
public sector projects. In addition to this, any public sector investments was provided
with strong incentives for making the investments to reduce their life cycle cost at the

IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
initial stage of construction and also reaping the gain resulting from efficiency at the later
stage of operations. The whole life cost of the project is reduced because the private
contractor are provided with the incentive to minimize the cost and increase the long-
term efficiency over the whole life of project (Akintoye et al. 2015). This is so because
such projects involve maintenance and operation of assets over a prolonged period.
 The deficit involved in such investments by government was not allowed to exceed due
to the aspect off balancing sheet financing as it assist them to leave it out of the budget
accounting. It was estimated that the public private partnership project procurement
would result in the cost savings between 25% and 40% by way of bundling of operation,
maintenance and construction in a single entity.
 For the infrastructure project of the government, it is required by the public private
partnership company to take out insurance on the project in the phase of construction.
Such insurance ensured by PPP procurement would covering major risks associated with
the project such as delay in startup, terrorism, third party liability and environment
impairment. The procurement also helps in covering major risks during the operation
phase such as business interruption, material damage from terrorism and third party
liability. Any increase or decrease in the first 30% of the insurance premium is the
responsibility of such procurement arrangements for the bundle 2 project of Irish
government.
 Furthermore, there is an improvement in the service quality by making better use of
operational efficiencies of the private sector. Compared to the mechanism of traditional
procurement, the competitiveness and increased innovation brought by the private sector
along with harnessing the creativity would help in producing favorable results. The use of

IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
most advanced technologies in the infrastructural project is facilitated by the PPP
procurement with the aid of high technology and large multinationals.
Disadvantages of public private partnership (PPP) procurement are as follows:
 In order to ensure that there is no slippage of service quality, there is increasing cost of
monitoring by the government. The cost of monitoring would be higher when the
concession term is longer and the projects are complex.
 For the public sector, there is a reduced option for managing the program or projects in
discrete steps over time. In addition to this, when the requirements of service quality
cannot be defined clearly, there can be creation of difficulties in executing the project.
The relationship between the parties and maturity of the sector forms the basis of
potential risk in achieving change and innovation (Sheppard and Beck 2018).
 There are some risks associated with the PPP procurement such as availability risk and
construction risk. Availability risk is the risk that is attributable to the unavailability of
the private sector partner in a position to deliver the volume that was agreed in the
contract or the failure of the private sector to meet the public certification or the safety
standards. For instance, the substandard infrastructure that result in the occurrence of the
constraints in terms of capacity. Such risk also occurs when the required standards of
quality relating to service delivery is not met by the private sector. The procurement of
PPP also comes with construction risk such that the PPP assets might not become
available on the fixed date that is agreed upon in the contract. Such risks also include
technical deficiencies and possibility of unexpected additional cost. It might be possible
that the construction risk is not entirely borne by the private sector because of

IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
compensating payment made by the government for negative externalities to the third
parties (Pratap and Chakrabarti 2017).
 In addition to all the above metioned disadvantages, it is also essential to take into
account a number of challenges that is raised by PPP procurement and most of them have
economic dimensions. The transaction cost in the contractual setting is likely to be non-
trivial because of the complexities of the project in terms of long-term nature of lengthy
contracts, negotiations and no or little input resulting from the complex organizational
structures on the private and public sides of the contract and from the public stakeholders.
Challenge is also witnessed in the management of public private partnership contracts in
the objectives of skills, experience, partners and asymmetric information. Some other
problems that is recognized in the literature of PPP is related to the complex adjustment
formulae and limited transparency, inadequate accountability by measuring the user
satisfaction and commercial confidentiality curtailing the potential improvement in
transparency. The PPP experience of Ireland has been characterized by distinct
information scarcity available to the citizens and this has impact on the makers of
decision who are accountable for the actions (Zwalf et al. 2017).
Answer to question 2:
Difference between traditional procurement and PPP project contract procurement are
outlined below:
Traditional procurement PPP project contract procurement
The acquisition of the infrastructure such as
road and building solely by the government is
PPP project is a contract between private and
public sector for delivering the service in a

IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
represented by the traditional procurement
infrastructure.
manner that the profit objectives of private
sector is aligned with the service delivery
objectives of the government.
Under traditional procurement, the deficit of
providing service and infrastructural
development is not done rapidly.
The deficit of the service and public
infrastructure is done more rapidly under the
public private partnership.
Under traditional procurement, infrastructural
development is considered the sole
responsibility of the state.
Under the PPP contract procurement,
responsibility of the provision and
development of infrastructure is partnership
between government and the private sector
(Cui et al. 2018).
For the bundle 1, the bid for the PPP was fully funded and on the poor performance or
unavailability, the government is entitled to abatement or deduction in the unitary payment. The
Macquarie partnership for Ireland reconcile the need of public with the own return equity
requirements. The principal reason for introducing the arrangements of PPP procurement was to
address the service and infrastructure deficit more rapidly as against the traditional procurement.
The structural funds have a clear social outcome and the structural funds would be used to
provision of public transport, construction of schools and other social childcare and
infrastructure. For the bundle 1 project, there was two attraction of using the PPP procurement
such as accounting benefits of off balance sheet self-financing and introduction of efficiencies
and innovations that would help in bringing cost savings (Reeves et al. 2015). The construction

IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
and the operation stage of the project would become favorable by enabling them to lower the life
cycle cost and reap the benefits of efficiency.
Under the bundle 2 Irish school PPP programme involves the finance, construction,
maintenance and design of six new schools for which the construction cost is at € 81 million. The
project was implemented by the development finance agency and was procured by the
department of education, and skill and such procurement resulted in low rise and simple
construction in the Greenfield sites. Bundle 2 was set up as a special purpose vehicle and for
different services required, which was contracted with the several counterparties. The PPP
procurement of both the bundles that is Bundle 1 and Bundle 2 helped in reducing the probability
of performance deductions resulting from the teething problems (Palcic et al. 2018). Therefore,
from the analysis of the given case on the Irish project, it was ascertained that the procurement
provided with several advantages in terms of efficiency and cost savings.

IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
References:
Akintoye, A., Beck, M. and Kumaraswamy, M.M., 2015. An overview of public-private
partnership. Public-Private Partnerships: A Global Review, Routledge, London, pp.1-19.
Cui, C., Liu, Y., Hope, A. and Wang, J., 2018. Review of studies on the public–private
partnerships (PPP) for infrastructure projects. International Journal of Project
Management, 36(5), pp.773-794.
Iossa, E. and Saussier, S., 2018. Public private partnerships in Europe for building and managing
public infrastructures: an economic perspective. Annals of Public and Cooperative
Economics, 89(1), pp.25-48.
O'SHEA, C., Palcic, D. and Reeves, E., 2019. Comparing PPP with traditional procurement: The
case of schools procurement in Ireland. Annals of Public and Cooperative Economics, 90(2),
pp.245-267.
Palcic, D., Reeves, E. and Stafford, A., 2018. Lifting the Lid: the Private Financing of Motorway
PPPs in Ireland. The Economic and Social Review, 49(2, Summer), pp.217-239.
Reeves, E. and Palcic, D., 2017. Getting back on track: the expanded use of PPPs in Ireland since
the global financial crisis. Policy Studies, 38(4), pp.339-355.

IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
Pratap, K.V. and Chakrabarti, R., 2017. Sectoral Distribution and Sector-Specific Issues for
Infrastructure PPPs. In Public-Private Partnerships in Infrastructure (pp. 139-170). Springer,
Singapore.
Reeves, E., Palcic, D. and Flannery, D., 2015. PPP procurement in Ireland: An analysis of
tendering periods. Local Government Studies, 41(3), pp.379-400.
Sheppard, G. and Beck, M., 2018. The evolution of public–private partnership in Ireland: a
sustainable pathway?. International Review of Administrative Sciences, 84(3), pp.579-595.
Zwalf, S., Hodge, G. and Alam, Q., 2017. Choose Your Own Adventure: Finding a Suitable
Discount Rate for Evaluating Value for Money in Public–Private Partnership
Proposals. Australian Journal of Public Administration, 76(3), pp.301-315.

IRISH SCHOOLS: SOVEREIGN IN SOCIAL INFRASTRUCTURE PPP
Demirag, I. and Burke, R., 2016, August. Risk transfer and stakeholder relationships in Public
Private Partnerships. In Accounting Forum (Vol. 41, No. 1, pp. 28-43). Elsevier.