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The risk of future black swan events (i.e. such as pandemics and climate change) and technological obsolescence are requiring proponents of PPPs to revisit the sustainability and resilience of current and future PPP projects. With this in mind, it is particularly important that PPP projects which have a lifetime on average of 30+ years are future proofed through the adoption of sustainable and resilient best practices and mitigations.
What is Future-Proofing?
Future-proofing is described as the process of anticipating the future and developing methods to mitigate its impacts. Future-proofing when considered in infrastructure PPPs adds a layer of resilience to projects that will ensure their sustainability, resilience, and longevity.
Future-proofing leans towards resilience planning strategies that accommodate future events and changes that ensure that infrastructure facilities do not become prematurely obsolete. Future-proofing can also be tied building infrastructure that will be resilient to future adverse weather events that seem to be occurring with increasing intensity and more regularly and technological obsolescence. Future-proofing additionally adds value to infrastructure in the sense that investors are more likely to invest in infrastructure that has built-in buffers that increases the project’s resilience and financial sustainability of their investment.
Peter E.D. Love, Junxiao (et al) point out in their 2015 article on future-proofing PPPs that, “Future-proofing is defined as the ability of an asset to continue to be of value into the future, and is required to ensure that taxpayers are being provided with value for money (VfM). I also believe that it is important that the principles of “People First PPPs” that UNECE in Geneva is promoting enhances future proofing as it also considers value for people and value for the future principles.
Why Future-Proofing?
Love and Junxiao (et al) write further that VfM is defined as “the optimum combination of whole life cost and quality to meet the user's requirement…This indicates that some values of PPP infrastructure projects cannot be entirely reflected by cost, but by such other issues as project duration and quality.” I also believe that it is important that project relevance to people is considered as well as the relationship to the Sustainable Development Goals (SDGs) that countries are pursuing.
These observations are critical for considerations of project resilience and future-proofing. Resilience and future-proofing is not only about cost, it is about adopting common sense initiatives that incentivize resilient and sustainable infrastructure that will survive far into the future and be more robust against known and possibly unknown challenges.
Future-proofing should not be an afterthought, but be a project life-cycle approach from the beginning of project planning. This requires key performance principles and indicators being considered up-front, that are built into the initiation and planning, procurement, and partnership phases of PPPs.
Future-Proofing Principles
Wikipedia identifies future-proofing principles that are relevant to resilient infrastructure and which are rapidly becoming resilience best practices for Public-Private Partnership (PPP) projects. They include:
Acknowledging that construction materials and technology deteriorate and that deterioration can be mitigated through wise selections
Adopting interventions that stimulate flexible approaches and adaptability strategies
Adapting strategies that fortify infrastructure against extreme weather
Using durable building materials that require less interventions and enhance service life of infrastructure facilities
Constantly evaluating and reviewing trends that reduce the possibility of obsolescence
Considering long-term life-cycle benefits for large infrastructure PPPs
The Economic Value of Future-Proofing
The Economist Intelligence Unit (EIU) has made some very valuable observations on future-proofing of PPP projects. They point out that if investors in long-lived assets are seeking reliable returns over a period of many years, it is essential that infrastructure projects can remain efficient and productive over the long term. EIU points out that investors and developers need to anticipate demand trends yet also acknowledges that predicting the future with certainty and in detail is never possible.
Uncertainly can be mitigated by incentivizing resilience practices that include future-proofing focused on adopting flexibility into infrastructure assets and even project finance.
Although resilience planning is an upfront project expense that developers and investors may be wary about, because of added project costs, incentivizing upfront investment in future-proofing will protect against future-shock and future financial losses.
Building Resilience into PPP Models
PPP procurement models that create resilience incentives for investment in future-proofing should be a choice priority, especially when it comes to building resilience into the operations and maintenance phases of projects where future adverse or evolutionary events are most likely to occur.
DBFMO/DBFOM and DBO common examples of PPP delivery models where resilience and future-proofing can be built into the procurement terms. This will help PPP proponents think about life time costs as well.
Environmental Future-Proofing
The recent spate of adverse weather events also points out the urgent need to consider environmental sustainability and resilience for effective future-proofing of PPP projects. The EIU points out that environmental sustainability is starting to drive capital efficiency in infrastructure and this should be noted.
Building capital efficiency into PPP projects must be considered by PPP public sector project planners and their private sector investors. Hard questions have to be asked. They include - How many more impacts from pandemics, natural disasters and economic downturns can we afford? How many times are we willing to absorb exorbitant infrastructure reconstruction and recovery costs that could have been mitigates by resilience planning? Are we going to keep on making the same mistakes?
Conclusion:
In a recent survey that was conducted with 160 PPP practitioners from 60 countries, the most common statement was directed at the need to future proof PPPs. The current pandemic and the increasing occurrence of adverse natural weather events demands action on future proof of PPP projects. If we ignore this opportunity, we might be making costly mistakes.
Sources:
Automation in Construction - Future Proofing PPPs: Life Cycle Performance Measurement and Building Information Modelling - April 2015
The Economist Intelligence Unit - Future-Proofing Infrastructure Assets - Building Capital-efficient Infrastructure in the Age of Austerity.
Wikipedia - Future proof - https://en.wikipedia.org/wiki/Future_proof
Author: David Baxter (https://www.linkedin.com/in/david-baxter-33531b15/)
The comments and ideas set out in this blog are the comments and ideas of the author and not Nexsoma Legal.