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Some observations and conclusions

Architecture and Urban Competitiveness

Peter K. Kresl and Daniele Ietri

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Stimulating the revival of the city

Architecture and Urban Competitiveness

Peter K. Kresl and Daniele Ietri

History is replete with examples of cities, or urban economies, that have lost the heart of the local economy. This may be the result of the collapse of a single major employer, for example Youngstown with Youngstown Sheet and Tube, or even the collapse of an entire economic sector, for example Pittsburgh and steel or Detroit and automobiles in the 1980s. This chapter focuses on a set of cities that experienced a severe economic downturn or collapse and that then adopted the strategy of recovery through investment in architectural projects, or a single project, that redefined the essence of the city, gave inspiration to its residents and local firms, and gave the city a reputation that extended internationally. There are many examples of this, and the chapter offers a selection.

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Peter K. Kresl and Daniele Ietri

Successful architectural city planning initiatives usually incorporate a set of features such as those we list at the outset of this chapter. Not all cities manage to implement these or other similar features, and their initiative usually comes up short. We examine four such examples in this chapter. In Syracuse, the city leaders lacked the foresight to implement the plan to reconfigure the center of the city. In Detroit, the RenCen was not sufficient, by itself, to revitalize the downtown area, let alone the entire city. The St. Louis Gateway Arch was abandoned by city development that drew activity to the other, western, side of the city. And Rotterdam failed to incorporate into its design the urban life preferences of the residents. In each case, time, resources and opportunities were wasted.

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Choosing amongst infrastructure procurement approaches

Evaluating Public–Private Partnerships and Other Procurement Options

Darrin Grimsey and Mervyn K. Lewis

A procurement options approach involves trading off one set of features of a contractual arrangement against those of others in order to choose the contract that best suits the infrastructure services being considered. The chapter begins with a simple example to illustrate the point, drawn from the 2014 Nobel lecture by the French economist Jean Tirole. He compares a ‘cost-plus’ contract with a ‘fixed-price’ one. Incentives are very different: in particular, the cost-plus contract shelters the contracting firm from fluctuations in its cost performance, while the fixed-price contract makes the firm fully accountable for it. In the latter case, the incentives to reduce costs are greater, but so is the potential to benefit from windfall profits. While instructive, the example is much too limited for our purposes, as we compare four ‘bundled’ approaches with five unbundled ones. The framework we propose incorporates five steps: (1) data gathering; (2) assessing the efficiency gains and risks; (3) benchmarking and market soundings; (4) a comparison in terms of price certainty, flexibility, risk transfer and incentive structures; (5) choosing a preferred option based on cost, time, quality and risk. Presentation and discussion of this framework is followed by a case study of a hospital project. Then, the ‘practical realities’ are illustrated by how desalination plants in Australia were procured in the decade of the 2000s.

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Comparing public infrastructure procurement models

Evaluating Public–Private Partnerships and Other Procurement Options

Darrin Grimsey and Mervyn K. Lewis

Undertaking comparative studies of alternative procurement models is a false trail for the various models have different drivers of value and merits. Consequently, the present chapter adopts a common approach to determine their characteristics and strengths. These models are: 1. Conventional unbundled procurement models Construct only Design and construct (D & C) / Design and build (DB) Engineering, procurement, construction (EPC) Design, construct, novate Construction management. 2. Other non-traditional unbundled models Managing contractor Alliance contracting Competitive alliance Early contractor involvement (ECI). 3. Bundled PPP models Design, build, operate, maintain (DBOM) Design, build, finance (DBF) Design, build, finance, operate (DBFO); Design, build, finance, maintain (DBFM) / Design, construct, maintain, finance (DCMF) Build, operate, transfer (BOT); Build, own, operate, transfer (BOOT); Build, own, operate (BOO). 4. The regulatory asset base model RAB model for new or improved infrastructure. Associated tables list their respective benefits and disadvantages, a comparison which leads directly to Chapter 8.

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Conclusions

Evaluating Public–Private Partnerships and Other Procurement Options

Darrin Grimsey and Mervyn K. Lewis

This chapter begins where Chapter 1 left off, by examining the very different trajectories of infrastructure spending in the world’s two largest economies (the United States being larger in terms of US dollars, China in purchasing power parity terms). China is pushing on wholeheartedly with its infrastructure-led growth strategy. Domestically, it is aiming to transform itself into a ‘high-speed rail economy’, extending the existing 4 x 4 network (4 north-south, 4 east-west) into an 8 x 8 system. Internationally, there is the ambitious Belt and Road initiative, likely to dwarf anything the world has seen, comprising: first, a series of land-based trade and transport corridors known as the Silk Road Economic Belt; and second, the Twenty First Century Maritime Silk Road traversing the South China Sea, the Indian Ocean and Africa, the Red Sea and the Mediterranean. China has committed $1 trillion to Belt and Road over the next decade, and as much as $3 trillion in all. By contrast, until now the United States has been neglecting infrastructure maintenance and free-riding on the efforts of earlier generations, although President Trump has committed to spend $1 trillion on boosting infrastructure. The chapter examines three dimensions and three levels of the problem, and how US infrastructure (and other countries playing ‘catch-up’) can be paid for. Finally, the chapter draws together the themes of the volume, and what we believe has been learnt about procuring public infrastructure.

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The evolution of infrastructure services

Evaluating Public–Private Partnerships and Other Procurement Options

Darrin Grimsey and Mervyn K. Lewis

The story of the evolution of infrastructure is one of innovation. A distinction is often made between demand pull and science push in driving innovations. In the case of infrastructure, the contribution of science and technology seems obvious, for example, with the steam engine and railroads in the first industrial revolution, electricity and the internal combustion engine in the second, and the internet in the third. On the demand side, the development of infrastructure has been spurred by the growth of empires and the cities and markets they spawned. One only needs think of the infrastructure demands from the growth of Tokyo-Yokohama to 38 million or Shanghai to 24 million. In Ancient Rome, infrastructure was provided by the state. From around 1500, privately financed infrastructure began to play a role in the Spanish, Dutch and British overseas colonies, and domestically with canals, turnpikes, the railroad construction boom and the ‘Tube’. However, after World War II, state provisioning came to the fore. Developments since then have brought a revival of private activity in the oil and gas and mining sectors, communications, and public-private partnerships (PPP) roads and hospitals. There is also a revolution in infrastructure under way with digital disruption in the form of electronic tolling, route information services, Uber and driverless cars and trucks. All of these shape cities and transport networks, and are examined in detail.

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Funding of infrastructure

Evaluating Public–Private Partnerships and Other Procurement Options

Darrin Grimsey and Mervyn K. Lewis

Due to its project financing heritage, much of the literature associated with infrastructure is concerned with financing, that is, the raising of money by the private sector to build the facilities. However, the finance for public infrastructure eventually has to be repaid by government. This is the funding of infrastructure, and poses the more difficult issues for government entities when procuring infrastructure. There can be resort to borrowing, but governments have been reluctant to increase debt and risk a credit rating decline. General revenues are a traditional source of funds, but raising taxes is unpopular, and cutting spending runs foul of the welfare lobby. For these reasons, governments have sought new funding sources. One is ‘value capture’, whereby a variety of methods are employed (betterment levies, property taxes, ‘city deals’, developer contributions) to gain revenue and levy charges upon those who benefit from an infrastructure project (for example, a light rail development that increases land values along the route). A case study is provided of what is undoubtedly the largest example of value capital, namely Crossrail in the London Underground system. A second source is ‘asset recycling’ whereby governments themselves construct the infrastructure and, after it has been ‘tested’ and its risk profile established, sell it off to investors willing to buy ‘mature’ infrastructure assets. The returns on the acquired infrastructure are governed by long-run incremental cost or by the regulatory asset base (RAB) model, as illustrated for the Thames Tideway Tunnel. Finally, there is potential for road pricing, needed to fill the gap created by the eroding base of dedicated road taxes.

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Global Developments in Public Infrastructure Procurement

Evaluating Public–Private Partnerships and Other Procurement Options

Darrin Grimsey and Mervyn K. Lewis

There is widespread acceptance of the importance of infrastructure, but less agreement about how it should be funded and procured. While most public infrastructure is still provided in-house or by traditional procurement methods – with well-researched strengths and weaknesses – the development of service concession arrangements has seen a greater emphasis on lifecycle costing, risk assessment and asset design as featured in a variety of public private partnership (PPP) delivery models. This book examines the various procurement approaches, and provides a framework for comparing their advantages and disadvantages. Drawing on international experience, it considers some of the best and worst examples of PPPs, and infrastructure projects generally, along with the lessons for improving infrastructure procurement processes.
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Implementing a partnership agenda

Evaluating Public–Private Partnerships and Other Procurement Options

Darrin Grimsey and Mervyn K. Lewis

The public sector traditionally has obtained new assets (roads, bridges, schools, hospitals, buildings, and so on) separately from the associated services. A partnership agenda offers a different approach because the acquisition of infrastructure assets and associated services is accomplished with one long-term contract. Due to this bundling, before the contract can be put out to tender, decisions need to be made up front about who is responsible for what, and what to include or leave out: Services. What are the ‘core’ services that must be delivered by the facility? What are the non-core services? Finance. Who is best positioned to provide the finance? How quickly and at what cost could private finance be raised? Would it be quicker and less costly for the government itself to undertake the financing? Risks. What are the project risks? Which ones should be transferred contractually to the private party, or retained by the public sector or shared? How is uncertainty to be handled? Public interest. Are the public likely to get good value for money from the PPP? Do the outcomes satisfy the public interest test? These questions frame the content of the chapter along with some issues that have surfaced recently, namely commissioning and contestability, evidence on value for money, the relative cost of government and private finance, prompted by the argument that suppliers of private finance have greater, not less, ability to diversify risks than taxpayers.