THE PROCUREMENT STAGE OF THE PUBLIC- PRIVATE PARTNERSHIP PROJECTS IN HEALTCARE AS THE SOURCE OF PROJECT’S CRITICAL SUCCESS FACTORS
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Introduction 8
1. PUBLIC-PRIVATE PARTNERSHIP PROJECTS: STAGES, RISKS, AND CRITICAL
SUCCESS FACTORS 11
1.1 Concept of Public Private Partnerships 11
1.2 Start of PPP development 12
1.3 Reasons for the choice PPP project 12
1.4 Forms of PPP 14
1.5 Stages of PPP projects 15
Procurement stage 17
1.5 Risks of PPP projects 19
1.6 Critical success factors of PPP projects 23
2. COMPARISON OF COUNTRIES’ EXPERIENCE IN ORGANISATION OF THE
PROCUREMENT STAGE OF PPP PROJECT 30
2.1 Countries’ environment: implications for PPPs 30
2.1.1 Russia 31
2.1.2 Japan 32
2.1.3 India 33
2.1.4 Canada 33
2.2 Methodology 35
2.3 Projects description 37
2.3.1 Russia 37
2.3.2 Canada 44
2.3.3 Japan 46
2.3.4 India 47
2.4 Cross-case analysis 48
2.4.1 Transparent and efficient procurement process 48
2.4.2 Competitive procurement 57
2.4.3 Well organized and committed public agency 58
2.4.4 Thorough and realistic assessment of costs and benefits 60
2.5 Results: Procurement stage as a source of critical success factors 63
2.6 Recommendations 65
Conclusion 66
Limitations and further research 66
List of references Ошибка! Закладка не определена.
Appendix 1. PPP projects in healthcare in Russia 75
Appendix 2. PPP projects in healthcare in Canada, Japan and India 77
Appendix 3 Awarding criteria on case projects* 78
1. PUBLIC-PRIVATE PARTNERSHIP PROJECTS: STAGES, RISKS, AND CRITICAL
SUCCESS FACTORS 11
1.1 Concept of Public Private Partnerships 11
1.2 Start of PPP development 12
1.3 Reasons for the choice PPP project 12
1.4 Forms of PPP 14
1.5 Stages of PPP projects 15
Procurement stage 17
1.5 Risks of PPP projects 19
1.6 Critical success factors of PPP projects 23
2. COMPARISON OF COUNTRIES’ EXPERIENCE IN ORGANISATION OF THE
PROCUREMENT STAGE OF PPP PROJECT 30
2.1 Countries’ environment: implications for PPPs 30
2.1.1 Russia 31
2.1.2 Japan 32
2.1.3 India 33
2.1.4 Canada 33
2.2 Methodology 35
2.3 Projects description 37
2.3.1 Russia 37
2.3.2 Canada 44
2.3.3 Japan 46
2.3.4 India 47
2.4 Cross-case analysis 48
2.4.1 Transparent and efficient procurement process 48
2.4.2 Competitive procurement 57
2.4.3 Well organized and committed public agency 58
2.4.4 Thorough and realistic assessment of costs and benefits 60
2.5 Results: Procurement stage as a source of critical success factors 63
2.6 Recommendations 65
Conclusion 66
Limitations and further research 66
List of references Ошибка! Закладка не определена.
Appendix 1. PPP projects in healthcare in Russia 75
Appendix 2. PPP projects in healthcare in Canada, Japan and India 77
Appendix 3 Awarding criteria on case projects* 78
The initial reason for the emergence of public-private partnership (PPP) projects was reduction of the public sector financial burden through bringing in private investment for public services and facilities (Grimsey, Lewis, 2005). Nowadays cost reduction and allocation of risks and responsibilities are the main reasons for the implementation of PPP project as well as introducing expertise of the private sector to public services/assets provision.
Lifecycle of PPP project consists of several stages: project identification, preparation, procurement, implementation and ownership. The procurement stage as one of the key phases of the project implementation was selected for the further analysis. The choice of the private partner can influence results of the project implementation and it is particularly interesting which factors (later on we call them critical success factors or CSF) should be met at the procurement stage in order to mitigate risks arising during determination of the private partner and project implementation. Thereby, the topic of this thesis is the procurement stage of the public-private partnership project as a source of project's critical success factors. This research field is attractive for scholars from various parts of the world, and they are interested in the identification of the critical success factors at various stages of the project (Qiao et al, 2001; Li et al, 2005; Chan et al, 2010, Cheung et al, 2012; Chou et al, 2015).
PPPs in healthcare gain higher recognition and are more preferable than traditional public procurement options due to several reasons. The first one is attraction of private funding, then combination of various services and stages of the project (designing, building and delivery of health services). Under traditional public procurement private partner only performs construction functions and transfers the object to government. Consequently, it has fewer incentives to increase quality of the infrastructure object.
Following the 2007-2008 global financial crises there has been an increasing interest in the public-private partnership (PPP) policy by governments in both developed and developing countries. They issue new laws on public procurement, concessions and other closely related subjects in order to increase efficiency and effectiveness of PPP projects. Each year at least several countries issue either new legislative documents that aim to improve the situation in PPP or guides on PPP project implementation. In Russia in 2016 the new law on PPP was enacted.
Public infrastructure development is one of the top priorities in Russian economy since it can raise living standards, level of innovations, address problems that face the country, its regions and towns. There is a great demand for infrastructure development and interest of public sector in PPP projects in social and healthcare sector. The huge need to attract more private investments and reconstruct existing healthcare facilities exists in Russia. The level of necessary investments equals 0.8-1 trillion rubbles and government assumes that around 200-300 billion rubles can be attracted via PPPs.
Private sector is also interested in participation in infrastructure projects. And legislation on PPP is continuously developing that aims to improve attractiveness. However, PPPs in Russia are still at the initial stage of development in healthcare. Russia has only 38 PPP projects in healthcare from the total sample of 1096 projects (that is around 4%). At the same time number of PPP projects in healthcare in the world is continuously growing and other developed countries have reach experience in the PPP projects realization. Currently the share of PPP projects in healthcare is around 30-40% in Canada and UK.
Therefore the research gap identified in this paper is the following: Paradigm of PPP in Russia is still forming and international experience can help to avoid some traps and to foster the development process.
This work aims to answer the following questions:
• How to identify the CSFs of procurement stage of Russian PPP projects?
• Which risks can be mitigated by management of the critical success factors at the procurement stage?
• How to improve existing policies in PPP area to have higher rate of successfully implemented PPP projects?
The object of this research is healthcare PPP projects in Russia and other countries. The research subject is identification and management of critical success factors that contribute to the mitigation of risks and success of the PPP projects.
The main goal of the thesis is to increase effectiveness and efficiency of PPPs in healthcare by identification and governance of the critical success factors (CSFs) at the procurement stage
In order to achieve this goal the following objectives had been set:
• To identify critical success factors of PPP project at the procurement stage;
• To conduct cross-case analysis of successful and problematic projects from Russia and overseas to identify differences among CSFs at the procurement stage;
• To design the procurement stage of the PPP project such a way to minimize the risks at the following stages of PPP project realization;
• To make suggestions on improvement of Russian Federation public-private partnership policy.
In order to answer on the research questions data on infrastructural PPP projects in healthcare sector in Russia, Canada, Japan and India were collected. After that these cases were analyzed and compared in order to identify differences and similarities that can be attributed to the successful project implementation. Access to information on these projects varies from country to country. In Canada all project information together with documentation is disclosed on the official websites on PPP projects in Canada while in Russia the access is more restricted and information is spread over websites of different Ministries depending on the region.
This paper consists of 2 chapters. The first chapter introduces the research topic, provides key definitions, introduces PPP project concept, stages of the PPP projects with a focus on the procurement stage, risks arising during this stage and next ones, critical success factors that can mitigate these risks, value chain as a method for risks identification and management of the critical success factors. In this part the list of CSFs that should be relevant for Russian environment is identified and these CSFs are further analyzed in the second chapter.
The second chapter describes environment relevant to PPP implementation in the countries of interest. Then it introduces methodology of the research and presents results of the analysis of the PPP projects in Russia, Canada, Japan and India on each of the identified CSFs.
This paper should be useful for those stakeholders who are connected to PPP projects implementation. It introduces recommendations on the basis of CSFs identified and their effect on risks mitigation. It also helps to identify the directions for improvement of Russian PPP regulations and policies.
Lifecycle of PPP project consists of several stages: project identification, preparation, procurement, implementation and ownership. The procurement stage as one of the key phases of the project implementation was selected for the further analysis. The choice of the private partner can influence results of the project implementation and it is particularly interesting which factors (later on we call them critical success factors or CSF) should be met at the procurement stage in order to mitigate risks arising during determination of the private partner and project implementation. Thereby, the topic of this thesis is the procurement stage of the public-private partnership project as a source of project's critical success factors. This research field is attractive for scholars from various parts of the world, and they are interested in the identification of the critical success factors at various stages of the project (Qiao et al, 2001; Li et al, 2005; Chan et al, 2010, Cheung et al, 2012; Chou et al, 2015).
PPPs in healthcare gain higher recognition and are more preferable than traditional public procurement options due to several reasons. The first one is attraction of private funding, then combination of various services and stages of the project (designing, building and delivery of health services). Under traditional public procurement private partner only performs construction functions and transfers the object to government. Consequently, it has fewer incentives to increase quality of the infrastructure object.
Following the 2007-2008 global financial crises there has been an increasing interest in the public-private partnership (PPP) policy by governments in both developed and developing countries. They issue new laws on public procurement, concessions and other closely related subjects in order to increase efficiency and effectiveness of PPP projects. Each year at least several countries issue either new legislative documents that aim to improve the situation in PPP or guides on PPP project implementation. In Russia in 2016 the new law on PPP was enacted.
Public infrastructure development is one of the top priorities in Russian economy since it can raise living standards, level of innovations, address problems that face the country, its regions and towns. There is a great demand for infrastructure development and interest of public sector in PPP projects in social and healthcare sector. The huge need to attract more private investments and reconstruct existing healthcare facilities exists in Russia. The level of necessary investments equals 0.8-1 trillion rubbles and government assumes that around 200-300 billion rubles can be attracted via PPPs.
Private sector is also interested in participation in infrastructure projects. And legislation on PPP is continuously developing that aims to improve attractiveness. However, PPPs in Russia are still at the initial stage of development in healthcare. Russia has only 38 PPP projects in healthcare from the total sample of 1096 projects (that is around 4%). At the same time number of PPP projects in healthcare in the world is continuously growing and other developed countries have reach experience in the PPP projects realization. Currently the share of PPP projects in healthcare is around 30-40% in Canada and UK.
Therefore the research gap identified in this paper is the following: Paradigm of PPP in Russia is still forming and international experience can help to avoid some traps and to foster the development process.
This work aims to answer the following questions:
• How to identify the CSFs of procurement stage of Russian PPP projects?
• Which risks can be mitigated by management of the critical success factors at the procurement stage?
• How to improve existing policies in PPP area to have higher rate of successfully implemented PPP projects?
The object of this research is healthcare PPP projects in Russia and other countries. The research subject is identification and management of critical success factors that contribute to the mitigation of risks and success of the PPP projects.
The main goal of the thesis is to increase effectiveness and efficiency of PPPs in healthcare by identification and governance of the critical success factors (CSFs) at the procurement stage
In order to achieve this goal the following objectives had been set:
• To identify critical success factors of PPP project at the procurement stage;
• To conduct cross-case analysis of successful and problematic projects from Russia and overseas to identify differences among CSFs at the procurement stage;
• To design the procurement stage of the PPP project such a way to minimize the risks at the following stages of PPP project realization;
• To make suggestions on improvement of Russian Federation public-private partnership policy.
In order to answer on the research questions data on infrastructural PPP projects in healthcare sector in Russia, Canada, Japan and India were collected. After that these cases were analyzed and compared in order to identify differences and similarities that can be attributed to the successful project implementation. Access to information on these projects varies from country to country. In Canada all project information together with documentation is disclosed on the official websites on PPP projects in Canada while in Russia the access is more restricted and information is spread over websites of different Ministries depending on the region.
This paper consists of 2 chapters. The first chapter introduces the research topic, provides key definitions, introduces PPP project concept, stages of the PPP projects with a focus on the procurement stage, risks arising during this stage and next ones, critical success factors that can mitigate these risks, value chain as a method for risks identification and management of the critical success factors. In this part the list of CSFs that should be relevant for Russian environment is identified and these CSFs are further analyzed in the second chapter.
The second chapter describes environment relevant to PPP implementation in the countries of interest. Then it introduces methodology of the research and presents results of the analysis of the PPP projects in Russia, Canada, Japan and India on each of the identified CSFs.
This paper should be useful for those stakeholders who are connected to PPP projects implementation. It introduces recommendations on the basis of CSFs identified and their effect on risks mitigation. It also helps to identify the directions for improvement of Russian PPP regulations and policies.
The results of the analysis conducted are divided by CSFs in order to assess the relevance of each of the critical success factors for the project implementation in Russia and other countries.
Transparency in the procurement process. One of the characteristics of transparency is availability of tender documentation and other documents related to the PPP project. We can see the following tendency. There is almost no information on PPP projects in Russia. This information is allocated among absolutely different sources. Access to most documentation of more than 50% of the projects is limited and in all cases just a main part of the project documentation is published. If we take Canada or India then we see that they have all information in one place with all the news releases, project documentation, schedules, requests and evaluations, results of the project implementation. So level of transparency in Russia is lower. Besides in Canada almost all projects involve assessment by fairness advisor, consulting companies while in Russia their services are used rarely and the lower scale of the projects in general partially determines this situation.
Competitive procurement process. This characteristic is also not typical for Russian PPP projects. However there are not so many private investors who are able to construct and operate healthcare units dedicated to provision of services of specific function. Like with example of Hemodialysis center. The company “Klinika sovremennoy meditsyny HD” was the only private company operating on that market. So it can be more important to have clear project documentation to limit hazardous behavior of the private partner. Canadian project have high number of bidders (around 3 bidders on average reaching request of proposal and submitting their application form)
Moreover, highest bid-lowest bid scoring rule should not be applied in case of low competition because it creates incentives to improve offer only on one criterion because then private partner will win the contest even if the price is extremely high or quality is low. In addition, more than two awarding criteria should be used to avoid hazardous behavior. Analysis of this rule revealed that if at least one criterion has weight of more than 0.5 then private partner would have no incentives to improve its offer on other criteria. Consequently it is necessary to have more than two awarding criteria in tender documentation. In addition if there are only two bidders then in case of similar scores on all criteria but one, the bidder that suggests gets just a little bit lower scores on several criteria gets 0 scores on them and looses in the contest. Therefore this rule also should not be applied in case of low competition.
Well-organized and committed public agency. PPP partnerships in healthcare in Russia is relatively new concept, they started to appear in the late 2000s. However, more and more regions of Russia introduce recommendations or policies on the PPPs in order to increase attractiveness of such a form for private investor. Most investors are unwilling to enter PPPs because of the high risks and these risks can be partially mitigated by the legislation and recommendations. In addition creation of specialized units or center integrating information on all projects, accumulating experience and sharing best practices like it is done in Canada might improve the attractiveness of projects and rate of projects successfully implemented.
Thorough and realistic assessment of the costs and benefits. This factor is crucial for the successful accomplishment of the project. This paper introduced several cases where private partner could not meet the predetermined plan on procedures or number of patients because the demand was lower than expected. But since the profit of private partner depended only on government payments it did not have enough motivation to improve the quality of services provided or to change the current conditions in order to increase number of patients. The outcome of such a situation was a buy out of the infrastructural object and transferring all operating activities to a public partner. If costs, risks and benefits are assessed in advance and included in project agreements then it is possible to avoid such situations.
All this critical success factors at the procurement stage (transparent procurement, competitive procurement, thorough and realistic assessment of the costs and benefits, well organized and committed public agency) can contribute to risks mitigation of the healthcare project. They affect it through higher quality of tender documentation, higher involvement and interest of the public partner and usage of previous experience, increasing awareness of private partners and greater number of bids, reduction of hazard behavior, creating more attractive investment environment and as a result attracting more bidders and possibility to make more accurate selection of the partner. Thereby they also reduce some medical and operational risks.
Transparency in the procurement process. One of the characteristics of transparency is availability of tender documentation and other documents related to the PPP project. We can see the following tendency. There is almost no information on PPP projects in Russia. This information is allocated among absolutely different sources. Access to most documentation of more than 50% of the projects is limited and in all cases just a main part of the project documentation is published. If we take Canada or India then we see that they have all information in one place with all the news releases, project documentation, schedules, requests and evaluations, results of the project implementation. So level of transparency in Russia is lower. Besides in Canada almost all projects involve assessment by fairness advisor, consulting companies while in Russia their services are used rarely and the lower scale of the projects in general partially determines this situation.
Competitive procurement process. This characteristic is also not typical for Russian PPP projects. However there are not so many private investors who are able to construct and operate healthcare units dedicated to provision of services of specific function. Like with example of Hemodialysis center. The company “Klinika sovremennoy meditsyny HD” was the only private company operating on that market. So it can be more important to have clear project documentation to limit hazardous behavior of the private partner. Canadian project have high number of bidders (around 3 bidders on average reaching request of proposal and submitting their application form)
Moreover, highest bid-lowest bid scoring rule should not be applied in case of low competition because it creates incentives to improve offer only on one criterion because then private partner will win the contest even if the price is extremely high or quality is low. In addition, more than two awarding criteria should be used to avoid hazardous behavior. Analysis of this rule revealed that if at least one criterion has weight of more than 0.5 then private partner would have no incentives to improve its offer on other criteria. Consequently it is necessary to have more than two awarding criteria in tender documentation. In addition if there are only two bidders then in case of similar scores on all criteria but one, the bidder that suggests gets just a little bit lower scores on several criteria gets 0 scores on them and looses in the contest. Therefore this rule also should not be applied in case of low competition.
Well-organized and committed public agency. PPP partnerships in healthcare in Russia is relatively new concept, they started to appear in the late 2000s. However, more and more regions of Russia introduce recommendations or policies on the PPPs in order to increase attractiveness of such a form for private investor. Most investors are unwilling to enter PPPs because of the high risks and these risks can be partially mitigated by the legislation and recommendations. In addition creation of specialized units or center integrating information on all projects, accumulating experience and sharing best practices like it is done in Canada might improve the attractiveness of projects and rate of projects successfully implemented.
Thorough and realistic assessment of the costs and benefits. This factor is crucial for the successful accomplishment of the project. This paper introduced several cases where private partner could not meet the predetermined plan on procedures or number of patients because the demand was lower than expected. But since the profit of private partner depended only on government payments it did not have enough motivation to improve the quality of services provided or to change the current conditions in order to increase number of patients. The outcome of such a situation was a buy out of the infrastructural object and transferring all operating activities to a public partner. If costs, risks and benefits are assessed in advance and included in project agreements then it is possible to avoid such situations.
All this critical success factors at the procurement stage (transparent procurement, competitive procurement, thorough and realistic assessment of the costs and benefits, well organized and committed public agency) can contribute to risks mitigation of the healthcare project. They affect it through higher quality of tender documentation, higher involvement and interest of the public partner and usage of previous experience, increasing awareness of private partners and greater number of bids, reduction of hazard behavior, creating more attractive investment environment and as a result attracting more bidders and possibility to make more accurate selection of the partner. Thereby they also reduce some medical and operational risks.
