The Public/Private Joint Venture – Why Do They Succeed?
Over the years there has been an increasing openness within the public sector to engage with both private and other public sector organisations to deliver services.
In many cases these have involved back-office services, such as finance and HR, IT support and catering. However, frontline services can also be successfully delivered through this model.
Guiding a public sector client through this process from initial stages would typically involve careful planning – clarity on the scope of services to be delivered through the joint venture (JV) model and the objectives for the local authority are key from the outset.
These may change through the lifecycle of the project, and flexibility within the governance of the JV is essential to the continued success of the venture.
Getting the right advice
Legal issues can sometimes be overlooked. Early engagement of in-house or external advisers will save time and help avoid pitfalls later in the process.
As a project progresses the legal issues will vary, and the focus of the legal team will move from planning and governance, to procurement and partner selection, contracting, TUPE, asset transfer and associated financial and administrative approvals at the appropriate phases.
Finding the Right Partner
From the outset the approach and tenor of discussions with potential private sector partners should aim to strike an appropriate balance between building a professional relationship, trust and the Council’s objectives.
Public/Private joint ventures can suffer from pressures exerted by the private sector partner to profit from the arrangement and the local authority’s desire to deliver services at minimal cost (or over time reduce spend).
There will be examples where a public/public shared service delivery model may be more appropriate and in these instances the tension between profit for shareholders and profit for the public purse will not exist.
Another area of tension between the partners can be complex and inflexible contracts that act to hinder the delivery of the local authority’s objectives. This is one key area where the right legal team can add value, to avoid pitfalls and complexity that the contracting model may impose.
Property Management is one of the common services delivered through the Joint Venture structure
The issues that can arise for this type of service that need to be considered early by the local authority often centre on the ownership of the property portfolio, and the allocation of risks associated with property ownership, as between the joint venture (JV) members;
the financing (and ability to obtain financing), and provisions on exit of the JV.
Often the property portfolio will be made up of a mixed ownership model with both leasehold and freehold properties in scope. Careful due diligence in advance of the procurement process to assess accurately the value and the condition of the estate will provide potential private sector partners with confidence in the process. It may ultimately be reflected in a stronger financial and governance model within the JV.
Other considerations such as the status of maintenance contracts in existence between the local authority and third-party suppliers, TUPE, and pensions should also be assessed together with tax and VAT treatments.
What are the objectives of the Property Joint Venture?
Depending on the circumstances, the local authority’s motivations for entering into a joint venture (JV) will vary.
Surplus property that cannot be easily or quickly put to best use, or mounting maintenance costs, or possibly land ideal for development if financed, may all form part of the local authority’s motivation in looking for a private sector partner.
The governance arrangements within the memorandum and articles of the JV with different voting rights and reserved matters combined with appropriate controls and reserved processes documented into the main joint venture agreement need to be considered and discussed during the procurement phase of the project.
Typically, the public partner would take the minority share ownership in the JV company, so control where appropriate must be set out and agreed by the parties within the contract documentation.
Challenges with Public/Private Joint Venture
There are some high-profile examples of joint ventures between public and private sectors that have not succeeded. In some of these cases it would appear the objectives of one or other party has changed and the arrangement lacked the flexibility to accommodate the extent of change required. Or, there have been conflicting financial pressures and a lack of political will to continue with a partnership creating profit at the expense of the service users.
Consensus from the outset between the parties on the objectives of the joint venture and flexibility in the contract documentation to accommodate changes during the lifecycle of the JV are essential to maintain the success of the arrangement and bring the joint venture to a close in a sensible and affordable way, at the right time.
How the right Legal Advisers will help deliver the model
At Invicta Law our teams have first-hand experience working with clients in the public sector, local authority trading, and public/private joint ventures. We provide pragmatic solutions for clients, delivering high quality legal advice at competitive rates. Contact us on 03000 411100, email email@example.com or download the team leaflet for more information.
Contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute professional or legal advice. Invicta Law cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article