The Risks Of A Dbfmo Concept Construction Essay

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It was September 2008, when the advisory board of the province Limburg, presented their acceleration agenda of 2008-2011. 'Shifting up into a higher Gear' was their statement to give an impulse to the dynamic, enterprising and innovative process of transformation of the province Limburg. With a knowledge- based economy in mind, the foundation of the economy of Limburg can be divided into three power clusters: Healthcare, Argo & food, and Chematerials & Energy. These power clusters will be the main current and future economic drivers of the province (Advisory board, 2008).

According to the acceleration agenda, the higher ageing population in the province Limburg increases the demand for professional healthcare. With this state of mind, the province of Limburg stimulates healthcare activities which offer a contribution to an improved health care environment financially. In despite of this financial stimulation, the healthcare sector has difficulties to finance their innovative projects. In order to finance and organize such an innovative project, healthcare organisations need to find effective solution to realize these projects.

In order to achieve the realization of such projects, this paper puts forward a case study that will seek to investigate the risks of a public private partnership in a DBFMO construction. The research starts with a explanation of the case and gives information why this research is necessary. A review of the literature is written in Section 1, which discusses historical research on risks in PPP and DBFMO. Section 2 gives information about the research question and the sub questions that will support the research; furthermore a description of the research objectives and the contribution to knowledge will be discussed in this chapter. Section 3 gives information about how the research is designed and how the data will be collected. Moreover, this chapter will discuss the research context and data analysis.

The UMC and UKA are planning to create a new cardiovascular centre, right on the border between Germany and the Netherlands, where the Avantis Technology Park is situated. Creating a cardiovascular centre of excellence, UMC and UKA tries to combine forces and enhance their profile on the national and international markets. Both boards wish to develop a joint infrastructure with joint medical equipment for health care provision. With this joint venture, both boards are aiming at a strategic approach on development of healthcare, research and a combined responsibility (unknown 2008).

According to the chief of board of directors of UKA, it's important that regional patients can use all levels of healthcare offered in Maastricht and Aachen. By implementing a cardio vascular centre based on a DBFMO construction, will lead to high benefits, because of the shared knowledge between medical practitioners of both medical institutions. To realize this joint venture on a successful level, it's important to know on what the risks are of such a construction.

With this development in mind, the reason of research is to create a general risk matrix, which is focused on the operate part (FM) of a design, build, finance, maintenance and operate contract

Because a general framework for DBFMO contracts isn't developed yet, this research gives a new insight in the risks of a DBFMO contact. Furthermore this thesis could lead to new academic discussion about these type of contracts. Besides the contribution to knowledge, this thesis could also help organisations who are planning to implement this kind of construction, to determine their risks.

In the past twenty years, many researchers investigated, and wrote their definition and give their interpretation to the phenomenon: Public Private Partnerships (PPP) and design, build, finance, maintenance and operate (DBFMO). This paragraph will discuss several definitions, historical research, and the relation between the literature and the research problem.

Since the end of the 20th century public and private organisations started to cooperate with the aim to provide services collectively for society which would traditional be provided by the government. Nowadays, public-private partnerships (PPP), has become one of the domination organisational ideas to achieve significant benefits in providing services (Wettenhal, 2005).

According to Savas (2000), PPP is a form of privatization. He defines privatization as: The act of reducing the role of government or increasing the role of the private institutions of society in satisfying people's needs; it means relying more on the private sector and less on the government. He states that the public and the private sector are the core players in privatization, and it is common to refer to public private partnerships. A generic definition of PPP is the following: 'PPP is a contractual agreement between a public agency (federal, state or local) and a private sector entity' (Julião, 2007). This definition says that PPP is an agreement where the public and private are shared in a service of facility for the use of the general public. In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility.

A definition which is more focused on the cooperation is written by Linder and Rosenau (2000) :'The formation of cooperative relationships between government, profit-making firms, and non-profit private organisations to fulfill a policy function.

According to Ewan et. al (2005) PPP combines the resources of government with those of private agents (business or-not- for -profit bodies) in order to deliver societal goals. Another definition of PPP is given by the partnerships British Columbia: 'A public private partnership is a legally-binding contract between government and business for the provision of assets and the delivery of services that allocates responsibilities and business risks among the various partners'. In their opinion the private sector is responsible for the commercial functions and the government remains actively involved throughout the project's life cycle. The involvement of the government and the private sector could vary, and depends on the level of public and private sector risks.

The Canadian Council of Public Private Partnerships, defines PPP as: A cooperative venture between the public and private sectors, built on the expertise of each partner, that best meets clearly defined public needs trough the appropriate allocation of resources, risks and rewards (Akintoye et al., 2003). In their opinion a contracting out arrangement isn't a true PPP. According to Akintoye et al. (2003), PPP is an accepted alternative to the traditional state provision of public services and facilities. The joint approach allows the public sector client and the private sector supplier to mix their special skills and to achieve a desired outcome. To achieve a desired outcome, Akintoye, et al, describes the importance of identifying the risks associated with the partnership. Some organisations use a checklist or risks prompts to help them identify the likely hood and impact the current project risks.

According to these definitions there can be conluded that all definitions show a similar divergence - or simply a leak of detail (schneider, 2003). The essence of a Public-private partnership is the cooparation between government and business for the provision of services for the use of a general public.Figure one gives an overview of the parties who are involved in PPP and the key aspects which PPP is build on.

A DBFMO construction is an extreme form of PPP, which is specified in design realization, management and exploitation are brought together and contracted out from the public private contract partner (Pullen,2005). In the Netherlands al PPP are executed in a DBFMO construction, therefore the Rijksgebouwendienst (2010), states PPP = DBFMO.

According to Walker and Smith, there are several reasons to execute a risk analysis in DBFMO projects Dey & Ogunlana (2004) . They state that a rigorous risk analysis is necessary before a project is embarked upon in order to establish its financial and technical feasibility. They are convinced that it can help to screen out financially unsound projects and get minds working together early enough to overcome foreseen technical difficulties. Furthermore an increased understanding of the project risks leads to the formulation of more realistic plans in terms of cost estimates and programmes. Knowing the magnitude of the possible impact that may be caused by the contingent factors, the parties can seek for better allocation of the risks trough the agreement of suitable contract clauses, procurement of insurance or other risk response measures. Apart from these, they state that a more positive and rational risk- taking attitude will result from carefully prepared risk analysis as the risk-takers know where they stand.

According to Brain Atkin & Adrian Brooks, PPP brings together a large number of stakeholders, each with its own agenda, priorities and goals. These different interests could lead to various conflicts/ risks, which will have direct influence on the successful development and implementation of the PPP. To document these priorities. goals and the correlation between them, a risk frame work could be useful (Atkin & Brooks, 2009). Leiringer, (2003) created a generic PPP project set-up framework which indicates the several stakeholders who are involved in PPP. With the use of the Generic PPP project set-up the main stakeholders of the public private partnership can be allocated (appendix, framework 1).

In order to determine the risks of PPP, Li et al, (n.d), investigated risks by using a own developed risk conceptual process model which includes three level risk factor classifications (appendix, figure 4). With the use of this model, they created a list of eighteen measures that can enhance the achievement of 'value for money' (VFM) in PPP/DBFMO projects. These measures were subjected to a factor analysis, which grouped them into four categories: project efficiency, project sustainability, multi- benefit objective, and public effective procurement. The overall aim of their research was to develop a risk management model specifically for PPP construction projects. During the study several milestones has been achieved, including the inverstigation of critical success factors of PPP, and assessment of approaches to risk management. Their research reports two aspects of the analysis: measures that enhance the achievement of VFM in PPP, and risk allocation between project parties.

According to Chan et al, (2008), It is not incorrect for risks to be passed on to the private sector, especially when they are able to manage them. Therefore they are convinced there should be a partnership in place when the private sector is unable to manage all the risks themselves. In order to determine risks and manage them correctly, they did a case study into the construction of the Cross City Tunnel,by reviewing the underlying causes leading to the 'failure' of this project ( Chan et al, 2008).

This research model gives a global indication of which aspects are involved in determining the risks of a DBFMO contract. As mentioned in the literature review, several researchers tried to investigate the risks of a DBFMO and translated them into several risk factors. Based on this previous research and interviews with contract managers, figure 3 gives a overview of the parties which are involved in this research, potential risks factors, and the purchasing process.

The overall aim of this study is to attempt to answer the following question: 'what are the potential operate risks of a DBFMO contract to the participating consortium members and the user' In order to do so, literature review has been undertaken on the general topic of PPP and DBFMO. Result of the literature research is a conclusive view on DBFMO in the past and present.

One can conclude this research into risks of a DBFMO concept is based on an inductive and qualitative approach; the research will first be focused on gathering information about the possible risks which can occur in this type of construction and analyze the likelihood and possible impact. After analyzing these aspects, a risk matrix/ theory will developed.

Starting with combining the literature review with the input of the case study, the research will aim to analyze the particular risks of a DBFMO. In order to acquire input, a singular case study will be used. In this case study, facility departments of organisations that are using PPP will be investigated. This case study will be divided into various research subjects, these subjects are focused on one particular aspect of a DBFMO in liaison to the research question. As mentioned in the research design, the primary research of this proposal will be conducted as qualitative research on facility managers of several consortium participants in DBFMO constructions. In order to achieve the most specific scope in the therefore available time, this research will be conducted mainly qualitative in the form of interviews and desk research. The desk research will be done by using information from the organisations by existing documents, such as design proposals and a literature research. Which is mentioned before, a DBFMO contract includes different organisations combined in one consortium. To investigate the risks of such a project, facility managers of these different organisations will be interviewed, by using a half structured interview method. The interviews will be one-to-one and executed in form of a face-to-face, or by telephone. In order to unfold the participant's perspective on risks in a DBFMO, a degree of systematization in the questioning may be necessary, therefore the following general topics, will be used during the interviews:

Each of these risk themes contains several concrete risk variables which will be used to determine the questions of the interviews. The intention of the interviews is to collect different perceptions of risks of the various parties who are participating in the consortium of a DBFMO contract. Furthermore the qualitative data will be sampled by using self-selection sampling when doing interviews, because of the fact that specific persons only have the needed information. Self selection sampling will also be used when gathering qualitative data from the documents of the organisations. Finally the gathered information of this research will lead to a set of risks which can be incorporated into a general risk matrix, applicable to common DBFMO projects.

The success of this case study mainly depends on the quality of gathered data during the face-to-face interviews and the written documents. This dependence could be a bottleneck during the research, because there is a risk, organisations will not cooperate. Clear agreements of publishing and the correct explaining the purpose of the research, could limited these risks. Furthermore confusion of interest between the several consortium participants could have a negative influence on the quality of data. Beside these constraints and limitations, this research could only be successful if the interviewer communicates correctly and uses the right interview techniques.