Delivering quality municipal services at a lower cost is a challenge facing cities in today’s highly complex social, political and budgetary context. In order to maintain service quality, an efficient methodology based on a realistic analytical vision of a city’s needs is required.
In recent years, the public sector has benefited from the experience, specialisation and efficiency of the private sector. This has led to notable fragmentation in public services contracts. In Spain, more than 1,000 companies provide services in the 20 largest cities, which creates inefficiencies by impeding economies of scale.
According to studies by Ferrovial Servicios, efficiency improves by 20% when those services are combined under long-term contracts and this is accompanied by considerable investment in leading-edge technology. This means that cutting costs and investing in technology makes service delivery more efficient and improves citizens’ quality of life. The new city management model must promote commitment and cooperation between city governments and the private sector in order to improve municipal services.
Public-Private Partnerships (PPP) are key for implementing this new management model, since they allow for:
- More efficient management. Long-term PPP models allow for the application of new technologies and the possibility of remuneration being based on service quality. The standard tendering process provides few incentives for new technology and innovation.
- Notable upgrade of cities’ hard infrastructure. The PPP model allows for investments which would otherwise be very difficult or even impossible, and at a much faster pace than in traditional contract models. Assets are upgraded during the initial years of the contract, which makes maintenance easier and reduces operating costs.
- More flexible financial structures. The current economic situation requires new forms of funding due to reductions in city government budgets. This can be done by taking advantage of the private sector’s funding capacity, which allows city governments to reduce their structural expenses and costs.
PPPs provide a solution to governments’ financial difficulties and avoid the risk of increasing public sector debt. This approach enables governments to defer capital costs, increases companies’ commitment to society and favours economic growth and market activity through cooperation among various players.
Accordingly, PPP and Build-Operate-Transfer (BOT) models enhance efficiency since they combine the design and construction of public infrastructure with funding, operation and maintenance.
However, contracts of this type are still rare in Spain. Companies and governments are starting to coordinate with a view to collaborating as partners in this type of concession; nevertheless, public tenders are lacking in uniformity and standardisation and need independent, objective evaluation tools. Progress is currently being made in certain aspects, through help from the Spanish Network of Intelligent Cities (RECI) and the Spanish Federation of Municipalities (FEM); however, greater cooperation and commitment is needed between the public and private sectors.
THE INTERNATIONAL PICTURE
PPPs are much more advanced in the English-speaking world, due to a methodology and standardised processes that expedite implementation of the model. Through its global experience, our company bases its approach to PPP on three pillars which increase efficiency, with the consequent benefits for governments and citizens. The services provided in cities can be made more efficient, through:
- Technology and innovation. By incorporating advances in technology and the development of an end-to-end management platform which improves decision-making, where innovation is synonymous with differentiation. New trends, such as big data, maximise the use of cities’ resources and pave the way for smart management and analysis of cities today and in the future
- Operating efficiency and excellence in service delivery by measuring results. This enables needs to be anticipated and allows for an integrated management approach, generating synergies and economies of scale and, thus, savings.
- Citizen participation. Through technology, citizens can interact in real time and become an additional source of information within a city’s ecosystem. Moreover, the ability to give priority to citizen participation means that their opinions and needs influence the final service delivery outcome.
Our Services Division has proven experience in long-term contracts, particularly with public administrations. A great example is the Birmingham contract, which has a clear long-term vision for the government and includes smart technologies. This 25-year contract is worth over 2.7 billion pounds sterling. In the first five years, more than 350 million pounds will be invested to upgrade the city’s hard infrastructure. The eleven services managed in Birmingham include winter maintenance, maintaining street lights and roads, and traffic control. Birmingham has achieved an efficiency improvement of around 20% and reduced CO2 emissions from street lighting by 78%. In addition to these notable improvements in service quality, 300 new permanent jobs were created.
Another example in the UK is the 25-year, 1.6 billion pound Sheffield contract. In this case, an initial investment of 195 million pounds is expected to achieve energy savings of 80%. This contract will create over new 170 jobs in the city. In Spain, Ferrovial Servicios has a 20-year PPP contract in Murcia (street cleaning, municipal waste collection and treatment). This long-term collaboration has enabled the company to invest heavily to mechanise services, thereby enhancing efficiency, and to introduce modern mechanisms such as underground waste skips. Ferrovial Servicios will invest over 1 billion euro in the next few years in these three contracts alone, a feat that is only possible through long-term collaboration with governments.
Ferrovial also has extensive experience in toll road construction and operation under PPP contracts, notably 407 ETR in Toronto, Canada (a 99-year contact) and Indiana Toll Road and SH 130 in Texas, both in the US. All in all, our company is committed to PPPs as a business model, in which a private sector company works with the government, and a “contractor” becomes a true partner for the city.
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