The NPD model

• There is a general acceptance of the NPD model in principle.  From a local authority perspective, the capping of private sector equity returns is a positive move.
• Questions were asked about the surpluses generated by the NPD model and the suitability of the charity as a vehicle for spending those surpluses.  The surpluses forecast under the NPD model tend to be large lump sums postponed to the end of the concession period.  This means that there is likely to be no role for the charity until the end of the concession, and any arrangement for an annual payment to the charity through the unitary charge simply to keep the charity functioning would not seem to represent value for money.
• Given the forthcoming changes in accounting treatment of projects – which will see these sitting on the public sector balance sheet – is it now appropriate to review the role of the charity in the NPD structure?  On the early NPD projects a charity, rather than the local authority, had to receive the surpluses because otherwise the balance sheet treatment of the project would be affected.  If projects will now sit on the public sector balance sheet in any event it would seem more appropriate that the surpluses are applied to reduce the Council's unitary charge payments.  This would render the charity redundant and simplify the NPD model.

• There is a concern about the attractiveness of the NPD model to the market and whether the Scottish Government needs to be taking steps to address this.  Whilst most contractors seem relatively comfortable with capped investor returns, they do seem to have an issue with the ability of the Independent Director to force a refinancing of junior debt and remove the junior lenders without appropriate compensation.  Perhaps this is a step too far from the original underlying objective of the NPD model which was to limit the private sector making higher-than-expected profits?  Having a model that works for both the public sector and the private sector will be essential if the NPD model is to have a future and is more important than pushing the private sector to the limits of what is acceptable to them.
• Fundamentally however, from the local authority perspective, if there is no revenue support from the Scottish Government there is no real scope for the NPD model being used at a local authority level.  Faced with a freeze on Council tax and the accounting treatment changes, and with no prospect of additional funding from the Government, a local authority would tend to choose prudential borrowing over PPP.There is confusion as to exactly what the Scottish Government is proposing in relation to the Scottish Futures Trust.  A variety of functions for the SFT are suggested in the consultation paper but very little detail provided.  For example, how will the SFT tie-in with the FPU and PUK and with initiatives such as HUB?
• Local authorities do not want to be forced to work with the SFT - indeed without some form of incentive in return it is difficult to see how they could be.  Many local authorities have experienced procurement teams and do not need or want the input of another third party.
• The idea of the SFT (a private company) owning and operating public facilities is one that is likely to face strong opposition from local authorities.  Aside from the issues of losing assets to the private sector, this type of centralisation would seem to be at odds with the Government's attempts to give local authorities more autonomy as regards their spending and investment decisions.

• Concern was expressed about the market's reaction to the competitive dialogue procedure and that this, coupled with the NPD and SFT developments, potentially makes Scotland an unattractive place for PPP contractors.  A balanced and consistent approach to competitive dialogue across public authorities will be essential.

11 March 2008

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