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Defence PFI / PPPs
Opportunities
for the Baltic States?
© Berwin Leighton Paisner LLP, London
Overview
Catalyst for Defence PPP Opportunities
UK Experience:
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Accommodation
Training/Simulator Assets
Assets based Projects
Infrastructure based Projects
Lessons from UK MoD PPP Experience
Catalyst for Defence PPP
Opportunities 1
March 2004 – Baltic States join NATO.
– Global threat - move away from purely Warsaw Pact/North
Atlantic facing Defence Force.
– End of “Cold War” emphasis – Multi-national armed forces
must now be able to move quickly to wherever they are
needed around the world, but still be hard hitting and flexible.
– The right mix of forces can be drawn to mount short-notice,
medium-scale operations of all kinds - from disaster relief to
high intensity war-fighting – under NATO, European, UN
coalition or national auspices.
Catalyst for Defence PPP
Opportunities 2
Changing Armed Forces
– more expeditionary – means greater need for more
equipment and logistical support.
– Need for small expeditionary force – highly skilled, mobile,
reactive & highly equipped.
Equipment Need
– Use of PFI/PPP to reduce large “on balance sheet”
traditional procurements and transfer key risks to the private
sector for logistic, operational support?
Regional Defense Co-operation
– BALTBAT, BALTRON, BALTNET & BALTDEFCOL
– NATO as procuring body (i.e. Submarine Rescue Service)?
UK Experience
1995/96 – First UK MoD Defence PFI
Around 40 PFI/PPP Projects awarded by the UK
MoD.
Dedicated Private Finance Unit – committed to
procurement excellence.
Widest variety of projects in any UK PFI/PPP Sector
– most innovation.
Currently the largest PPP Projects in procurement in
the UK are Defence Sector based.
UK Defence PPP/PFI
Four Main Types of UK Defence PPP/PFI:
– Accommodation Based Projects
– Training/Simulator Transactions
– Asset-Based Transactions
– Infrastructure Transactions
Accommodation Based Projects
Design, Build (Refurbish), Finance and Operate (DBFO).
Payment based on availability criteria.
Use of Surplus Land & Development opportunities to bring
affordability savings.
Used to secure new accommodation for UK MoD on a wide
variety of programmes:
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Offices - MoD Main Building in London (MoD HQ), Northwood
Barracks - Allenby & Connaught, Project MoDEL
Housing – Portsmouth Housing Projects
Schools/Training – Defence Sixth Form College
Others – Defence Animal Centre (DAC)
Training/Simulator Based Projects
Design, Build, Finance and Operate (DBFO) Model.
Private Sector ownership of assets and maintenance
obligations.
Payment based on asset availability and agreed
usage (i.e. hours/days) in Simulator deals, but
emerging innovative procurement models for pure
training-based projects (i.e. pass rates).
Examples include :
– Military Flight Training – UKMFTS & DHFS
– Wider Training Projects – Defence Training Review (DTR) &
RSME
– Simulators – LAFT, MSHATF, TSTS, Attack Helicopter &
Hawk.
Asset Based Projects
Design, Build, Finance and Operate (DBFO) Model.
Contractor owned, Contractor Operated (“CoCo”).
“Take-or-Pay” payment stream, with deductions for
unavailability.
Use of Third Party Revenue (3PR) to reduce cost to Public
Sector.
Examples include :
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Air-to-Air Refuelling & Transport – FTSA.
Strategic Sealift Services – Ro Ro Project.
Vehicles – HET, “C” Vehicles, FFTU and Whitefleet.
Helicopters – Sea & Rescue (SAR)
Logistics – Field Electrical Power Supplies (FEPS)
Satellites – Skynet 5
Infrastructure Based Projects
Structure dependent on underlying deal.
Benefits of UK MoD buying power, consolidation of
existing estates and services.
Use of Third Party Revenue/Surplus Land to drive
affordability benefits to UK MoD.
Examples include :
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Marine Services – FPMS
Water/Wastewater – Project Aquatrine
Communications – VLF Naval Comms.
Storage – Nuclear Submarine Fuel Project
Lessons from UK MoD PPP Experience
Use of Standardised Contracts – Pros/Cons.
Key Issues for Public Sector:
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Affordability (use of 3PR);
IPR Rights (upgrades, whole-life issues);
Security (export licences);
Continuity of Service for front-line contractor supplied assets
(Sponsored Reserves); and
– Value for Money (long-term & refinancing).
Use of Commercial Off-the-Shelf Technology (COTs)
to assist fundability of PPP deals.
Need for Innovation – dialogue with MoD PFU.
Timescale to Close.
Questions?
Strategic Sealift Project