The public sector has a strong record of innovation in developing new models for the delivery of its objectives. In particular, it has sought to use its assets, powers and financial position to work through company and partnership structures to deliver physical regeneration, deliver financial return or develop much-needed assets such as houses and hospitals.
Whilst this record is strong there are also a series of high-profile examples of arrangements that have not delivered what they promised or have become sullied through poor reputations when examining value for money or the public sectors high-risk profile that has not been commensurate with the reward it has received. These have ranged from PFI / PPP arrangements to Joint Ventures and from Strategic Partnerships to wholly-owned companies.
We have worked on a number of delivery and partnership arrangements over the last 15 years and have seen a lot of successful arrangements as well as a fair share that have experienced difficulties. From this experience we would put forward the following ‘6 Top Tips’ on how to develop arrangements that deliver on what they promise and stand the test of time:
1. Be driven by your objectives
Spend time getting these right, too often we are asked to assist Council’s in “procuring a Joint Venture (JV)” or “putting in place a Wholly Owned Company (WOC)” without the Council being clear exactly what they are trying to achieve. There is no “off the peg” partnership, and there are a variety of approaches that can be taken. The best solutions are bespoke to the Council’s objectives and this coupled with local authorities securing Member buy-in to these objectives, is where to spend the time.
2. Land Value is not the only consideration
It is very common for these arrangements to run into problems when too much focus is placed purely on land value, when the Council has other drivers and objectives. Clearly s123 needs to be met and the Council receive value for its assets but these arrangements are designed to deliver on the overall objectives, which could include higher quality build, overall financial return (revenue and capital), delivering community assets and increased levels of affordable housing. Meeting these objectives will impact land value, and if the arrangements through the JV / WOC would result in a slightly lower land value than one the market claims it may pay for a site, this needs to be balanced against the Council’s priorities, delivery of the objectives and the likelihood that the sale price may be reduced over time as a transaction is finalised.
3. Risk is not a dirty word – consider your appetite
There is a spectrum of different solutions to enabling the delivery of more housing, generating financial returns, or driving economic growth but each require the council to consider the risks it is willing to take to receive the commensurate rewards. These range from development risk to sales risk and from funding risk to reputational risk. Spend some time considering the rewards you are seeking, the risks that go alongside them and where the red lines are. Thinking about this up front will bear fruit later.
4. Soft Market Testing
It is critical to understand what the market wants, how it works and who the Council is targeting to work and partner with. Too often a theoretical approach is developed in isolation of market demand or set up in a totally different way to which a developer would think and take decisions. As a result, this can lead to the wrong market interest or indeed no market interest at all. The public sector needs to engage with the market, put forward its thinking and really listen to the market response. It is only by doing this that an effective structure can be developed.
A number of high-profile partnerships between the public and private sector have failed or come under significant criticism due to a lack of understanding of how the new arrangement is designed to work for both parties. Too often Council’s put in place a project team, to work up the delivery solution and procure it but then do not maintain the consistency of the people and knowledge into the operation of the new arrangement. This has resulted in partnerships withering and dying or losing momentum due to a lack of impetus to get those first projects going. Local authorities and developers should consider during the procurement process what the early and quick wins should be to ensure the partnership/delivery vehicle begins to deliver at pace once established.
Keep your eye on the end goal and the delivery of your objectives, but don’t become overly rigid or entrenched in how this is achieved. A development-based vehicle exists in the shifting sands of market forces around the property and funding sectors and there will be more than one way to reach the desired outcomes. By working with a private sector partner in a JV for example, you want their expertise alongside you in how to navigate these different markets and whilst you need to hold true to your aims and objectives you also need to work collaboratively to reach them. This could mean amending arrangements, putting in short term solutions to problems and adapting some of the original plans. All of this should be considered alongside the broader benefits you are delivering.
If you’d like to discuss how 31ten can support your development and regeneration objectives, Andy would love to hear from you: firstname.lastname@example.org