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King sturge calls for re-energised joint ventures
Published: 2010-03-10 07:58:11
"We've got to look at different ways of doing things." That's the call from King Sturge head of consultancy Andrew Ludiman ahead of the general election.
Whoever forms the next government, Ludiman said, one thing is certain: there will be a smaller pot of state cash for regeneration. But despite continuing austerity in the public sector, there will be opportunities to be pursued, including new approaches to joint ventures, streamlining the procurement process to remove disincentives for bidders, being more resourceful in the use of available funds and making better use of available assets.
That last point is significant not only to local authorities but also educational institutions, health authorities and other public organisations seeking to raise project funds.
Ludiman and King Sturge Financial Services managing director Chris Pratt discussed the options ahead of the SocInvest2010 financial summit in June.
Next generation LABVs and joint ventures
A number of established tools and funding mechanisms will continue to be relevant in unlocking the value in public sector assets. "While they will not be suitable for all cases," said King Sturge Financial Services managing director Chris Pratt, "local asset-backed vehicles (LABVs) are one way of funding projects, depending on the scale and nature of the project." King Sturge has played a leading role in helping RDAs, local authorities and, more recently, health care trusts to create LABVs.
Although they are often seen as a class apart, "LABVs are just a label for doing ventures where two organisations work together to produce outcomes," Pratt told SocInvest2010. "Joint ventures will continue to be important for regeneration to work."
In the current climate, though, there needs to be an adjustment of expectations. "Everything depends on how you get value out," Pratt said. "Risk sharing needs to be revisited. There also needs to be an acceptance that value is going to be created over time."
One of the differences today is that the threshold for viable LABV projects could be as low as £25 million. "Originally you would be looking at projects with out-turn value of ten times that scale," Pratt said.
Following experience gained in developing pioneering LABVs, new projects can be less demanding to put together. "Originally, they were long term and complex," Pratt said. "While they are all different, they are now easier and cheaper to implement."
Overcoming the procurement deterrent
Changes in the way major projects are managed are urgently needed, according to Ludiman. "Procurement is the big deterrent," said Ludiman. "It's long, costly and complicated to complete the competitive dialogue process. Six months is the quickest we have achieved because of the complexity of the process."
King Sturge sees glimmers of hope in the HCA's initiative to create a procurement services panel. "We are also working on simplifying the process," said Ludiman.
The consultants see other possibilities; for example, the CLG's Total Capital concept, part of the Total Place scheme, to help authorities make better use of capital through combined service-led projects. "But there is a significant resource and capability constraint at local authority level that could prevent this from taking off," warned Ludiman.
King Sturge is also "100% supportive" of TIF and ADZs. "They would provide an enormous boost to regeneration," said Ludiman. But he was less certain that there will be the political will to put this high on the agenda. "Government guarantees to cover income streams could be a stumbling block," he said.
In any case, the next government and its agencies will need to take a much closer look at the potential tied up in their existing assets. "The expectation is that all government bodies will be under pressure to meet their obligations from their balance sheets," says Pratt. "The challenge is to find ways of releasing cash from these properties and assets, without constraining future flexibility."
Chris Pratt speaks at SocInvest2010, June 16th, Grand Connaught Rooms, London.