Abstract
Ireland has almost two decades of experience with using public private partnerships (PPPs) for the procurement of social infrastructure such as schools, courthouses, and health facilities. This article focuses on Ireland’s schools sector where 27 school buildings with an estimated capital value of €500 million have been procured via PPP to date. We review the changes that have occurred to the governance of PPPs and supporting institutional structures, which have evolved considerably over the past 20 years. Evidence of policy learning has led to the development of detailed PPP guidelines and the establishment of a centralized PPP agency with responsibilities that exceed international norms. We highlight how the development of PPP institutions has been an ongoing and gradual process, which will continue to evolve if concerns in relation to accountability and transparency are to be addressed.
Introduction
Public private partnerships (PPPs) have become an important part of the toolkit governments are employing to improve infrastructure policy. However, the international experience with PPPs has often been disappointing. For example, in 2017, the Financial Times reported that PPP in the United Kingdom (a global leader in PPP usage) was “discredited by cost, complexity and inflexibility” and PPP had gone out of fashion (Giles, 2017). In a World Bank paper, Leigland (2018) reviewed the international PPP experience and concluded that a considerable amount of the empirical evidence accumulated over the last decade has not been uniformly positive about PPPs.
Notwithstanding this evidence, PPPs continue to be used around the world. Moreover, they are strongly advocated by multilateral development banks and donors that invest considerable resources in promoting the use of PPP, particularly in developing and emerging economies. Given the experience with PPPs in developed countries, however, a question arises about the suitability of the PPP mechanism, especially in developing economies where the required institutions are not necessarily developed. There is a strong consensus in the PPP literature that successful use of PPPs depends on “conducive legal regulatory and institutional frameworks and processes” (European PPP Expertise Centre [EPEC], 2016). In that sense, there is an ongoing need to learn from the experience of countries that have accumulated extensive PPP experience.
Ireland represents one case where PPPs have been widely utilized. They were initially adopted in the early 2000s as part of the policy response to rapid economic growth, which placed extreme pressure on the country’s underdeveloped stock of infrastructure. As the need to tackle the deficit of infrastructure became more urgent, it was decided to experiment with new forms of procurement that involved greater private sector participation and finance. From the outset, social infrastructure was identified as a target for PPP investment, and two separate PPPs for schools infrastructure were included in the initial PPP pilot program that was announced in June 1999.
The use of PPPs for economic and social infrastructure has expanded considerably over the last 20 years. At the end of 2018, the estimated capital value of all contracted PPPs amounted to €5.17 billion with the projected total cost of all PPP payments expected to equal €10.39 billion. With respect to economic infrastructure, motorways have been especially prominent, and one third of Ireland’s ca. 1270 km of motorway/dual carriageway network has been delivered by 13 road PPP contracts. Other economic infrastructure includes a waste-to-energy facility and over 100 water and wastewater treatment plants. In terms of social infrastructure, the PPP model has delivered primary care centers, which represent the first PPP infrastructure in the Irish health sector. In addition, two major contracts for the delivery of courts buildings have been completed, and a number of social housing projects are currently being procured via PPP. However, the education sector has accounted for the most significant component of the social infrastructure procured by PPP, and so far 27 schools (contracted as bundles) and three higher education projects have been provided using the PPP approach.
As the first PPPs for schools infrastructure date back to the early 2000s, enough time has elapsed to permit an informed assessment of PPP policy in this sector. The objective of this article is to examine the Irish experience with PPP infrastructure in the education sector. It examines the first schools PPP which was one of a number of pilot projects used to launch Ireland’s PPP program. Specifically, the article shows how experience with the pilot projects resulted in changes to the governance of PPP procurement (at the ex-ante stage) including the appraisal of the PPP option and value-for-money assessment in particular. It also describes how the first schools project provided lessons that informed the development of the institutional framework designed for the purpose of supporting the PPP program. The Irish experience to date shows that developing the institutions that guide PPP policy has been a gradual and ongoing process that has not always kept pace with the rate of PPP implementation. Moreover, although 20 years have passed since PPPs were first adopted, a number of governance challenges have still to be met. Our examination of some of the unique aspects of the Irish experience and how PPP policy has evolved provides a number of generalizable lessons for other countries at the early stages of adopting PPPs to procure social infrastructure.
Background and Context
Table 1 lists the various social infrastructure PPP projects where contracts have been signed as of December 2018. In the education sector, the first three PPP projects for schools and colleges were procured by the Department of Education. However, in 2003, a specialist government procurement agency—the National Development Finance Agency (NDFA)—was established and was assigned full responsibility for the procurement of subsequent PPPs in the education sector. Since 2010, the NDFA has overseen the procurement of five schools bundles, as well as a new higher education campus.
Social Infrastructure PPPs in Ireland as of December 2018.
Source. Department of Public Expenditure and Reform.
Note. PPPs = public private partnerships.
The completion of Schools Bundle 5 has been delayed due to the collapse of Carillion in the United Kingdom (which was a partner in the consortium that won the contract) but is expected to be completed by the end of 2019. b The DIT Grangegorman campus is currently under construction and is expected to become operational on a phased basis over the 2020/2021 period.
Different aspects of Ireland’s historical experience with PPP have been examined by various authors to date. For example, Hurst and Reeves (2004), Reeves and Ryan (2007), Reeves (2008), and O’Shea et al. (2018) analyzed the experience with PPP in the Irish schools sector; Burke and Demirag (2015) and Palcic et al. (2018), respectively, examined demand risk and financial performance on a number of Ireland’s motorway PPP projects, whereas Reeves et al. (2015) analyzed the length of tendering periods for PPP contracts in Ireland. This article adds to the existing literature on PPPs in Ireland by examining the evolution of PPP governance in response to the lessons learned from Ireland’s pilot social infrastructure PPPs. Its starting point is the first PPP project that was subject to audit by the Comptroller and Auditor General (C&AG). The C&AG highlighted a number of problems with the pre-contractual stage of this PPP. This article describes how lessons from this procurement fed into a number of institutional changes that were designed to improve the governance of subsequent PPPs. It highlights features of these changes that are unique to the case of Ireland but are highly relevant to other countries at the early stages of PPP utilization.
Ireland’s First Schools PPP: The Pilot Schools Program
The first PPP for schools infrastructure in Ireland was included in the initial pilot PPP program announced in 1999. The pilot program was launched following extensive lobbying by interest groups such as the Construction Industry Federation, which recommended following practice in the United Kingdom where the private finance initiative (PFI) was introduced in 1992 (Reeves, 2003). It was initially decided to adopt a cautious approach and follow a growing international trend of piloting policies to test and learn through experience (Sanderson, 2002).
The first pilot PPP project for schools involved the Department of Education and Skills (DoES) procuring five new school buildings to be designed, built, financed and maintained (DBFM) by the private sector over 25 years. The contract for the project, with an estimated capital value of €63 million, was advertised in July 2000, with three detailed bids received. An ex-ante value for money (VFM) analysis, which was performed in September 2001, estimated that the project would deliver savings of 5.44% over conventional procurement methods. In November 2001, the contract was awarded to Jarvis Projects Ltd., and construction of the schools began. The schools were completed in December 2002 and opened to students in January 2003.
As the achievement of VFM is one of the principal PPP objectives for the Irish government, the C&AG conducted a VFM review of the grouped schools project shortly after the schools were in operation. The purpose of the C&AG’s (2004) review was to identify “any shortcomings in the conduct of the pilot project to help guard against their possible recurrence in later projects” (p. 9). Specifically, it sought to assess how the DoES developed its specification of requirements and managed the grouped schools project; how the proposals received from potential private sector partners were evaluated, in selecting a preferred bidder; how the value for money offered by the final agreed deal was evaluated. (C&AG, 2004, p. 9)
The C&AG identified a number of significant errors in the ex-ante VFM analysis that was undertaken to assess the suitability of PPP procurement. When comparing the cost of the project using PPP with the public sector benchmark (PSB), the C&AG found the original VFM exercise failed to compare the cashflows under both models on a consistent basis, which undermined the claims that PPP would deliver VFM. It also found that significant mistakes were made in relation to the timing and discounting of payments and the calculation of the residual value of the school buildings at the end of the 25-year contract. As a result of these errors, the C&AG estimated that the final PPP contract would be 8% to 13% more expensive compared with conventional procurement and would not deliver the original projected savings of 5.44%.
In addition to the errors in the VFM exercise that were identified, the report highlighted significant deficiencies in the procurement process. These included the failure to establish an affordability cap for the project and the estimation of a PSB after the selection of the preferred bidder. The C&AG (2004) stated that although risks were “appropriately retained” by the public sector, the extent of risk transfer to the private sector was “limited” (valued at 6.9% of the overall estimated cost of procuring the schools by conventional means). The C&AG concluded that the pilot program represented a valuable opportunity to improve the governance of PPP in Ireland and made the following principal recommendations:
The pilot project demonstrated that the existing capital infrastructure procurement guidelines were insufficient in a PPP context. The C&AG recommended that due to the more complex and specialized nature of PPP projects, specific guidelines for PPP procurement should be developed.
The C&AG concluded that the governance of PPP was characterized by a heavy reliance on external advisors. It highlighted some problems with the services provided by advisors, such as errors in the VFM evaluation and the loss of key project documents. The C&AG recommended the establishment of a new national advisory unit for PPP procurement.
The C&AG identified the need for ongoing review of PPP projects and the conduct of formal post-project reviews for each project.
A number of actions, consistent with the recommendations of the C&AG, were taken in the years after the pilot schools project. The implemented changes were underpinned by the recognition of the relative complexity of PPP (compared with traditional procurement) and the need to strengthen the institutional framework for PPPs. The following sections examine some of the principal changes implemented since 2004, as well as areas where PPP governance in Ireland can be improved.
Development of Specific Guidelines for Appraising and Procuring PPPs
The procedures used for the procurement of the pilot PPP projects followed general capital appraisal guidelines that applied to all capital projects published by the Department of Finance. Following the C&AG’s report on the pilot schools PPP, measures were taken to develop PPP-specific guidelines, particularly in relation to the conduct of VFM assessment. In 2003, the Central PPP Unit in the Department of Finance published an interim set of guidelines for PPP projects, which was followed by a series of comprehensive guidelines and technical notes published between 2006 and 2007. These documents span over 160 pages and provide technical guidance on every aspect of PPP appraisal and procurement, including VFM analysis, the use of discount rates, and the tax treatment of PPP projects.
With respect to VFM analysis, the main guidelines were finalized and published in 2006. These reflected some of the main aspects of accepted international best practice for ex-ante VFM analysis, in particular, the requirement for VFM assessments to be conducted at different stages of the procurement process (Morallos & Amekudzi, 2008). Irish guidelines require four formal VFM tests that serve as gateways which prevent PPP projects from progressing if potential VFM cannot be demonstrated at any stage of the procurement process. Figure 1 illustrates how this process works in practice:
First, a qualitative test is conducted to assess the potential for a project to deliver VFM via PPP. Factors such as the project scale, the potential for risk transfer, and the scope for establishing clear output specifications are considered. If the project is found to have the potential to deliver VFM, it then progresses to the pre-procurement phase.
Second, a quantitative test is used to compare the hypothetical whole-life cost of procuring via PPP (a shadow bid) and conventional procurement (the PSB). If at this stage, it is concluded that the PPP approach is expected to deliver VFM, it then progresses to the procurement phase, and the contract is advertised.
A third VFM test compares the highest-ranked bid received with the PSB. If that bid demonstrates VFM can be achieved, the preferred bidder is appointed, and the project proceeds to the negotiation stage.
The fourth and final test considers the impact of any changes negotiated after the appointment of the preferred bidder. It compares the net present value (NPV) of the final contract with the PSB. The test is performed in two stages, the first taking place before contract close and the second following contract close.

The four formal VFM tests within the PPP procurement process.
The issuance of rigorous VFM guidelines was an important development in the evolution of PPP governance in Ireland. The four-step approach was designed to ensure that the weak governance that characterized the appraisal of the pilot schools project was not repeated. For example, whereas the estimation of the PSB and VFM for the pilot program was performed after the appointment of the preferred bidder, the new guidelines ensure that the PSB must be estimated prior to the receipt of tenders. As such, the PSB model must remain sterile and cannot be altered after the contract is advertised. In addition, whereas the VFM assessment for the pilot program compared both procurement alternatives on the basis of different assumptions, the new guidelines require that the same assumptions about key variables (e.g., discount and inflation rates, and the timing of cash flows) are applied to both PPP and traditional procurement approaches.
Since their publication in 2006, the PPP-specific guidelines for VFM assessment have been adopted for all subsequent PPP procurements, including the five subsequent school bundles and various other social infrastructure projects such as court buildings and primary care centers. Ensuring a uniform approach was adopted for all VFM assessments since 2006 addressed a major criticism of practice on earlier PPPs in sectors such as education and water services (Reeves, 2011).
Development of PPP Institutions: Expanding the Role of the NDFA
Another significant change to PPP governance structures concerned the allocation of responsibility for conducting VFM assessment and other elements of PPP procurement. In 2003, the government established the National Development Finance Agency (NDFA) for the purpose of providing advice to all state authorities sponsoring or proposing infrastructure projects involving PPPs. As the procurement of earlier PPPs involved heavy reliance on external advisors for the provision of services such as VFM assessments and the management of tendering processes, the establishment of a specialized advisor for the public sector marked a significant departure. Within 2 years, the agency’s involvement in PPP was considerably expanded. In July 2005, the government announced the establishment of a PPP Centre of Expertise within the NDFA for the purpose of consolidating PPP project management and procurement skills into one single agency. This led to the NDFA taking over the responsibility for the procurement of all social infrastructure PPPs (in addition to advisory services) from the PPP units located in various government departments (established when PPPs were first used). Consolidating PPP procurement for all sectors (besides roads) in one agency ensured the NDFA had scope to develop expertise and learn from a wider range of projects than would have been possible for individual departmental PPP units that procured a small number of projects in the same sector.
The formation of specialized PPP units/agencies is a practice that is recommended by several multilateral agencies that are favorable toward PPP. The World Bank Institute (2013), Organisation for Economic Co-operation and Development (OECD) (2008), EPEC (2015), and the International Monetary Fund (IMF, 2004) have all advocated establishing such agencies as part of the development of institutional frameworks required to support PPP procurement. There is little or no published research on the effectiveness of specialized PPP agencies. It is, however, noteworthy that, notwithstanding a degree of variation across countries, the functions of such units generally focus on the provision of advisory services, policy development, and communication of PPP policy (van den Hurk et al., 2015). In the case of the NDFA, however, its remit increased considerably and includes responsibility for elements of PPP governance generally not assigned to PPP agencies in other countries. For example, whereas PPP contracts are normally agreed between sponsoring government departments and PPP companies, the NDFA is the public sector contracting party for social infrastructure PPPs in Ireland.
Another change to the role of the NDFA that further sets it apart from PPP agencies in most other jurisdictions was the transfer of responsibility for managing PPP contracts for schools to the agency. Before 2012, the DoES held responsibility for managing PPP contracts once they became operational. This involved all aspects of contract management, including the imposition of penalties (deductions to unitary payments) where contractors failed to perform in accordance with the provisions of the contract. An analysis of the ex-post management of the pilot schools PPP project found that no penalties were imposed by the DoES in the first 3 years after schools opened (Reeves, 2008). Later evidence provided by the DoES showed that over the period 2003–2011, just three deductions were made to monthly payments to contractors suggesting a light-touch approach to contract management. This provided a rationale for the decision (in October 2012) to transfer full responsibility for managing all school PPP contracts to the NDFA. It has resulted in significant changes to the management of PPP contracts and the NDFA has imposed penalties each year on all contractors with total deductions amounting to €1.15 million between 2012 and 2018.
The allocation of responsibility for contract management over the duration of schools PPP contracts has also been accompanied by the NDFA taking a systematic approach to learning from experience. In an interview with NDFA officials conducted for the purpose of this article, it was revealed that the agency conducts ex-post reviews of all PPP procurements. Reports that describe the key lessons from each procurement are completed for the purpose of providing policy learning that can be incorporated into future procurements. In addition, the NDFA conducts procurement de-briefs with unsuccessful bidders to provide information that can guide future submissions, thereby encouraging competition for future contracts.
Remaining Governance Challenges
The evidence to date shows that developing the institutional framework for PPPs in Ireland has been a gradual process that continues to evolve. In a recent review of public investment management in Ireland, the IMF (2017) concluded that “PPPs are regulated by a comprehensive framework of laws and procedural guidelines, aligned with international good practice” (p. 9). Moreover, available evidence suggests that the principal institutional changes described in this article have improved the governance of PPPs and been associated with some positive impacts. For example, data published by the NDFA indicate that all social infrastructure projects procured since 2005 are expected to deliver value for money (see Table 2).
Estimated VFM for Social Infrastructure PPPs in Ireland.
Source. NDFA.
Note. PPP = public private partnership; NPV = net present value; PSB = public sector benchmark; VFM = value for money.
Nevertheless, the fact that these are the only publicly available estimates of expected VFM for PPPs in Ireland points to some important governance challenges that have yet to be addressed. These challenges, which relate to the evaluation of PPPs and public disclosure of details about PPPs, were identified by the IMF (2017). The IMF’s report recommended (a) adding an annex to budget documents that provides comprehensive information on PPPs and concessions, broken down by sector and project (which includes a projection of future commitments over the remaining years of the contracts); (b) publishing the results of cost–benefit analysis (CBA) of PPP projects, and the criteria used to select them; and (c) conducting and publishing more ex-post reviews of PPP projects that also give more weight to the economic and social impact of PPPs.
The IMF recommendations highlight the low level of public disclosure in Ireland in relation to key aspects of PPP contracts, such as overall projects costs, exchequer commitments, and the financial returns to private contractors. Moreover, the IMF’s assessment demonstrates how Ireland’s overall PPP program, which includes social and non-social infrastructure (at a projected total cost of almost €10 billion), has been the subject of a minimal level of scrutiny and evaluation to date. Although the pilot PPP program was launched in 1999, almost two decades elapsed before the first government-sponsored review of the experience with PPPs was published in late 2018. In addition, the C&AG has published just one detailed audit of an individual PPP project (C&AG, 2004). This stands in sharp contrast with the United Kingdom, where the National Audit Office (NAO) has published more than 80 reports on PPP projects and policy (Stafford & Stapleton, 2017).
In recent years, there has been a gradual move toward greater levels of transparency in relation to PPPs in Ireland. In March 2018, public officials engaged in the procurement and management of PPP projects appeared before the Irish Parliament’s Public Accounts Committee (PAC) for the first time. The hearings brought a number of important issues about PPP governance into the open. They highlighted how the guidelines on VFM assessment (published in 2006) had prohibited public disclosure of ex-ante VFM assessments for individual projects and how no data relating to VFM had been placed in the public domain. The hearings also revealed that, contrary to the requirements of the public spending code, the DoES had failed to conduct post-project reviews for any of the seven PPPs procured in the education sector since 2000 (Committee of Public Accounts debate. 2018).
Following the increased scrutiny instigated by the PAC, the relevant government departments and state agencies (including the NDFA) undertook to place hitherto unpublished information about PPPs in the public domain. This included (a) VFM assessments for all schools and road projects more than 5 years old; (b) a detailed breakdown of all penalties imposed on PPP contractors for education projects; (c) a breakdown of all future projected unitary charge payments on all PPP projects; (d) all post-project reviews of PPP projects conducted to date; and (e) post-project de-brief reports for schools PPP bundles conducted by the NDFA.
Although the release of much of the information sought by the PAC represented a significant increase in the level of transparency regarding PPP in Ireland, the committee was nonetheless critical of the lack of detail contained in many of the documents released and the extent of information redacted within them. A number of government-led reviews of PPP policy in Ireland have been published since the PAC began scrutinizing projects in more detail (Department of Public Expenditure and Reform [DPER], 2018; Parliamentary Budget Office, 2018), with these reports also urging an increase in transparency around PPP as the lack of information available restricted their overall findings.
Discussion and Conclusion
PPPs have been used to provide social infrastructure in Ireland for over 20 years. Focusing mainly on schools infrastructure, this article reviews Ireland’s experience with using PPP, which provides useful lessons for other countries where the use of PPP is under consideration or in its infancy. The analysis presented in this article highlights the risks associated with adopting PPP before a supporting institutional framework is developed. The pilot schools PPP project was procured in the absence of a comprehensive framework for conducting a robust and detailed VFM. As a consequence, a C&AG audit of the project revealed that it would not achieve VFM. This case demonstrates the importance of developing PPP-specific institutions and resisting pressure to deliver much-needed infrastructure by prematurely adopting the PPP approach.
Much of the policy learning that informed the subsequent development of Ireland’s PPP institutions and program was derived from the pilot schools project, which was one of a number of projects used to launch Ireland’s PPP program in 1999. In this context, the Irish experience demonstrates the value of adopting a cautious approach to utilizing PPP, which is still a relatively new and complex form of procurement. Our review shows that the lessons from the first schools PPP project led to the development of a new set of detailed official guidelines for PPP appraisal and procurement. In addition, the pilot project highlighted shortcomings in the range and depth of PPP expertise in the public sector, particularly in relation to social infrastructure.
One of the main institutional changes that followed the pilot PPP program was the establishment of a centralized agency—the NDFA—with responsibility for providing financial and procurement advisory services on PPP. Although this development is in line with international practice, what sets Ireland apart has been the considerable expansion of the functions allocated to the NDFA over time. As the NDFA now holds responsibility for all aspects of appraisal, procurement and, ex-post contract management (in the schools sector), its remit greatly exceeds the norm for most PPP agencies worldwide. This has enabled the NDFA to build up significant experience in the procurement of PPPs across various sectors and enabled it to take a systematic approach to reviewing projects for the purpose of policy learning.
Notwithstanding these developments, recent scrutiny of the Irish PPP experience demonstrates a number of deficiencies in the governance of PPP projects that must be addressed if PPPs are to be viewed by the public as a legitimate approach to infrastructure procurement. These shortcomings include the failure to conduct and publish post-project reviews as required by official PPP guidelines, as well as release the CBA reports and VFM assessments that underpinned the decision to proceed with PPP. This suggests that PPP governance in Ireland has yet to address the big challenges identified by scholars such as Flyvbjerg et al. (2003) and Hodge and Greve (2010). These authors emphasize how greater transparency is one of the biggest obstacles to ensuring the legitimacy of the PPP approach. Increased public scrutiny and transparency bring clear benefits by making those responsible for PPPs more accountable. The Irish experience reviewed in this article demonstrates that developing effective PPP institutions is a gradual and ongoing process. Learning from previous experience both at home and abroad is a vital part of this process, and the Irish experience to date provides a number of valuable lessons for other countries at the early stages of PPP adoption.
Footnotes
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
