By entering private finance initiatives (PFIs) and publicprivate partnerships (PPPs), the public sector is able to offset the burden of capital outlay.

It hands over ownership and responsibility for buildings and facilities to experts who are prepared and equipped to take on or share elements of risk in that ownership, says Graham Tracey, director: marketing and special projects for Drake & Scull FM (SA), a joint venture between the Tsebo Group in SA and the Emcor Group in the US.

Facilities management companies typically become involved in PPPs and PFIs by joining forces with construction companies and merchant banks in multiskilled consortia capable of building, financing and operating these projects.

While the potential opportunities seem excellent, Tracey says there are considerable challenges for South African facilities management companies in these markets. Strict Treasury rules for PPPs and PFIs require that there has to be a transfer of risk to the private sector. The project also has to be affordable, and it has to satisfy value-formoney benchmarking.

The process also has a commercial downside: a long gestation period from conception to operation, financial guarantees, high cost of bidding, increasing demand for high-performance criteria and measurements that can incur penalties, he says.

Tracey says the private sector can contribute skills and expertise in a variety of forms, including design, construction, operation, maintenance, finance, life-cycle planning and risk management.

He says benefits the private sector can bring to PPPs include a reduced level of risk to which the state and taxpayers are exposed, consistent and on-time delivery of projects, and enhanced efficiency of the facility.

The World Bank has estimated that PPP/PFI projects now under way or operating are worth more than 800bn spanning 82 countries.

"On average globally, the net cost benefit to government from adopting a PPP approach is a saving of 17% over the estimated whole-of-life cost of services had the government provided them," Tracey says.

"In some cases, the saving can be as much as 45%."

Other benefits include better customer focus, access to broader funding and the latest technology and techniques.

"Government must not lose sight of the third P partnership," Tracey says. "It cannot transfer the risk and responsibility wholly to the private sector, and must keep bidding costs to a realistic and viable level. If these issues are ignored the private sector will price-in the unreasonable risk that the state and taxpayers will have to pay.

"If bidding costs rise and success rates fall, then the private sector will pull back."

He believes a win-win situation for both public and private entities can be achieved "if the spirit of partnership is embraced and traditional adversarial contracting methods are left behind".

An example is the management of the Durban Point waterfront development.

Facilities Management company Umongi FM a joint venture between Drake & Scull, Omame Investments and Mbekani Health and Wellbeing has been appointed to control the operations of the Durban Point Waterfront Management Association.

Facilities Management is no longer simply the domain of buildings and the built environment, but has been extended to include the external environment and infrastructure, Tracey says. Hence the decision to outsource the management of all public space within the Point waterfront precinct in Durban.

The overriding philosophy is the regeneration of the Durban city centre by re-establishing the Point.

Business Day