Newsletter 02/08 PPP Task Force at the BMVBS

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1 Foreword Dear Readers, The number of PPP contracts has risen considerably in recent years. Integrating the innovative power of private partners in the implementation of infrastructure projects will give the German Federal Armed Forces (Bundeswehr) the possibility of exploiting further potential for optimising economic aspects. The pilot project Fürst-Wrede Barracks was launched in March 2008 and is the first federal PPP project in the field of structural engineering. According to an economic feasibility study, an improvement in efficiency of about 17% compared to an internal solution can be achieved and is clear proof of the economic viability of the project. Against this background, the Bundeswehr is preparing further PPP suitability tests. Insofar as the projects may be suitable in individual cases, they may be carried out with the support of the building authorities of the individual federal states, of Gesellschaft für Entwicklung, Beschaffung und Betrieb mbh and in agreement with the Federal Authority for Real Property Administration (Bundesanstalt für Immobilienaufgaben), and they may make a major contribution to the modernisation of the administration and the economic feasibility of federal construction projects. Regards, Peter Wichert State Secretary of the Federal Ministry of Defence News update Directive for supporting the construction of schools now available The directive for supporting the construction of schools (Schulbau-Förderrichtlinie) in the state of Saxony-Anhalt, which explicitly permits the support of PPPs, will be published on April 21 and will then be available for download on the website of the Task Force. EU issues guidance on IPPPs The EU Commission has published a notification about IPPPs. The focus here is on the application of the EU legal regulations for public contracts and concessions to institutionalised Public Private Partnerships (IPPPs). Evaluation programme for schools: registration deadline extended The registration deadline for participating in the evaluation programme for schools has been extended. Municipal support organisations can now still apply with their PPP projects to participate in the study until June 30. Award guidelines available again The award guidelines are now available again with immediate effect as a hard copy and can be purchased from the BMVBS via the PPP Task Force. 2nd Workshop on the subject of PPPs in hospitals The 2nd Workshop on the subject of PPPs in the hospital sector will take place in Berlin on April 17. The focus will be on project reports and on the requirements that arise from general, hospital-specific conditions and the needs of users. comm_2007_6661_de.pdf Sonja.Zehle@bmvbs.bund.de ppp@bmvbs.bund.de

2 Projects Fürst-Wrede-Barracks: contracts signed 17,4 % efficiency gains The federal government has launched its first major PPP project: the contract for the Fürst- Wrede barracks in Munich was awarded to HOCHTIEF PPP Solutions after an 18-month tender procedure. The project costs (cash value) total EUR 164 million, of which approx. EUR 60 million are assigned to the construction, including VAT and ancillary building costs. The economic feasibility study indicated an efficiency gain of 17.4% compared to a classic tender. This project will be managed by the Federal Ministry of Defence (BMVg), while the PPP Task Force of the federal government will support the BMVg on all PPP-related issues. The property covers 31.5 hectares and a gross floor space of 90,000 m2, divided between 37 buildings. Following extensive construction and renovation work, 1,600 employees will be able to work on the property; at present, there are only 550. Project will be managed as an ownership model with project financing. The BMVg will be liable for the demand risk, whereas the planning, construction and operating risks will be borne by the contractor. The latter will finance and operate the project for 20 years. The Bundeswehr will run the Fürst-Wrede barracks as a pilot project and will prepare and make available its experiences for comparable projects. At present, the BMVg is already preparing two further PPP projects in the field of barracks. Frank Lorkowski (BMVg) FrankLorkowski@bmvg.bund.de PPP in hospitals Interview with the Acting Managing Director of the Federation of the German Construction Industry (Hauptverband der Deutschen Bauindustrie), Dr. Heiko Stiepelmann How does the German construction industry assess the development of PPPs in the hospital sector? The Federation of the German Construction Industry has been dedicated to making Public Private Partnerships more widespread for several years. So we have been following the developments in the health sector with great interest. So far, only two projects have been awarded: the proton therapy centre in Essen and the particle therapy centre in Kiel. However, the project pipeline is really full: another 17 projects with an extrapolated investment volume of nearly one billion euros are currently being prepared. In other words, the hospital sector is an extremely promising market for the future for us. One reason for the failure of the PPP project at the Bremen Central Clinic was the unresolved question of the coverage of the insolvency risk. How can this problem be tackled in the case of project organisers that may be eligible for insolvency? In the case of municipal hospital projects, in particular, public services are often awarded by intermediary private companies which are not backed by the credit-worthiness of the public sector. The payment obligations of the client are therefore not guaranteed and the insolvency risk is transferred to the private contractor. Public Private Partnerships, howe- 2

3 ver, are based on the prerequisite that the public side is willing to pay for the services that the private contractor performs on the basis of the PPP contract. That also means that the public side will accept liability for the solvency of an intermediary private company in the case of an evident lack of credit-worthiness. That can be implemented through appropriate contractual specifications and through safeguards of the payment obligations. Can you imagine models in which the utilisation risk for defined sub-sectors could also be borne by the private side? In PPP projects, the objective is not to shift as many risks as possible on to the private partner; it is exclusively a question of transferring the "right" risks - in other words, the ones that a private party can manage better than the public sector. In the context of a PPP availability model, that would include the risks involved in the planning, construction, financing and facility management of a clinic building. However, a private PPP partner cannot accept the risks for the clinic operations per se, i.e., the utilisation risks and/or the risk of the economic success of the company. These risks cannot be influenced by the private partner because, in the case of a PPP project, the actual medical operation of a hospital is not transferred to the private partner. Anyone who expects more from the private sector will have to go down the path of privatisation. Dr. Heiko Stiepelmann (Hauptverband der Deutschen Bauindustrie e.v.) Heiko.Stiepelmann@bauindustrie.de Background Filling the pipeline! 8th Business Administration Symposium in Weimar The prospect of a full pipeline was the central theme at the 8th Business Administration Symposium on Construction, which was held in Weimar from March 12 to 14 and was chaired by Prof. Hans Wilhelm Alfen. A total of 700 participants discussed the progress and challenges in various structural engineering and traffic projects. Representatives of BMF and BMVBS explained the current state of preparation for the Germany partnerships to the practical experts from the public authorities and various companies. A highlight of the event was that the contract for the Fürst-Wrede barracks in Munich, the first federal project in structural engineering, was awarded at the same time as the symposium, and so it could be presented immediately to the specialist audience. In the workshops, the participants compared their specific experiences with projects in various application areas. There was plenty of scope for criticism of inappropriate political stipulations that had caused the failure of various projects, e.g., in the risk allocation between the public and private partners. One of the hotly discussed and controversial topics was the bureaucratic cost of producing economic feasibility studies. Several participants argued in favour of a simplification with the aim of making the documentation of the economic advantages of PPPs less time-consuming and yet still convincing. Prof. Dr. Hans Wilhelm Alfen (Bauhaus-Universität Weimar) Wilhelm.Alfen@ bauing.uni-weimar.de

4 The Fürst-Wrede-Barracks in Munich Germany's first structural-engineering PPP project in the defence sector from the point of view of the private partner The tender procedure for the first federal structural-engineering PPP project was completed in just under 18 months. The private partner, HOCHTIEF PPP Solutions GmbH, invested approx. EUR 48 million of net construction costs in the construction, renovation and demolition plans, which are due to be completed as early as the end of This project confronted the participating parties with several new challenges. They included primarily the high security requirements which led to the drafting of certain entirely new contractual clauses. The negotiations were conducted amicably and were completed successfully within the specified schedule. In parallel to the start of the renovation, the focus of the federal government was on facility management, because HOCHTIEF has also taken over the management of the property. The government will not only profit from cost and schedule reliability and a much shorter construction phase, but also from efficient management with an energy and maintenance concept optimised to suit the lifecycle. In awarding contracts, it is now a high priority to ensure that small and medium-sized companies from the region are deployed. For a contractual term of 20 years, HOCHTIEF guarantees a fixed calculation basis to the federal government for the necessary investments and the operation of the property. The savings advantage for the Fürst-Wrede barracks stands at over 17%. In order to exploit the expertise of the private parties for further savings in the national budget, new PPP invitations to tender in the defence sector are desirable. And this is also for the benefit of the users the military personnel themselves who have a strong interest in the good condition of the barracks. Sandra Arendt (HOCHTIEF PPP Solutions GmbH) Sandra.Arendt@hochtief.de News from the federal PPP competence network (FPK) New working group: municipal roads Guidelines for "PPP and municipal roads" is being developed Under the leadership of Dr. Volker Schaedel (Brandenburg), the FPK Municipal Roads working group has started work. The objective is to develop a set of guidelines on "PPPs and municipal roads" in the future. Before that, the sector-specific differences between this and structural engineering must be identified and proposed solutions must be derived for practical purposes. The working group agreed to incorporate all roads except those that are under the federal government s construction and maintenance obligation, so also including state roads. In particular, it will be necessary to incorporate any support funds from the Local Authority Traffic Financing Act (GVFG) and/or the subsequent rulings and in terms of the integration of service roads the Municipal Tax Law (KAG). Dr. Volker Schaedel (Investitionsbank des Landes Brandenburg) Volker.Schaedel@ilb.de Axel Scheel-Siebenborn (BMVBS) Axel.Scheel@bmvbs.bund.de 4

5 Dates April Berlin Workshop PPPs in the hospital sector Berlin Efficient State Congress PPP innovation award Imprint Publisher: German Federal Ministry of Transport, Building and Urban Affairs, Invalidenstraße 44, Berlin Editorial responsibility for the : Dr. Jörg Christen (BMVBS), Joerg.Christen@bmvbs.bund.de Editors: Serviceplan Public Opinion GmbH & Co. KG Layout and Typesetting: Serviceplan Public Opinion GmbH & Co. KG Picture credits: BMVg (p. 1), Hauptverband der Deutschen Bauindustrie e.v. (p. 2), Bauhaus University Weimar (p. 3, top), HOCHTIEF PPP Solutions (p. 3, bottom).