St. Petersburg University
Graduate School of Management
Master in Management Program
THE PROCUREMENT STAGE OF THE PUBLICPRIVATE PARTNERSHIP PROJECTS IN
HEALTCARE AS THE SOURCE OF PROJECT’S
CRITICAL SUCCESS FACTORS
Master’s Thesis by the 2nd year student
Concentration — Management
Assoc. Prof. Andrei Ivanov
ЗАЯВЛЕНИЕ О САМОСТОЯТЕЛЬНОМ ХАРАКТЕРЕ ВЫПОЛНЕНИЯ
ВЫПУСКНОЙ КВАЛИФИКАЦИОННОЙ РАБОТЫ
Я, Людмила Васильевна Сторожева, студент второго курса магистратуры
направления «Менеджмент», заявляю, что в моей магистерской диссертации на тему
«Стадия определения частного партнера как источник критических факторов успеха в
проектах государственно-частного партнерства в здравоохранении», представленной в
службу обеспечения программ магистратуры для последующей передачи в
государственную аттестационную комиссию для публичной защиты, не содержится
Все прямые заимствования из печатных и электронных источников, а также из
защищенных ранее выпускных квалификационных работ, кандидатских и докторских
диссертаций имеют соответствующие ссылки.
Мне известно содержание п. 9.7.1 Правил обучения по основным образовательным
программам высшего и среднего профессионального образования в СПбГУ о том, что
«ВКР выполняется индивидуально каждым студентом под руководством назначенного
ему научного руководителя», и п. 51 Устава федерального государственного бюджетного
государственный университет» о том, что «студент подлежит отчислению из СанктПетербургского
квалификационной работы, выполненной другим лицом (лицами)».
_______________________________________________ (Подпись студента)
STATEMENT ABOUT THE INDEPENDENT CHARACTER OF
THE MASTER THESIS
I, Liudmila Storozheva, (second) year master student, program «Management», state that
my master thesis on the topic «The procurement stage of the public-private partnership project in
healthcare as the source of project's critical success factors », which is presented to the Master Office
to be submitted to the Official Defense Committee for the public defense, does not contain any
elements of plagiarism.
All direct borrowings from printed and electronic sources, as well as from master theses,
PhD and doctorate theses which were defended earlier, have appropriate references.
I am aware that according to paragraph 9.7.1. of Guidelines for instruction in major
curriculum programs of higher and secondary professional education at St. Petersburg University
«A master thesis must be completed by each of the degree candidates individually under the
supervision of his or her advisor», and according to paragraph 51 of Charter of the Federal State
Institution of Higher Education Saint-Petersburg State University «a student can be expelled
from St. Petersburg University for submitting of the course or graduation qualification work
developed by other person (persons)».
магистерской! Стадия! определения! частного! партнера! как! источник!
Описание! цели,! задач! и! Парадигма! ГЧП! все! еще! формируется! в! России! и!
исследование! международного! опыта! может! помочь!
развития! ГЧП.! Основной! целью! работы! является!
повышение! эффективности! ГЧП! в! здравоохранении!
путем! идентификации! и! управления! критическими!
факторами! успеха! (КФУ)! на! стадии! определения!
•! Провести! кроссCкейс! анализ! успешных! и! проблемных!
российских! и! зарубежных! проектов,! чтобы! выявить!
различия! между! КФУ! стадии! определения! частного!
таким! образом,! чтобы! минимизировать! риски! на!
•! Предложить! меры! по! совершенствованию! политики!
фактора! на! этапе! определения! частного! партнера!
прозрачный! и! эффективный! процесс! определения!
частного! партнера,! конкурентный! процесс! определения!
заинтересованный! публичный! партнер! и! тщательная! и!
по! каждому! из! факторов! идентифицировал! сильные! и!
слабые! стороны! в! организации! этапа! определения!
частного! партнера! по! каждой! стране! и! кейсу.! В! то! же!
время,! кроссCкейс! анализ! выявил! еще! один! КФУ:!
На! основе! проведенного! ! анализа,! было! предложено!
несколько! рекомендаций! ! по! разработке! и! реализации!
проектов! в! отношении! стадии! определения! частного!
Paradigm of PPP is still forming in Russia and critical analysis of
accumulated Russian experience and research of the international
experience can help to avoid some traps and to foster the
development process. The main goal of the thesis is to increase
identification and governance of the critical success factors
(CSFs) at the procurement stage.
In order to achieve this goal the following objectives had been
• To identify critical success factors of PPP project at the
• To conduct cross-case analysis of successful and problematic
projects from Russia and overseas to identify differences among
CSFs at the procurement stage;
• To design the procurement stage of the PPP project such a way
to minimize the risks at the following stages of PPP project
• To make suggestions on improvement of Russian Federation
public-private partnership policy.
Analysis of papers on CSFs of PPP projects revealed 4 main
factors at the procurement stage: transparent and efficient
procurement process, competitive procurement, well-organized
and committed public agency and thorough and realistic
assessment of costs and benefits. Cross-case analysis on each of
the factors identified strong and weak points in organization of
the procurement stage in each country and case. On the other
hand, Cross-case analysis revealed one more CSF: the
establishment of qualitative Scoring rule.
On the basis of the analysis, several recommendations on the PPP
projects' design and implementation, relevant to the procurement
stage, have been suggested. Some of recommendations are
relevant for PPP projects independently of their industry specific.
1. PUBLIC-PRIVATE PARTNERSHIP PROJECTS: STAGES, RISKS, AND CRITICAL
1.1 Concept of Public Private Partnerships!..............................................................................................!11!
1.2 Start of PPP development!.......................................................................................................................!12!
1.3 Reasons for the choice PPP project!......................................................................................................!12!
1.4 Forms of PPP!............................................................................................................................................!14!
1.5 Stages of PPP projects!.............................................................................................................................!15!
1.5 Risks of PPP projects!..............................................................................................................................!19!
1.6 Critical success factors of PPP projects!..............................................................................................!23!
2. COMPARISON OF COUNTRIES’ EXPERIENCE IN ORGANISATION OF THE
PROCUREMENT STAGE OF PPP PROJECT!..........................................................................!30!
2.1 Countries’ environment: implications for PPPs!................................................................................!30!
2.3 Projects description!.................................................................................................................................!37!
2.4 Cross-case analysis!...................................................................................................................................!48!
2.4.1 Transparent and efficient procurement process!........................................................................................!48!
2.4.2 Competitive procurement!.................................................................................................................................!57!
2.4.3 Well organized and committed public agency!...........................................................................................!58!
2.4.4 Thorough and realistic assessment of costs and benefits!.......................................................................!60!
2.5 Results: Procurement stage as a source of critical success factors!................................................!63!
Limitations and further research!................................................................................................................!66!
List of references!.....................................................................!Ошибка!!Закладка!не!определена.!
The initial reason for the emergence of public-private partnership (PPP) projects was
reduction of the public sector financial burden through bringing in private investment for public
services and facilities (Grimsey, Lewis, 2005). Nowadays cost reduction and allocation of risks
and responsibilities are the main reasons for the implementation of PPP project as well as
introducing expertise of the private sector to public services/assets provision.
Lifecycle of PPP project consists of several stages: project identification, preparation,
procurement, implementation and ownership. The procurement stage as one of the key phases of
the project implementation was selected for the further analysis. The choice of the private
partner can influence results of the project implementation and it is particularly interesting which
factors (later on we call them critical success factors or CSF) should be met at the procurement
stage in order to mitigate risks arising during determination of the private partner and project
implementation. Thereby, the topic of this thesis is the procurement stage of the public-private
partnership project as a source of project's critical success factors. This research field is attractive
for scholars from various parts of the world, and they are interested in the identification of the
critical success factors at various stages of the project (Qiao et al, 2001; Li et al, 2005; Chan et
al, 2010, Cheung et al, 2012; Chou et al, 2015).
PPPs in healthcare gain higher recognition and are more preferable than traditional public
procurement options due to several reasons. The first one is attraction of private funding, then
combination of various services and stages of the project (designing, building and delivery of
health services). Under traditional public procurement private partner only performs construction
functions and transfers the object to government. Consequently, it has fewer incentives to
increase quality of the infrastructure object.
Following the 2007–2008 global financial crises there has been an increasing interest in
the public–private partnership (PPP) policy by governments in both developed and developing
countries. They issue new laws on public procurement, concessions and other closely related
subjects in order to increase efficiency and effectiveness of PPP projects. Each year at least
several countries issue either new legislative documents that aim to improve the situation in PPP
or guides on PPP project implementation. In Russia in 2016 the new law on PPP was enacted.
Public infrastructure development is one of the top priorities in Russian economy since it
can raise living standards, level of innovations, address problems that face the country, its
regions and towns. There is a great demand for infrastructure development and interest of public
sector in PPP projects in social and healthcare sector. The huge need to attract more private
investments and reconstruct existing healthcare facilities exists in Russia. The level of necessary
investments equals 0.8-1 trillion rubbles and government assumes that around 200-300 billion
rubles can be attracted via PPPs.
Private sector is also interested in participation in infrastructure projects. And legislation
on PPP is continuously developing that aims to improve attractiveness. However, PPPs in Russia
are still at the initial stage of development in healthcare. Russia has only 38 PPP projects in
healthcare from the total sample of 1096 projects (that is around 4%). At the same time number
of PPP projects in healthcare in the world is continuously growing and other developed countries
have reach experience in the PPP projects realization. Currently the share of PPP projects in
healthcare is around 30-40% in Canada and UK.
Therefore the research gap identified in this paper is the following: Paradigm of PPP in
Russia is still forming and international experience can help to avoid some traps and to foster the
This work aims to answer the following questions:
How to identify the CSFs of procurement stage of Russian PPP projects?
Which risks can be mitigated by management of the critical success factors at the
How to improve existing policies in PPP area to have higher rate of successfully
implemented PPP projects?
The object of this research is healthcare PPP projects in Russia and other countries. The
research subject is identification and management of critical success factors that contribute to the
mitigation of risks and success of the PPP projects.
The main goal of the thesis is to increase effectiveness and efficiency of PPPs in healthcare by
identification and governance of the critical success factors (CSFs) at the procurement stage
In order to achieve this goal the following objectives had been set:
To identify critical success factors of PPP project at the procurement stage;
To conduct cross-case analysis of successful and problematic projects from Russia and
overseas to identify differences among CSFs at the procurement stage;
To design the procurement stage of the PPP project such a way to minimize the risks at
the following stages of PPP project realization;
To make suggestions on improvement of Russian Federation public-private partnership
In order to answer on the research questions data on infrastructural PPP projects in
healthcare sector in Russia, Canada, Japan and India were collected. After that these cases were
analyzed and compared in order to identify differences and similarities that can be attributed to
the successful project implementation. Access to information on these projects varies from
country to country. In Canada all project information together with documentation is disclosed
on the official websites on PPP projects in Canada while in Russia the access is more restricted
and information is spread over websites of different Ministries depending on the region.
This paper consists of 2 chapters. The first chapter introduces the research topic, provides
key definitions, introduces PPP project concept, stages of the PPP projects with a focus on the
procurement stage, risks arising during this stage and next ones, critical success factors that can
mitigate these risks, value chain as a method for risks identification and management of the
critical success factors.
In this part the list of CSFs that should be relevant for Russian
environment is identified and these CSFs are further analyzed in the second chapter.
The second chapter describes environment relevant to PPP implementation in the
countries of interest. Then it introduces methodology of the research and presents results of the
analysis of the PPP projects in Russia, Canada, Japan and India on each of the identified CSFs.
This paper should be useful for those stakeholders who are connected to PPP projects
implementation. It introduces recommendations on the basis of CSFs identified and their effect
on risks mitigation. It also helps to identify the directions for improvement of Russian PPP
regulations and policies.
1. PUBLIC-PRIVATE PARTNERSHIP PROJECTS: STAGES, RISKS, AND
CRITICAL SUCCESS FACTORS
1.1 Concept of Public Private Partnerships
Public Private Partnerships (PPPs) as cooperation form between the public and the
private sector initially appeared due to increased need in attraction of private investments in
infrastructure projects to decrease public sector financial burden (Grimsey, Lewis, 2005) and
achieve higher efficiency of the public sector. Nowadays the most significant factor for PPP
formation is value for money creation (OECD, 2007, p.9).
Scholars use different definitions of PPP. According to European Commission PPP is
"partnership between the public sector and the private sector for the purpose of delivering a
project or a service traditionally provided by the public sector. PPPs recognize that both parties
have certain advantages relative to the other in the performance of specific tasks" (European
Commission, 2003, p.16).
Hurst and Reeves define PPP as "agreement between the public sector and the private
sector company to provide an asset or public service, which would traditionally be provided by
the public sector, but as part of a PPP project by the private sector or jointly" (Hurst, Reeves,
Van Ham and Koppenjan state that it is “co-operation of some sort of durability between
public and private actors in which they jointly develop products and services and share risks,
costs, and resources which are connected with these products" (Van Ham, Koppenjan, 2001,
According to the European Investment Bank (EIB, 2004, p.2), PPPs are “...relationships
formed between the private sector and public bodies often with the aim of introducing private
sector resources and/or expertise in order to help provide and deliver public sector assets and
The OECD defines a public-private partnership as an agreement between the government
and one or more private partners (which may include the operators and the financers) according
to which the private partners deliver the service in such a manner that the service delivery
objectives of the government are aligned with the profit objectives of the private partners and
where the effectiveness of the alignment depends on a sufficient transfer of risk to the private
All the definitions above share common features. They state that PPP is form of
collaboration between the state and the private sector to provide and deliver services and assets
that are traditionally performed by public sector that delivers mutual benefits for both parties.
PPPs were not a common form of infrastructural projects implementation. However,
governments recognized the benefits of PPPs and this form of collaboration between public and
private sector started to appear in different countries and fields.
1.2 Start of PPP development
Private firms are involved in public service delivery for a long time. But in 1990s the
new mode of service delivery – PPP – redefined the roles of public and private sectors. This
form has been widely used since 1990 in developed countries, both within and outside the OECD
area, especially to solve various issues in infrastructure development projects.
The UK was the first country in the world to develop the concept of PPPs for public
services projects (Healthcare UK: PPP, 2013, p.3) and one of the most successful countries in
implementing infrastructural PPP projects (Chou et al, 2015, p.1138). According to the studies
conducted on UK (Ke et al., 2009; Bing et al, 2005) the success rate of PPPs in this country is
high. One of the main reasons of this success is efficient communication between the involved
parties regarding risk allocation. This issue will be discussed further in the section 1.5 of the
Australia is another trendsetter in PPPs, it also has a lot of successfully implemented
projects and various studies analyze Australian experience. However this concept is developing
relatively fast and according to OECD by 2004 the list of countries implementing PPP projects
also included such countries as France, Germany, Japan, Korea, Ireland, Italy, Spain, Portugal,
Argentina, Brazil, Turkey, South Africa and several others. (OECD, 2008, p.8)
From this information it can be concluded that PPPs certainly have some advantages over
traditional form of the public procurement otherwise it would not be implemented in different
countries around the globe covering more and more developing countries in the last years. More
information on the main reasons (including more efficient risk allocation, costs, additional value
creation) for the choice of this form of collaboration is discussed in the next section.
1.3 Reasons for the choice PPP project
Various papers on the topic of PPPs and reports on their realization identify similar
benefits of PPPs formation. As it was already mentioned PPP allows usage of private
investments, so it is an alternative source of investments in public services that is beneficial for
the government. This reason was especially important in the early 1990s and become significant
again during the financial crisis of 2008 when governments had interest in development and
creation of infrastructure but could not continue it because of the fiscal constraints and lack of
financial resources. Thus, PPPs enable projects that are desirable by the society and government
but cannot be implemented by the public or private sector alone due to high risks, need for the
government support, low profitability (Vinogradov et al, 2004, p.538).
The most common premises made for PPPs include better efficiency in infrastructure
provision (Hodge, 2004, p.156) that is achieved by adopting private sector technology and
innovation (Healthcare UK:PPP, 2013, p.2). According to the European Investment Bank (EIB,
2004, p.4) and Grimsey and Lewis (2005, p.346), improvement of service delivery is the main
reason since it creates better value than in the case of traditional public procurement.
Moreover, PPP allows to strengthen monitoring and accountability (Hodge, 2004, p.156).
Other benefits of PPP are outsourcing risk to private entities (The World Bank, 2011; Chou,
2015), appropriate allocation of risk throughout the whole life of the project and as a result long
term value-for-money creation; delivery of projects on time and budget through incentivisation
of private sector partners. (Healthcare UK:PPP, 2013, p.2). PPP allows a government to benefit
from the participation of the private sector in managing and financing public service expansion
by outsourcing risk to private entities. Consequently, the government can focus on
policymaking, planning, and regulation (The World Bank, 2011; Chou, 2015)
Among other reasons are development of local private sector capabilities through
joint ventures with large international firms and creation of sub-contracting opportunities for
local firms in technical works and services like electrical works, facilities management,
maintenance and cleaning services etc. PPP projects are also advantageous for state owned
enterprises since they get knowledge and skills of the private partner participating in
implementation of PPP projects and can use this in the future to improve performance,
participate in tender (The World Bank, 2015).
Finally, in recent years, achieving value for money has emerged as the primary
government rationale for delivering infrastructure projects through PPPs (Siemiatycki, Farooqi,
2012). In papers dedicated to the analysis of PPPs in infrastructural projects authors mention a
high value for investments (Bing et al., 2005a; Hwang et al., 2013; Ke et al., 2010; Chou, 2015).
According to the UK Treasury (2006, p.7), “Value for money is defined as the optimum
combination of whole-of-life costs and quality (or fitness for purpose) of the good or service to
meet the user’s requirement.” Importantly, value for money does not refer to the lowest cost
project. Due to the higher cost of financing an asset with private capital, increased transaction
costs, the base costs of PPP projects are typically higher than for a comparable public sector
alternative (Siemiatycki, Farooqi, 2012; Shaoul et al., 2007) but additional value is achieved
through transfer of risks to the private sector and also usage of knowledge, resources of both
sectors in a more effective and efficient way (MOF, 2004; Hwang et al. 2013).
Public-private partnerships should be analyzed in the context of long-term large-scale
complex projects. By assumption the private sector has advantages in delivering public good
through cost reduction, higher efficiency, innovations, otherwise government delivers these
services/goods through traditional public procurement. Problems reported with PPP/PFI
procurement include issues such as: high costs in tendering, complex negotiation, cost restraints
on innovation, and differing or conflicting objectives among the project stakeholders (Akintoye
et al., 2001). In order to mitigate these problems it is necessary to choose the right form of PPP.
1.4 Forms of PPP
PPPs are different from traditional procurement by the degree of private partner
involvement, risk allocation and level of government control and investments. Below there is a
chart showing the most common forms of PPP categorized on the factors just described. (Fig.1)
The procurement of assets by the public
sector using conventional funding
Design, build, finance and transfer (DBFT)
Build, operate and transfer (BOT)
Build, operate and own (BOO)
Design, build, finance and operate (DBFO)
Publicly regulated but privately owned in perpetuity
Very limited risk sharing
Fig. 1 Asset Procurement Options
Adapted from (IFSL, 2003, p.8) and OECD (2008, p.33)
Other forms that are sometimes referred to as PPP are leasing, joint ventures, contracting
out, management contracts (Grimsey, Lewis, 2005) but they are out of the focus of this paper in
part due to the controversial opinions whether they are PPP or not.
All these forms assume different level of responsibilities of the private partner. It can just
build the facility, finance it construction and then transfer it to the public partner. Or it can also
design it, operate and provide services for the society with further maintenance and transfer in
several years or decades. The form of PPP project depends on the specific circumstances and
requirements (Engel et al., 2007). The partnership is different from the privatization in alignment
of objectives. It is strict in partnerships because government also defines quantity and quality of
the services and determines price after negotiations with private party and in privatization it is
the opposite. (OECD, 2008, p.13)
In healthcare sector PPPs serve for building physical infrastructure, hospitals. In the early
2000s in the UK was a special program dedicated to the building of two hundred new hospitals
and organizations that provide health services through private financing. Now there are new
models of PPPs in health care that aim to improve the quality of patient care and decrease costs
and gain more popularity in Europe. Many of them are developing through integration of
functions in healthcare (better coordination of basic, secondary and social services for patient
care). PPPs projects began to cover the health care services and social services, and maintenance
of physical infrastructure (Barlow, 2015, February 10).
These models in form of franchising can be found in Germany and Finland, where
private partner provides a full range of health and social services in PPP projects. For instance,
the model Alzira in Spain, where the private partner is responsible for the whole system of
primary and secondary care including social services (Acerete et al, 2012). It is not easy to
estimate the successfulness of these PPP models, but it is certain that they lead to significant
As it was mentioned there are different forms of PPPs. Some of them assume only design
and building or reconstruction of physical infrastructure while others also delegate the operation
and maintenance to the private partner. The last tendency we see in Russian PPPs projects in
healthcare, which will be described in the second chapter.
Thus, each project undergoes several stages and even though various countries suggest
their own stages of the PPP though they all share common features.
1.5 Stages of PPP projects
There are several approaches to classification of stages of PPP projects. First, I introduce
the concept used by scholars, then the one used in guidelines to PPP projects implementation and
after I come up with the integrated framework.
Hodge (2004, p.161) identified 5 stages of PPP projects: design and! development,
construction, finance,!operation, ownership. They are closely related to the forms of PPP. This
classification is useful for risk identification of project implementation. However, this paper is
focused on the procurement stage that has more connections to the public sector activities than
those identified by Hodge. Guides on PPP and toolkits of different countries describe PPP
projects’ life cycle in another way. They focus more on the initial stages. According to the
classification of the guides and toolkits of different European countries and organizations, life
cycle composes of 4 main phases. For example, EPEC guide identifies the following phases:
project identification, detailed preparation, procurement, and project implementation. (EPEC,
The first phase is project identification and needs analysis. During this phase, potential
PPP projects are identified. The basis for this is the analysis of the economic and social needs for
infrastructure services and the options available for meeting them.
The second phase is PPP decision, project appraisal and clearance. The projects are
considered in terms of suitability of PPP form for their realization and examined for further
consequences. The highest potential will have projects with strong need, financial viability, few
negative impacts and manageable risks (PPIAF, 2009). On this stage the type and structure of
PPP is chosen.
The third phase - final approval and procurement. At this stage, the procurement process
and design are selected. Besides that, this phase concerns the negotiations with preferred bidders
and final choice of the partner with subsequent technical and financial closing. The procurement
phase, as the term is used in this Guide, commences with the publication of the procurement
notice and ends with financial close, the point at which project activities (beginning with detailed
design and construction) can start.
The implementation stage relates to the construction and operation phases of the project
and monitoring of the PPP over the life of the contract by the public partner. The integrated
framework is presented on the picture below (Fig. 2)
Fig. 2 Project's Life Cycle
These stages can be also divided in two broad categories: evaluation and monitoring
(from the public partner’s point of view). Evaluation comprises the first three stages and
monitoring – the last two. Final approval and procurement phase is a subject of both categories
since it is significant for the successful implementation of PPP projects.
Procurement means selection of the (highest ranked) bidder under a transparent, fair and
accountable procurement system (UNCITRAL and PPIAF) and signing a contract agreement
with this partner. There are many factors that must be considered when determining the best
procurement approach for a given project, including long-term costs, myriad uncertainties, risks
both now and in the future, and complicated funding and financing approaches. (FHWA, 2012,
The bidding processes differ depending on the nature and complexity of the project.
There are two main types of the PPP projects: concession projects and maintenance agreements,
they define the tender process since the first type requires large investments, complex or long
activities delegated to the private sector when maintenance contracts are not so complex and can
be signed on the basis of procurement rules for civil works.
According to guides on PPPs the process of procurement however should be transparent,
open, and fair. “Transparency means: the rules are made available to all participants and will be
followed as stated in the bidding documents; clear and acceptable guidelines for bidding are
distributed to all participants and that those guidelines are consistently followed.
Openness means free and open competition. The first step to maximize free and open
competition is through information provision, which ensures confidence in the process,
encourages more contractors to compete for PPP projects, and results in overall lower prices to
the benefit of the public.
Fairness means all participants are treated fairly and consistently at all times, which will
further encourage capable, responsible contractors to compete for PPP projects.” (PPIAF, 2009,
Those responsible for procurement in government need to build up a reputation for these
attributes. The Toolkit indicates that if the tender process is not a success initially e.g. there is an
insufficient number of bidders for a project, it should not just be re-tendered but re-evaluated and
restructured as necessary. If Stage 2 is undertaken properly, the likelihood of unsuccessful
bidding will be minimized, as most unsuccessful tenders are due to poor project preparation or
poorly drafted concession agreements or both. However, this part is country specific
information. For example in Russia even if only one bidder submitted the proposal it is still
possible to enter PPP with it if it meets requirements.
The bidding process is the one where government usually err because of the poor project
preparation or poor bidding processes or both. As a result, government faces failed bidding
procedures, selection, award and signing of a contract with the bidder having submitted the
proposal that best meets the objectives of government and/or the best deal for users (PPIAF,
2009, p. M5-91).
For successful bidding, it is important to ensure competition and transparency. It will
result in choice of the partner that is able to deliver expected results at reasonable costs. If there
is no transparency then government might face such issues as protest that negatively affects the
project (Moszoro, Spiller, 2012). It is crucial to attract the best potential bidders. They should
see benefits and feel rewarded for possible risks and protected by the existing regulations.
Country environment and the commitment of government to accomplish the project play
significant role in this case. Moreover, fair competition between bidders should be supported. By
the means of providing information on the project and evaluation procedure itself that should not
be biased. Rules of the game should be clear to the bidders so that they have understanding of
the procurement process organization. (PPIAF, 2009, pp. M5-93-95)
Most PPP projects in healthcare are long-term and suppose investments from private
partner as well as operation and maintenance. According to a primer on PPP concessions that
focuses on Design-Build-Finance-Operate (DBFO) concessions there are several stages of PPP
projects. They start with development of a first-stage procurement document: request for
information or request for qualifications. The next stage – request for proposals. Draft project
agreements are developed to this stage and the bidding process starts. Next public sector decides
which private partner to choose and then starts negotiation process with that partner.
Request for information or request for qualifications (RFQ) is a document that public
sector develops if it sees that PPP form of delivery will provide additional value. These
documents contain information about the project and the public sector’s goals. This phase allows
weeding out concessionaires that do not have appropriate qualifications for the project
During the second stage: request for proposal (RFP) development public partner invites
short-listed bidders to send their proposals. At this stage public sector already has more
information on the opportunities of private partners and how much resources they need to
implement the project. The draft project agreement usually contains the main information on the
project realization (it can include revenue schemes, performance standards etc.). However, some
parts are discussed with the selected bidder.
Interested bidders send their proposals by the date indicated, inform about the possibility
to meet all technical and financial requirements if needed and pay deposits or guarantees if
required. Then government selects private partner based on evaluation criteria developed before
and financial criteria should be not the only ones considered in selection process (unlike in
traditional public procurement). However, it is still possible to meet cases where the choice was
based only on the total costs of the project. Usually they are not as successful as others are.
During selection process each criteria (experience, technical capabilities, and costs) have weights
and they are rated on the basis of weighted average. Finally, after the partner is selected,
negotiation process of final project agreement starts based on the draft developed during the RFP
process. (FHWA, 2010)
The thoroughly organized selection process assumes the choice of the private partner,
which submitted proposals with the highest value based on all evaluation criteria and
requirements. However, government role is also significant since it determines how to evaluate
private partner, which weights to assign and it also develops technical and other requirements
that can serve as an affordability threshold.
documentation and overall process organization should increase the success rate of projects
implemented through making more accurate choice and also some risks mitigation that are
1.5 Risks of PPP projects
The successfulness of the project depends on risk management. James Barlow defines
risks in PPP projects as potential events that may occur during the implementation of PPPs and
result in financial losses, additional costs to PPP project participants, lower revenues as well as
delays in the schedule of the PPP project that results in inability to achieve the desired results
because of force majeure or the PPP project participants’ actions (Barlow, 2015). The risk
allocation in PPPs is significant for the success of the project since it allows management of risks
by the party that is best able to handle them (FHWA, 2012, 1-2).
In order to achieve appropriate risk allocation risk factors should be identified before the
start of the project (Chou, 2015). However, possible outcomes should be clearly identified,
evaluated, and managed from the very beginning throughout a whole project’s life cycle to take
appropriate decisions on risk management. Public sector party uses proactive approach to risk
management to address any potential obstacles and take advantage of opportunities. In PPP
projects in concession agreement all the risks, “Relief” and “compensation” events are stated and
all other risks connected to the situation that were not contemplated up-front are allocated to the
concessionaire (FHWA, 2012, 1-2) that is different from the public procurement when risks are
owned by government.
Each risk in PPP project should be allocated to the party best suited to manage or
mitigate it. Hodge states that risk transfer can account 60 percent of the total cost saving for the
PPP projects. Moreover, value or money is achieved mostly through appropriate risk allocation.
And for six out of the 17 cases (35 %) he analyzed it was entirely dependent on risk allocation
(Hodge, 2004, p.160). This allocation also depends on the form of PPP. The table 1 summarizes
in which stages of PPP project realization the private sector is involved in risk management
Table 1 Risks allocated to private party depending on the PPP form
The sign “X” in this table means that this risk is allocated to the private partner and “-”
means that this risk is retained by the public sector. The private and public partner can also share
some risks; it depends on the exact project, project specification and agreement between parties.
Thus, risks can be grouped in 3 categories that is also stated in various guides on PPP (FHWA,
2012, 5-1). These 3 categories are:
Transferrable risks are risks that are fully transferred to the private sector due to the
capability to manage them. Retained risks are the ones that government retains and bears costs,
for example risks of delay. The third type-shared risks that are difficult to access and manage
and that are dealt with by government or private party.
The ability of the private sector to manage the risk defines its’ willingness to accept a
particular risk. Other factors contributing to acceptance of risks are the existence of sufficient
rewards to compensate for the risk and the clarity of the contractual dispositions transferring the
risk. (FHWA, 2012, 5-8)
One more classification divides risks on legal and political and commercial (Fourie and
Burger, 2001), (see Fig. 3). The first group deals with legal and regulatory framework,
government policy, taxation, dispute resolution etc. The second group with market or projects
risks, more specific: supply and demand risks. Supply risks are risks that affect the ability of the
partner to deliver/provide services in the necessary amount. These risks are distributed among
two other more general groups: supply-side operation risks and construction risks concerned
These risks refer to the availability of resources, labor, costs of input, production and technical
risks, financial market risks, changes in exchange rates and in cost of capital. Demand risks refer
to the changes in consumers taste, appearance of substitutes or complementary goods or on the
opposite their exit of the market, changes in socio-demographic situation or economical that
leads to demand changes. (OECD, 2008, p. 35)
Legal and political
Risk borne by:
Fig. 3 Categories of risk
Source: OECD, 2008, p. 35
Talking about the OECD framework risks that are going to be addressed in this paper are
mostly supply and demand risks that can be mitigated at the procurement stage. For instance
different risks that can arise at the operational stage like poor performance of the private partner
(not meeting necessary technical or personnel requirements), inability to provide agreed amount
of services, risk of not to be included in compulsory health insurance system (that is more
specific to healthcare organizations operated by private companies), etc. Factors that might
mitigate these risks will be described further in this paper (Section 1.6).
There are many more different classifications of risks. UNIDO (1996) grouped risks of
BOT under two categories – general/country risks and project specific risks. The first category
includes commercial, political, and legal risks and the second one is composed of construction
and completion risks, developmental, and operating risks. But since this paper analyses the
procurement stage of the PPP it will focus only on those risks that can be mitigated at this stage.
According to UNIDO classification project risks are more relevant for the further
analysis, more specifically: construction, availability, procurement and operating risks.
Construction risks refer to late delivery, non-respect of specified standards, significant additional
costs, legal and environmental issues, technical deficiency, and external negative effects.
Financing risk can be also related to the construction risk according to Eurostat.
Availability risk assumes the possibility to provide a contractually agreed volume of
services at quality standards specified in the PPP contract. If government introduces some
penalties for non conformation with established criteria at the procurement stage and do not
make any payments before the projects services are provided and meet established requirements
then this risk can be mitigated.
Operational risks include many various fields but only those that are discussed at the
procurement stage (included in the tender documentation and vary from one PPP to another are
considered further. First, there are different schemes according to which government pays to the
private partner for provision of medical services under compulsory health insurance (CHI).
Government can pay for the certain amount of services provided regardless of the actual demand
if it is stated in the contractual agreement or payments can be adjusted to the actual demand then
the demand risk bears private partner and it has more incentives to improve quality of services.
Procurement risks result in failed or flawed procurements. The main risks arise when
lowest bid exceeds affordability threshold, noncompliant or low-quality bids submitted, or when
fewer proposers than anticipated were submitted etc. Procurement risks are caused partially by
unsuitable project structures/ risk transfer expectations. In order to mitigate it public agencies
should not be constrained in their procurement practices by regulations requiring that they award
contracts to the lowest price bidder rather than to the bidder presenting the best value. They also
result from lack of clarity in requirements, in selection and evaluation criteria, lack of
transparency, too high importance of financial criteria (FHWA, 2012)
The best value can be achieved though the clear assessment of requirements and project
specification and setting quality threshold. Moreover, evaluation criteria should be more specific
for PPP projects especially in healthcare since quality of the services provided is significant.
There are numerous medical risks that cannot be mitigated especially at the procurement
stage. However, tender documentation, clear requirements, negotiation process can reduce the
likelihood of their appearance. These specific factors that can contribute to the successful project
implementation are described further.
1.6 Critical success factors of PPP projects
For effective PPP implementation, important factors and preferences regarding risk
allocation should be identified before the commencement of a project. Scholars conducted
several studies on factors contributing to the successful implementation of PPP projects in
various countries including Australia, UK, China, Singapore and others (Bing et al., 2005b; Chan
et al., 2010; Chou et al., 2012).
These factors should mitigate risk of the project failure. The initial idea on few factors
that are crucial for the success of the company and that can be predetermined, was first
introduced by Daniel (1961) and later elaborated by Rockart (Rockart, 1979; Bullen, Rockart,
1981). Classical definition of the critical success factors introduced by Rosckart is “ [CSFs
are]… those few key areas of activity in which favorable results are absolutely necessary for a
manager to reach his/her goals.” Paper of Bullen and Rockart (1981), provides the following
definition of CSFs: "the limited number of areas in which satisfactory results will ensure
successful competitive performance for the individual, department or organization. Critical
success factors are the few key areas where 'things must go right' for the business to flourish and
for the manager's goals to be attained." According to Boynton and Zmud (1984) the CSF
methodology intends to determine those few key areas that are necessary to achieve managerial
CSFs methodology is widely used in various fields: strategic management, financial
services, manufacturing, construction management, and scholars from various countries aim to
identify which factors contribute to the successful implementation of PPP projects as well. The
definitions introduced above are used or referred to in almost all papers related to CSFs of PPP
projects those that do not have it do not provide definition of CSFs at all. However, this
definition is not suitable for CSFs at the procurements stage of PPP project.
Some authors introduce their own definitions of CSFs, but they are closely connected to
the initial ones. Tshiki (2015) defined CSFs of a project as
characteristics, conditions or
variables that can have a significant impact on the success of a project when properly sustained,
maintained or managed.” Irvine and Hall (2015) referred to success factors as “the conditions,
circumstances and events that contribute to the success of a project.” These two definitions
replace the word “area” on “condition” that is more suitable in PPP project. On the other hand
they are too broad. Thus, the new definition should be introduced further
Some scholars also use word “key” instead of “critical” but in their papers they first
provide the same definition as Bullen and Rockart (1981). So these two terms are used
interchangeably in some papers on PPP but usually only term CSFs is used. When searching for
articles with key words “critical success factors” and “PPP” it is possible to find 109 articles and
with “key success factors” instead of critical only 5.
Thereby, this paper focuses on critical (not key) success factors and uses the definition of
CSFs as those conditions the implementation of which can secure favorable results in few key
areas of activity that are absolutely necessary to reach goals of PPP project.
Concept of CSFs is widely used to analyze implementation of PPP projects to enhance
the understanding on the implementation of PPP policies for infrastructure development. Some
scholars use this concept to identify CSFs of the project implementation overall while others
apply it to different sectors, PPP forms, stages. It is logical to assume that if each stage of the
project realization is organized in efficient way it is possible to mitigate negative impact of risks.
One of the crucial stages for the project realization is procurement since the future performance
depends on the quality of the private partner. The overall accomplishment of the project and
achievement of the financial closure depends on the choice made by government during the
tender (or another procedure). The way government chooses the private investor partially
depends on the regulation of the country. This will be described further for Russian environment
Authors of papers on CSFs of PPP projects develop different lists of CSFs of PPP/PFI
projects but they all are similar. Usually these factors are distributed among several groups or
stages. For example, Cheung et al (2012) classified CSF into 7 groups: equitable allocation of
risks; strong private sector; judicious government control; transparent and efficient procurement
process (including competitive and transparent procurement process and clear project brief and
client requirements); project economic viability; adequate legal framework and stable political
environment; strong government support; stable and transparent political/social situation;
available financial market.
Li et al (2005) grouped them into 5 categories. The first category is effective
procurement that consists of transparency in the procurement process , competitive procurement
process , good governance , well-organized and committed public agency, social support , shared
authority between public and private sectors, thorough and realistic assessment of the costs and
benefits. Other 4 categories are project implement ability , government guarantee , favorable
economic conditions , available financial market . The same classification used Akintoye, 2001.
It is based in the questionnaire survey research examined the relative importance of eighteen
critical success factors (CSF) for PPP/PFI in UK construction projects.
Study of Suhaiza Ismail (Ismail, 2013) shows that “good governance”, “commitment of
the public and private sectors”, “favourable legal framework”, “sound economic policy” and
“availability of finance market” are the top five success factors of PPP implementation in
Kwak et al. (2009) identifies four main aspects which would lead to successful PPP
projects: the competence of the government; the selection of an appropriate concessionaire; an
appropriate risk allocation between the public and private sectors; and a sound financial
The most common factors that determine successfulness of the PPP projects are in the
table below (Table 2).
Table 2 Findings on studies of PPPs’ CSFs from 1990 to 2013
Number of studies referring
to this CSF (out of 27)
Appropriate risk allocation and sharing
Strong private consortium
Favorable legal framework
Stable macroeconomic condition
Strong commitment by both parties
Clarity of roles and responsibilities among parties
Financial capabilities of the private sector
Good feasibility studies
Open and constant communication
Detailed project planning
Government providing guarantees
Selecting the right project
Long term demand for the project
Clear project brief and design development
Competitive financial proposals
Mature and available financial market
Acceptable level of tariff
Streamline approval process
Compatibility skills of both parties
Choosing the right partner
Good leadership and entrepreneurship skills
Sound economic policy
Well organized and committed public agency
Clear goals and objectives
Employment of professional advisors
Reliable service delivery
Environmental impact of project
Source: Osei-Kyei, Chan, 2015
This thesis focuses only on procurement stage so the further research is based on the
same CSFs at the procurement stage as in papers of Akintoye (2001) and Li et al (2005).
1. Transparent and efficient procurement process: Transparency decreases transaction costs
of the project and time needed for verification, negotiations and completing deals (Jefferies et
al., 2002; Kopp, 1997; Gentry and Fernandez, 1997; Arthur Andersen and Enterprise LSE,
2000). Transparent procurement process is ranked 5th among the most important critical success
factors identified in literature and was identified in 8 different publications. (Table 2)
Transparency does not only apply to the tendering process but it must be observed throughout
the whole life cycle (Osei-Kyei, Chan, 2015).
To achieve higher transparency it is important to clearly communicate risk allocation and to
reach mutual understanding between the parties (Ke et al, 2009). Thus, parties should openly
consult each other for any clarification on the projects' delivery. Transparency also means
necessity to evaluate all of the potential risks throughout the whole project life (Ke et al, 2010).
Osei-Kyei and Chan mention that information and reports on the projects must be made publicly
available. (Osei-Kyei, Chan, 2015).
2. Competitive procurement process: It leads to the greater number of bidders, as a result
there is better suggestion at fair price. However, the bidding process should not be based solely
on price but also on quality, capabilities to meet requirements provide better services. The
government should take a long-term view in seeking the right partner (Corbett and Smith, 2006;
Gentry and Fernandez, 1997). This factor together with previous one enhance project value for
money (Gentry and Fernandez,1997; Jefferies et al., 2002; Jefferies, 2006; Li et al., 2005; Qiao
et al., 2001; Zhang, 2005; Cheung et al, 2012).
3. Well organized and committed public agency: Boyfield (1992) Stein (1995) Jones et al.
(1996) Finnerty (1996) Moreover it is always important for government to clear any doubts or
rumors within the public domain concerning the delivery of PPP projects, as negative public
perception could affect the successful implementation of projects. (Osei-Kyei, Chan, 2015)
4. Good governance: Government departments and their agency as a policy makers are
fundamental for successful PPP/PFI implementation (Mustafa, 1999; Qiao et al., 2001; Frilet,
5. Social support: If the reputation of the private partner is disrupted then the project can fail
because of the resistance of the society or the opposite, when there is no social support
reputation of private party might be damaged as a result the project looses its attractiveness
6. Shared authority. During negotiation process at the procurement stage public and private
sector should respect each other (Stonehouse et al.,1996; Kanter,1999)
7. Thorough and realistic assessment of the costs and benefits. When this is done public
sector knows what is the price and can make better decision. (Brodie, 1995; Hambros, 1999;
Qiao et al., 2001) This assessment includes capital and recurrent costs, fixed and variable costs,
performance and value driven benefits (Cheung et al, 2012)
8. Shared responsibility (Bing et al, 2005, p.4; Osei-Kyei, Chan, 2015) mention that both
sectors must be transparent and open to the external stakeholders or users
As indicated in the table 2 factors with number 3-8 are not so commonly used in papers
that aim to identify CSFs of PPP projects. However, their description is similar and factors 3, 4,
6 and 8 are grouped into one “well-organized and committed public agency”, factor 5 is omitted
since it is not that often used in papers except for those that are were used for table creation.
Factor 7 is kept for the further research since it is especially significant at the procurement stage
and it is closely connected to appropriate risk allocation and sharing that is ranked first by OseiKyei and Chan (2015).
These factors aim to mitigate the negative impact of the risks described before. However
company external environment should also be taken into account (macro-economic environment
and political and social situation in the country).
In order to better understand how these factors mitigate risks and which risks specifically
it is useful to assess how value is created and one of the tools that can be applied is value chain
introduced by Michael Porter. Value chain consists of primary and support activities that all
together create additional value. Primary activities are inbound logistics, operations, outbound
logistics, marketing and sales, and service; and support activities are procurement, human
resource management, technological development and infrastructure (Porter, 1985)
When the private partner in PPP performs part of these activities public party should
make an accurate choice to ensure that private partner will strive to provide the best value.
According to Michael Porter and Ian Smith healthcare system in USA is failing because
competition takes place at the wrong levels. It should take place around healthcare outcomes and
not healthcare plans. Porter also states that system participants should create value in order to
reach better results. (Porter, Teisberg, 2006)
Value chain can aid in identification of medical risks (Ivanov, 2015) and requirements to
the private partner that mitigate these risks. For the purposes of the further research it is useful to
analyze one of the Porter’s chains from 2006 on the care delivery for different medical units. He
introduced several chains for: breast cancer, chronic kidney disease. Since there are companies
that are interested in the PPP projects in the field of dialysis the last one is used for the further
analysis (Fig. 4). In this picture shaded parts are provided within the unit and white ones –
activities provided outside the clinic or support activities.
Fig. 4 The care delivery value chain for breast cancer
Source: (Porter and Teisberg, 2006, Appendix B, 403).
Primary activities that private partner performs are diagnosing, preparing, intervening,
recovering/rehabing, monitoring/managing. There are various medical risks that can be identified
through analysis of the links between different VAC elements. One of the medical risks is human
error. Medical personnel are involved in different services provision and analysis of each step
helps to identify sources and limit their appearance. These mistakes can arise at the stage of
diagnosing when not all relevant factors will be considered when the doctor chooses treatment
plan or later the lack of control for blood pressure that is required might also lead to negative
Medical equipment also has important role in patient’s treatment. Company providing
medical services must ensure high quality of equipment that meets necessary standards and can
perform all functions that it is required.
Demand risk is also closely connected to the first two factors if patients know that the
center does not meet certain requirements or provide not all services that they need consumers
can switch to another center if it exists and get all the services they need at that place.
The procurements process affects preparation of tender documentation, prescribed
requirements to the private partner. And high quality of tender documentation should mitigate
medical risks identified through analysis of the value chain. These risks identification will also
affect the choice of the private partner since government will consider different aspects that can
lead to the higher probability of project implementation including experience in operations.
In spite of the huge interest by governments worldwide in PPPs, their implementation is
still experiencing lots of impediments which need critical attention. Among such obstacles
encountered with PPP implementation are high transactional costs, lengthy procurement process,
lack of appropriate skills, unattractive financial market, incomplete risk transfer, and high user
charges (Grimsey, Lewis, 2005; Li et al., 2005; Tingting, Wilkinson, 2011).
The review of the literature on the topic of PPP shows that PPP allows achieving greater
value for money, cost efficiency, minimizing risks through the appropriate risk allocation and
delivering of the public services that are needed to the society. Each project undergoes several
stages and depending on the form of PPP risks are allocated either to government or private party
or they can be shared as well. Procurement stage is very important since it determines the future
operations and returns. In order to successfully accomplish the project government can ensure
presence of critical success factors. If they are met then public sector might expect higher
probability of successful project implementation if not the project requires additional
The regulatory environment has significant role in the project implementation. In general
in developed countries there are no specific laws on PPP, only recommendations while
developing countries adapt specific policies regulating PPP because there assumptions that are
implicit in developed countries are not always met in developing.
The main goal of this thesis is to increase effectiveness of public-private partnerships by
identification and governance of the critical success factors at the procurement stage. In order to
achieve this goal the empirical research on PPP projects will be conducted.
2. COMPARISON OF COUNTRIES’ EXPERIENCE IN ORGANISATION OF THE
PROCUREMENT STAGE OF PPP PROJECT
2.1 Countries’ environment: implications for PPPs
Analysis of PPPs in countries with different levels of socio-economic development has
shown that PPPs are successfully implemented in transport (roads, railways, airports, ports,
pipeline transport), social infrastructure (health, education, entertainment, tourism), utilities
(water, electricity, clean water, gas, etc.), and other areas (prisons, defense and military sphere of
objects) (The World Bank, 2016).
In the developed counties the most important areas for PPP projects implementation are
transportation sector (USA) and social infrastructure (Canada, France, Germany, Italy, UK).
According to the study of Bogolib (2013) on the sample of over 600 PPP projects in various
countries the main industries and sectors for PPP in developed countries are road construction in
the US (32 out of 36 projects), in the UK - Health (123 out of 352 projects) and education (113
out of 352 projects), Germany - education (24 out of 56 projects), in Italy, Canada and France health.
The graph below (Fig.5) introduces some statistics on PPP projects in Canada and
Russia. It was built on the basis of the information provided by the Canadian Council for PPPs
and unified information system on PPPs in RF. The red bar shows the share of PPP projects in
social infrastructure (including healthcare) and the blue one – share of projects in healthcare. On
the basis of these estimates, information on PPP in different countries as well as results of paper
of Bogolib (2013) it can be concluded that developed countries implement the greatest part of
projects in social infrastructure while in developing countries and Russia share if this sector is
much smaller and equals to 10%. When we talk about healthcare Canada has more projects than
UK in terms of share but UK outnumbers Canada by 30 units. In Russia the share of healthcare
projects is only 4% but this sector is continuously developing and Russian government is highly
interested in the increase of number of projects in a form of PPP.
Fig. 5 Share of healthcare and social PPP projects (from total number)
Public infrastructure development is one of the top priorities in Russian economy since it
can raise living standards, level of innovations, address problems of the country, its regions and
cities. Currently long-term target programs for development of public infrastructure are a part of
Russian economy development. Due to budget surplus until the financial crisis most project were
financed by public funds from federal and local government budgets. However, after 2009 came
the understanding that infrastructure projects cannot be fully financed by public sector and it can
be more efficient to attract private investors to continue economic development at the same pace.
Concept of socio-economic development of Russian Federation by 2020 contains
information on PPP development in Russia and states the benefits of such cooperation between
government and private sector. PPP mechanisms at the national level will speed up the
development of the healthcare services and contribute to the formation of an effective
competitive environment, optimization of the financial resource management, increase the
number and quality of services provided. In addition, development of PPP in healthcare should
also improve investment climate and increase return on investments in healthcare (PPP in health
care in the spotlight of...). According to deputy minister of healthcare Sergey Kraevoy
government is interested in professionalism and experience of private partner in managing,
operating and financing of different infrastructural objects.
According to expert estimates, value of fixed assets in health care in Russia equals to 22.2 trillion rubles. They are worn by 40-45%. Consequently, about 0.8-1 trillion rubles
investments in fixed assets is needed. It is possible to attract about 250-270 billion rubles to
modernization of infrastructure through private investments using PPPs since 15-20% of the
institutions provide services in areas that are potentially interesting for private investors (on the
basis of the interview with Sergey Kraevoy). In some regions, private investments are dedicated
to the construction and operation of new infrastructure. The potential of this segment is about 5070 billion rubles and this segment covers mostly oncological clinics, rehabilitation centers,
dialysis and perinatal centers. This segment will be analyzed in more details later in this paper.
Number of PPP projects is continuously rising in Russia and more and more private companies
enter the CHI program. By the end of 2014 the share of private organizations in CHI was already
21% vs 7,6% in 2010, according to Olga Golodets, the deputy prime minister for social affairs of
the Russian Federation (PPP in health care in the spotlight of…).
RF has different level of economic development, culture, less attractive investment
environment and also regulatory framework differs from those of other countries. Need in a
specialized PPP-enabling legislation diminishes when country is characterized by highly
developed institutional environment, In addition benefits of PPP are implicitly guaranteed and
private partner feels more secure (Vinogradov et al, 2014). In such environments private parties
can expect risk reduction, reputational gains, access to additional resources, lower bureaucratic
burden, etc. So, it is not possible to use PPP models existing in other countries exactly in the
same way as they are used in other countries.
Federal Law № 115-FZ of July 21, 2005 «On concession agreements» and Federal Law
№ 224-FZ of July 13, 2015 «On public-private partnership and municipal-private partnership in
the Russian Federation and amending certain legislative acts of the Russian Federation» assume
two forms of PPPs in Russia: concession agreements and agreement on public-private
partnership/ municipal-private partnership. Other forms (Contractual and corporate forms of
attracting extra-budgetary funds in public infrastructure development) are not taken into
consideration even though information on these projects is also presented in a database of unified
information system on PPPs in RF. The most common form of PPP in healthcare is concession
agreement that is used in all cases analyzed in the current paper.
Most of the PPP projects have BOT or ROT (reconstruct - operate - transfer) form in
Russia and it is considered that models when private partner makes reconstruction works and
then gets the right to exploit and maintain facilities can work in Russia. These models also attract
more private investments. Another form that is working in Russia is 100% investments by
private partner and the following return of investments by government or BF (build-finance)
model. The construction of new hospital/clinic should be oriented on the spheres where there is
a lack of certain services.
Another model is the construction of the hospital by the private partner and subsequent
provision of services in this building by private partner. Profit that partner gets (via provision of
paid services) covers the investment expenses and government pays for the services provided
under compulsory health insurance.
The situation with social infrastructure in Japan is similar to the Russian environment.
According to recent estimated, population of Japan will decrease by 35% by 2100 that will result
in several problems: infrastructure becomes obsolete and government is not able to finance and
maintain it in order to provide necessary services. Thus, the main reason for PPP projects in
Japan is attraction of private investments (according to the interview with Yoshida Jin on the
India's health spending (about 4.1% of Gross Domestic Product [GDP]) is considered
much lower compared with spending in Organization for Economic Co-operation and
Development (OECD) member countries (CII, KPMG, 2009). PPPs have enabled Indian
governments to ease budgetary constraints and bridge the infrastructure demand-supply gap.
While India has successfully developed physical infrastructure and adequate coverage of primary
health services, significant shortfalls remain. The top three challenges for the health sector are
accessibility and coverage in rural and remote areas, the less profitable regions, such as North
East regions, and project types, such as water and wastewater and other social sectors, have
failed to attract enough private sector participation (Patil et al, 2016); ineffective management of
existing infrastructure; and inadequate number and quality of health care professionals.
PPPs in India aim to overcome these shortfalls in the following ways:
bring innovation strategies and as a result bridge the resource gap in infrastructure for healthcare.
Better management: private companies have gained significant experience in
management of healthcare units, hospitals and are able to address needs of the patients. Currently
private companies provide 60-70% of primary care. Better utilization of government hospitals
trough provision of training to medical personnel and higher quality services.
Financial aspects: equity and promotion of economic development. The poorest 20% of
the Indian population is 2.6 times more likely than the richest population to forego medical
treatment when ill, due to financial reasons. Covering payments for healthcare through insurance
is still at a low penetration level compared to international standards (CII, KPMG, 2009).
The Canadian approach to governing, structuring and delivering PPPs has been identified
internationally as a potential model to be emulated, most notably in the United States where
PPPs have been slower to take off. Additionally, the British Government pointed to Canada as
one of the “examples that the UK should follow” when developing its “new approach to public
private partnerships” (HM Treasury 2012: 9; Siemiatycki, Matti, 2015).
Canadian government increasingly supports PPPs. These partnerships address the
infrastructure backlog, are on-time and on-budget versus traditional delivery (e.g. Abbotsford
Hospital vs Vancouver Convention Center), transfer significant risks to private sector, maximize
value / opportunity of asset. In addition under PPP lifecycle maintenance built into project cost
and there is a clear focus on long term performance (Siemiatycki, Matti, 2015)
The most PPP projects in have been delivered in Ontario, British Columbia, Alberta and
Quebec provinces, in that order. The primary reason for PPPs in Canada is also achieving value
for money (Garvin, Bosso, 2008). This rationale is stated in government policy guidance
documents and industry reports across the country (Siemiatycki, Matti, 2015).
Canadian PPPs are characterized by several drivers of value for money. Among them are
contracts creating incentives for on budget and on time delivery; experience of private partners
and their ability to create innovative design of new facilities, which will also decrease costs of
the project and improve the user experience; long-term certainty over the lifecycle of an asset
(hospital building); and risks allocation to the party that is better in their management.
Consequently Canadian government creates a protection from revenue shortfalls, large cost
overruns or inability to provide services using constructed facility (Infrastructure Canada, 2012).
Therefore, countries consider PPPs as an effective instrument to solve socio-economic
problems, increase the quality of services provided, increase availability of expensive medical
services to patients and modernize hospitals. According to world practice PPPs can be more
effective in these terms than traditional public procurement due to the rich experience of private
partner and possibility to share risks.
The main reasons for PPP formation in healthcare are the same since hospitals are also
infrastructural objects and public partner receives the same benefits. However, there is one point
that should be emphasized: the responsibility of private partner for various activities from the
creation of infrastructure to the provision and management of health and medical services. This
is typical for Russian PPP projects. The same operations are expected in Japanese and Indian
PPP projects in healthcare. At the same time in Canada private partner constructs or redesigns
the building/hospital and sometimes maintains it afterwards while public partner is responsible
for medical services. These activities are combined in many countries in order to bring together
the interests of both sides and strengthen them, motivate to increase effectiveness of medical
Several PPP projects in healthcare sector in different countries will be analyzed further in
order to answer on research questions. Countries of special interest are Russia with the greatest
number of projects and Canada, which has rich experience in healthcare projects implementation
and is recognized as a country with models that can be emulated.
The total sample of healthcare projects in Russia is rather small. There are 37 projects
that are implemented either in a form of PPP (9 projects) or concession agreement (26 projects).
Russian projects that are going to be analyzed are 4 projects on hemodialysis and one on the
reconstruction of perinatal center in the Republic of Tatarstan, which has high experience in
projects implementation (Rating of Regions on PPP Development, 2015). One more successful
project is from Samara, region that also has high investment attractiveness for PPP projects.
Another one is from Novosibirsk, where the first concession agreement in healthcare on the
reconstruction of perinatal center (maternity hospital) was signed. And the last but not least is
City Hospital №40 of Resort District in St. Petersburg.
These projects allow to assess experience of different regions in implementation of PPP
projects in healthcare and also to compare practices within region and among various subjects of
Russian Federation. Extensive examples of 2 unsuccessful projects are provided to estimate
whether presence of CSFs identified could help to overcome difficulties aroused: Maternity
hospital №17 in St. Petersburg, City Clinical Hospital № 63 in Moscow as well as several
examples on PPP projects which received no bids from private partners (Diagnostic Center in
Cheboksary, the Chuvash Republic).
These projects were chosen for the further analysis since they all were (supposed to be)
implemented in the regions with highest rate of PPP development. They all had ranking not
lower than 4 at least once in a period from year 2014 to March 2016.
This paper covers two projects in Canada: one successful example (Humber River
Hospital) which even got award on PPP project implementation and one (Brampton Civic
Hospital) that is considered as not successful. These two projects are from the same province and
it is possible to estimate what has changed in 10 years after the unsuccessful implementation of
the PPP project on Brampton Civic Hospital.
In order to provide additional support to the arguments stated this paper introduces
several examples of PPP projects from Japan and India. Japanese unsuccessful projects were
chosen after the interview with the leading specialist on PPP in Japan. During the interview Jin
Yoshida1 provided two examples of projects in healthcare that faced significant problems at the
implementation stage and risks that caused significant problems with these projects could be
mitigated at the procurement stage.
The total number of projects with distribution by country that were chosen for cross-case
analysis is presented in the table below (Table 3).
Table 3 Projects chosen for cross-case analysis
Projects implemented successfully
Major part of information needed on the PPP projects of Canada and Russia is available
at open sources. Canada has database on all PPP projects with links to the project description and
documentation on the website of The Canadian Council for Public-Private Partnerships. This
information contains project agreements, request for proposals, requests for qualification projects
evaluation criteria, stages, bid parameters, schedules, etc. While Russia also has project database
on the website of Public-Private Partnership Development Center but it contains only with list of
the project, all documentation is allocated among various websites and sources will be provided
together with project description.
Cross-case analysis is the qualitative study of the PPP projects that is based on the critical
success factors on the procurement stage identified in the section 1.6 of the current paper. These
factors are: transparent and efficient procurement process, competitive procurement process,
well-organized and committed public agency and thorough and realistic assessment of costs and
In order to assess relevance of transparency documentation on PPP projects, its
availability and special procedures for the approval or preparation of documentation are
analyzed. And also the game theoretical modeling will be applied to estimate efficiency of the
procurement process, analyze the influence of the rules of the proposals evaluation on
proponent’s behavior in Russia. Several examples of criteria used for bids evaluation in Russia
and Canada show how the process is organized and which results it may bring.
Information on the number of bidders and short-listed participants allows to assess the
Jin Yoshida (short biography)
Director, Asian Business Development Division, Daiwa Institute of Research Ltd.
April 2014 Director, Asian Business Development Division
July 2009 Associate Director, Asian Business Development Division
April 2006 started working at Daiwa Institute of Research Ltd, Equity analyst in machinery sector
March 2006 Ph.D. in Astrophysics and Cosmology, Waseca University
competitive situation in each case. Usually this information is published online in a form of
Minutes of tender committee meeting.
For the factor “well-organized and committed public agency” will be estimated
information on regional development, infrastructural situation, investment attractiveness and
readiness of public partner to participate in each PPP project. As for the thorough and realistic
assessment of costs and benefits, this information is assessed on the basis of the documentation
analysis and the assessment that was conducted before the choice of the private partner.
The next section 2.3 provides the general description of various projects.
2.3 Projects description
Projects from Russia, Canada in healthcare sector were chosen for the further analysis
and first description of these projects is provided and the main information presented in the
tender documentation is disclosed. After the description of the projects in key countries more
insight on PPP projects in Japan and India is provided.
PPP projects in Russia in healthcare sector are either specialized and focus on one
activity unit like hemodialysis, nephrology, cardiology, and perinatal centers or oriented on the
broad range of activities and perform construction/reconstruction of hospitals, clinics and
sanatoriums etc. In February 2015 more than a third of regions of RF were working on the
preparation and implementation of projects using PPP mechanisms in healthcare according to the
Ministry of Healthcare of RF and Ministry of Economic Development.
Year 2015 was important for the development of PPPs. The new law was enacted on 13
July 2015: The Federal Law of 13 July 2015 No224-FZ " On Public Private Partnership,
Municipal Private. Partnership in the Russian Federation and Amendments to Some Regulatory
Acts of the Russian Federation". Changes in this law enable private parties to get objects they
build, reconstruct, modernize in private property but the investor is obliged to provide funding
for their creation / renovation and use them strictly for the intended purpose. The goal of these
amendments is to improve the quality of services provided to the population (Reference to
question 4…). Federal Law No. 265-FZ “On Amendments to the Law ‘On Concession
Agreements’” also has crucial role in development of the PPP in Russia.
Current paper covers 8 successful projects in healthcare in Russia from the total sample
of 38. These 8 projects serve as a basis for comparison of particularities of project
implementation in Russia with international expertise. Each project has successfully passed
procurement stage and is currently at the operational or construction stage. They all are
described further and more information on the total sample is presented. The table with the most
important information on each project is in Appendix A.
Projects on hemodialysis in the Republic of Tatarstan
4 out of six projects are from the Republic of Tatarstan. The Ministry of Land and
Property Relations of the Republic of Tatarstan signed 7 Concession agreements in healthcare
sector in the period of 2010-2014, 5 of them were signed with “Clinica sovremennoy meditsyny
HD” in the field of hemodialysis and they are oriented on the provision of services to customers
with kidney malfunctions via CHI. At the end of 2014 more than 125 thousand outpatient
hemodialysis procedures were performed for more than 480mn rubles in the Republic of
Tatartan and that is 100% of the plan for 2014 (Reference to question 4…). These 5 projects are
spread over the Republic with 2 centers in Kazan and one in each of the cities: Naberezhnye
Chelny, Nizhnekamsk, and Bugulma. Hemodialysis centers have high social value since they
ensure the availability of hemodialysis procedures to the population.
One project from Kazan was omitted from the further analysis since there is no
significant difference from other projects. PPP form of 4 projects analyzed is concession
agreement and they all are signed for 7 years. Tender documentation of 3 hemodialysis centers in
Naberezhnye Chelny, Nizhnekamsk, Bugulma is almost the same with the only difference in the
project scale. They are created for 29, 15 and 14 dialysis machines respectively. These centers
provide hemodialysis services for 226 people (35256 procedures per year) in Naberezhnye
Chelny, 119 (18564 procedures per year) in Nizhnekamsk and 106 (16536 procedures per year)
in Bugulma. Price on hemodialysis procedure is regulated by the order № 1024-р of Cabinet of
Ministers of Republic of Tatarstan from 31.05.2014.
Documentation on the project in Kazan is also similar but it has a bit different
specifications since implementation of this project has started two years earlier. Concessionaire
must have 25 dialysis machines and provide services for 200 patients (31200 procedures per
The total volume of investments should be at least 430mn Rubles in hemodialysis
centers. The concessionaire (“Klinika sovremennoy meditsiny HD”) invests in these projects
100mn Rub (Naberezhnye Chelny), 60mln Rub (Nizhnekamask), 50mn Rub (Bugulma). The
concessionaire is responsible for design, reconstruction and equipment of the object of the
concession agreement. It also performs implementation of new technologies, automation,
modernization and replacement of obsolete and worn-out equipment. Besides that private partner
is responsible for center operation. It provides outpatient hemodialysis services to the population
of the Republic of Tatarstan using reconstructed facilities. So according to framework that was
presented in the section1.4 these are DBFOM models.
Tender documentation on all 4 hemodialysis projects has different criteria for
determination of the private partner. Table below (Table 4) presents these awarding criteria.
Table 4 Awarding criteria for projects on hemodialysis in the Republic of Tatarstan
for Time period from
agreement signing to
value of the of
the value of the of
Expenses taken by the
100 000 000
40 000 000 1
Niznekamsk and Bugulma had two awarding criteria: time needed for
reconstruction and time period from agreement signing to reaching operations volume agreed
with equal weights. Project in Naberezhnye Chelny had 3 criteria and only one financial. And
project in Kazan had only 1 financial criterion – expenses taken by the concessionaire. Currently
to have the same contest since it is regulated be the Federal Law № 224
The PPP project on reconstruction of the hospital facilities to provide hemodialysis
services in Kazan on Husaina Mavlyutova street was among those few who had higher level of
competition. At the same time it had only one evaluation criteria "Expenses taken by the
concessionaire" It equals to 40mn rubbles according to the tender documentation and it is
increasing awarding criteria. Considering the information that has just been presented ot the
effectiveness of the tender documentation it is possible to conclude that such contest can create
incentives for hazardous behavior that will result in competition only on price and not on quality.
However, only one bidder was shortlisted ("Klinika sovremennoy meditsiny HD" since
the second one did not meet the requirements. For instance, ООО «Mezhdunarodniy Center
Ambulatornogo Dializa Kazan» faced the following problems:
Not all documents provided were signed by authorized representative;
Not all documents in the original application met necessary requirements on
formatting, they were printed not on the official blank of organization, and
guarantee letter contained false information;
Copy of license of auditing company that conducted the analysis of the balance
sheet was not attached
Applicant had not provided information confirming presence of qualified
employees and experience in financing concession agreement.
There is no information on the value of criteria for projects in first 3 cities but in Kazan
private partner “Klinika sovremennoy meditsiny HD” offered to finance the project with 80mn
rubbles instead of initial 40mn.
Information on concession agreements, minutes of tender committee meeting, committee
decisions is available on-line on the website of Ministry of Land and Property Relations of the
Republic of Tatarstan. (Tender documentation and results; Archive)
Center of Family Planning and Reproduction in Kazan
Another project is concession agreement with "AVA-Peter" on healthcare facilities
("Center of Family Planning and Reproduction") starting from 2014 for a period of 10 years, 6
months of which were allocated for the development and approval of project documentation.
This project allowed RF to get modern medical institution that is dealing with problems of
conservation and restoration of reproductive health. Center for Family Planning and
Reproduction in Kazan was established in 1991 and Republic budget had no additional financial
resources for overhaul and re-equipment of the center. At the same time, the task performed by
family planning and reproductions centers, in today’s demographic situation are of great social
importance. The capacity of this center was insufficient for the Center since the demand on IVF
was much higher. In order to solve this issue the Ministry of Health of Republic of Tatarstan has
This was one of the first PPP projects in a form of concession agreement that assumed
renovation of the existing health care facility. Concessionaire was responsible for the
reconstruction of the object and future operations The concessionaire provides infertility
treatment methods of assisted reproductive technology in the amount of not less than 25
thousand specialized patients visits and 600 fertility treatment cycles of IVF. The actual amount
of private investment amounted to over 40 million rubles.
This project has 3 awarding criteria: time period needed for object of the agreement
reconstruction, time period to achieve operations volume agreed and expenses that are paid out
by the concessionaire.(Table 5)
Table 5 Awarding criteria for projects on hemodialysis
agreement signing to
Initial value Weight
Initial value Weight
Center of extracorporeal blood correction and clinical transfusion in Samara
In the Samara region - a concession with "Farm SKD" for the construction and operation
of the Center of extracorporeal blood correction and clinical transfusion. In 2014 the
concessionaire received land of 1285 sq. m. and it should invest 350 million rubles into
construction of a 4844,5 square meters building. It should provide 48 machines “artificial
This project has 3 evaluation criteria. One of them is conformation with technical and
economic requirement of the object of the agreement and this criteria has a weight of 0.4 while
two others 0.3. More information on evaluation criteria presents table 6.
Table 6 Awarding criteria for projects on hemodialysis
technical and economic
object of the agreement
agreement signing to
Share of costs of the
dialysis services that is
Initial value Weight
Initial value Weight
Initial value Weight
There were also several projects that faced problems during the implementation stage or
have not reached it and they are described further.
City Hospital №40 of Resort District in St. Petersburg
Another PPP project is the first project in healthcare sector that is going to be
implemented in St. Petersburg in a form of concession agreement on the construction and
operation of the medical and rehabilitation hospital building of "City Hospital №40 of Resort
District". This is the first PPP project in St Petersburg. Duration of the agreement is 10.5 years
from which 3.5 years are devoted to the design and construction works. According to
preliminary estimates of 2015 capital expenditures, including VAT are 6.9 billion
Private partner operation of a new treatment and rehabilitation body that It will match the
innovative advances in healthcare, ensure population replacement Resort district and engineering
infrastructure with high functional characteristics corresponding to modern technologies of
construction and operation.
LLC "Neva medical infrastructure» and Turkish company "Renaissance Construction»
sent bids for the implementation of this project and they passed the preliminary selection stage.
However, Turkish company
had not sent the documentation at the RFP stage because of the political conflict with Turkey
that took place in the November. Agreement with Neva Medical Infrastructure that is owned by
"Gazprombank-Invest Development of the North-West" (29%) and Impresa Pizzarotti & C.
S.p.A. (71%) and administration of St. Petersburg signed agreement on public-private
partnership at the end of the year 2015 (on 30.12.2015).
Documentation on PPP project in St. Petersburg does not provide clear criteria for bids
assessment. The only information provided is that it has two criteria with 50% weight each.
These are financial and technical criteria.
City Clinical Hospital № 63 in Moscow
Concession agreement with "European Medical Center" for 49 years starting from 2013
is a first social infrastructure project on the hospital construction in Moscow. This is a largescale project that is closer to the Canadian ones in this term. It consists of 5 buildings on the
territory of 20 109 m2. European Medical Center should invest in the reconstruction and
operations of City Clinical Hospital № 63 not less than 4.37 billion rubles. The investor has to
organize the center of position-emission tomography, endovascular surgery, perinatal center and
a rehabilitation center.
Private partner is responsible for the reconstruction of the hospital, its equipment, and
further exploitation on the basis of requirements determined in the concession agreement. This
agreement assumes onetime payment of 1bn rubles in 30 days from the concession agreement
signing and yearly payments of 604 379 rubles for land renting. Concessionaire provides 30% of
medical services using CHI system.
This project had high entry barriers since private partner should have an experience in
project implementation in healthcare including conduction of complex surgeries and also high
costs of the project. The participation of EMC was warmly welcomed by the Moscow
In the beginning of the 2016 private partner stated that it does not want to continue
operations under the current terms of the concession agreement since they were not clear and
resulted in misperceptions.
PPP on the reconstruction and equipment of the hospital № 63 has 2 main criteria for
evaluation with equal weights: financial (50%) and functional (50%). Financial is the size of the
concession fee (1 billion rubles) and operational (volume of medical services provided stated in
the concession agreement on CHI and High-tech medical care tariffs starting from the sixth year
of operations. Each operational criteria has weight of 6.25%, among them are (Table 7):
Table 7 Awarding criteria for project in Moscow
Initial value of
1. Size of the concession fee according to the concession 1 000 000 000
agreement (initial onetime payment)
2. Volume of medical The number of PET studies center of up to 7000
services provided on positron emission tomography
CHI and High-tech The number of hospitalizations of up to 1 000
medical care tariffs Endovascular Surgery center
starting from the sixth Number of visits of endovascular surgery up to 65 000
year of operations
The number of hospitalizations of up to 1 000
The number of visits of perinatal center
up to 55 000
The number of skilled births attendants
up to 1 000
The number of hospitalizations of up to 500
The number of visits of rehabilitation up to 25 000
There are several more examples of projects that were unsuccessful due to lack of bidders
or underdeveloped tender documentation. Like Diagnostic Center "Republican Clinical Hospital"
in Cheboksary of the Chuvash Republic. When the contest was announced no one expressed the
interest in this project implementation. Later the tender documentation was amended and it was
Maternity hospital №17 on Vavilovykh street was not implemented yet. St Petersburg
administration announced this project in 2013. However, later it made some amendment to the
tender documentation. After crisis it had to reconsider project costs but the contest on this project
has not been announced yet.
Currently there are 238 projects in Canada (Canadian PPP Project Database). The
greatest part belongs to healthcare sector (Pic. 4). It accounts for almost one third of all PPP
projects. Canada is an interesting subject for analysis due to the great experience in PPP projects
realization that started in early 1990s. Most Canadian projects in terms of documentation, risks
allocation and PPP form are similar. Thus, only one successful project was selected for in depth
analysis and also one project, which is not considered as successful from the same province,
Fig.6 PPP projects in Canada
Source: Canadian PPP Project Database
Humber River Regional Hospital
The project Humber River Regional Hospital in Ontario province of Canada assumes
construction and maintenance of the hospital by the private partner in Toronto. The term of the
agreement is 30 years and this project is implemented under DBFM model. Private partner –
Plenary Health Care Partnerships – designs and builds the hospital; it finances the construction
and capital costs; obtains a third-party independent certification that the hospital is built;
provides facility management, lifecycle maintenance and ensures that building corresponds to
the requirements of the project agreement.
Committee of representatives from Infrastructure Ontario and Humber River Regional
Hospital are overseening this project. Private partner will recieve monthly payments from the
Province for construction of the facility, building maintenance, lifecycle repair and renewal and
project financing over 30-year period thata has started after the building was constructed. The
average paument equals $53.9 million.
This is a large-scale project that includes constructing of a new facility, offering a
comprehensive range of services to support inpatient and outpatient programs for over 850,000
residents. Price of Contract is $1.75 billion and estimated Value for Money is $469.1 million.
The construction ended in June 2015 and currently this hospital is successfully
Brampton Civic Hospital
Brampton Civic Hospital was built under a PPP mechanism in 2003. The private partner
of this project is one of Ontario’s largest hospital corporations, the William Osler Health Centre
(WOHC). Contract with WOHC lasts for over a 25-year period and this Centre was supposed to
conduct monthly payments over this period starting from the construction. Private party was
responsible for designing, building and financing of the new 608-bed hospital. It also provided
certain non-clinical services and planned to operate the facility. In return the WOHC agreed to a
monthly payment over 25-year period, beginning on the completion date of the hospital.
This project has several problems. First, WOHC had not enough resources to operate
several hospitals. As a result patients, financial and human resources were moved from Peel
memorial Hospital to the Brampton Civic campus and the first hospital was closed. As a result
community got less beds from this project realization than initially anticipated and amount of
new beds was not sufficient to provide services to those who needed them.
Another problem is costs associated with this project. They were much higher than under
traditional form of procurement. According to the Auditor General, the value for money analysis
included not all relevant factors. Consequently, cost of the project could be much lower. Right
after hospital opening two patients died and their relatives told that long waiting time, not
enough experienced staff were the main reasons for this.
Ontario could have saved hundreds of millions of dollars if the Brampton Civic Hospital
had been built and operated publicly rather than under a public–private partnership (P3), Ontario
Auditor General Jim McCarter says (Gilbert, 2009). The “value for money” assessment was
overestimated by $634 million, while the cost of construction using the P3 model nearly
doubled. The value of “risk transfer,” the estimate of what it will cost the consortium to deliver
the project on time, was also overestimated by a wide margin, according to McCarter.
The competitive level for reconstruction of this project was low and it is reported as
drawback of this PPP project.
Brampton Civic Hospital was the first project in Ontario and at that time this province
have not had any special agencies reviewing PPP projects’ implementation. So lack of in-house
resource expertise at the hospital could be another reason of not a highly successful
implementation of this project. Later Infrastructure Ontario has been created in order to provide
oversight and expertise to PPP projects. This Crown agency has mandate to oversee all
alternative financing and procurement (AFP) projects in the province
Contract agreement with current best practice in the province of Ontario revealed several
areas of difference including more complexity in the contracting mechanisms, a lack of robust
dispute resolution mechanisms and more apparent protection for the private sector partner
(Barrows et al, 2012).
The map below (Pic.5) shows the number of PFI projects implemented by prefectures
and cities. The number of PPP projects implemented by regional authorities is indicates in the
parentheses. This number is over 15 only around big cities such as Tokyo or Osaka.
Number of projects implemented by the regional authorities more than 15 only in the
areas of big cities such as Tokyo or Osaka.
Fig. 7 PPP Projects in Japan
Source: Jin Yoshida (2016)
City Clinics in Omishatiman city
One of the unsuccessful Japanese cases is the City Clinics in Omishatiman city. This
clinic was constructed under BTO model according to [daiwa soken] or DBFOM using the
classification presented in section 1.4. The private partner was responsible for design,
construction, operation and management of the new hospital. While public sector hold the risk of
low demand. After the hospital was constructed the demand did not reach the predicted level and
government bore significant losses due to fixed payments to private partner.
The problem of this case was in inappropriate risks assessments, wrong approach to risks
allocation and also tariff system. Government did not want to bear the demand risk alone when
this situation took place and it served as a motivator to stop the contract agreement.
Already after 2.5 years from the start of operations the public partner bought out the
hospital for 11.8 billion Yen in order to reduce payments of the bank interest (from 8.1 billion
yen to 3.8 billion yen for the regional bond loan) and payments for operations to private partner
in the amount of 3.3 billion yen and also to halve deductions on equipment repair and renovation
(Jin Yoshida , 2016)
Hospital in Koti
The second case is PPP on the construction and management of the main hospital
building in Koti after the merger of Prefectural Central Hospital and city hospital. The form of
this partnership is BTO (or DBFOM) and private company is responsible not only for
construction and maintenance but also for the related services (logistics associated with the
purchase of medicines, medical record keeping, laundry and cleaning services). The contract
term was 30 years (2002-2032) but after 4 years of operations, in 2009 a serious problem arose
that led to the termination of the contract agreement. Complex did not have enough working
capital. The main reasons for that were lack of knowledge in know-how in hospital management,
not careful prediction of expenses on the medical equipment, drugs and diagnostic materials. As
a result costs have not decreased as it was planned. Lack of experience and professionalism of
the private entrepreneur led to unprofitability of the emergency medical care unit. (Jin Yoshida ,
As an example of PPP project in healthcare in India serves Nephrology Centre Haldwani.
The contract on this project was signed for 5 years in March 2011 and in October center
commenced to deliver dialysis services. It is implemented under BOT model as stated at the
official website of the project (Built, operate and Maintain). Consequently private partner is
responsible for construction of Nephrology Centre at a space of 480sq meters. Procurement and
running of 13 dialysis machines, with one separate machine each for patients infected with
human immunodeficiency virus (HIV), hepatitis-B and hepatitis-C, personnel recruitment, IT
It is a concession agreement where government provides space to the public partner,
support per bid outcome and existing furniture and fixture. Among the benefits project states
maximization of services availability, reduction of O&M Cost, transfer of operational risks to
PPP partner, extended hours of operation compared to government setup. free service to below
poverty line (BPL) patients.
According to this concession agreement private partner charges patients for consumable
at least 15% less than the maximum retail price (MRP), serves the BPL and human
immunodeficiency virus HIV infected patients free of cost, maintains records of paying and non
paying patients (BPL&HIV infected patients). It is also responsible for procurement of high
quality consumables and prevention of “zero stock out” situation.
Unlike in a case of Japan (Koti) private partner is responsible for demand risk of this
project, technological. service level commitments, performance risk of old equipment.
What is interesting about this case is disclosure if information on performance including
number of BPL (below poverty line) and APL (above poverty line) patients served. From the
graphs and tables related to the Centre performance it is clearly seen that the number of patients
receiving services is continuously growing.
The Appendix 2 presents all information on
2.4 Cross-case analysis
The procurement stage of the project lifecycle determines the project implementation.
The efficient organization of this stage provides benefits to both partners and decreases projects’
costs and risks. Cross-case analysis is performed on 4 CSFs at the procurement stage that were
identified earlier in this paper and assesses whether each of the factors could or did contributed
to the more successful project implementation.
2.4.1 Transparent and efficient procurement process
In most PPP initiatives, the public sector partner identifies the management and financial
consultants to advice on the projects. The appointed advisors should develop the contractual
clauses after discussion and in mutual agreement of both the public and private sector interests.
This would enable a better business projection and incentivize the bottom-line objectives of the
Consulting companies and auditing companies perform various consulting services
supporting PPP projects implementation in many European countries as well as in Northern
America and Australia where PPP mechanisms are well established. However on the Russian
market these companies are usually not attracted to support the project realization. There are
several reasons for this fact. First, it is reasonable to use services of such companies in a case if
the project involves high investments (hundreds million dollars) and projects with high level of
investments are not so common for Russian Federation, especially in healthcare sector.
In Russia, E&Y's projects include development of PPP mechanisms for construction of
airports, toll roads and other infrastructure. This company also was leading advisor on funds
raising for various infrastructure and industrial projects.
If we consider PPP projects in healthcare then KPMG, E&Y and PWC do not state that
they have experience in their implementation [E&Y] Among the reasons are unattractiveness of
this field and lower level of development that assumes not so high level of investments. The only
project that E&Y mentions in one of their reports is financial and legal advisory services on
creation of a multi-medical center (development of the project concept for the foreign company)
[Ernst and Young, 2013].
However E&Y participated in many high scale projects in Russia: Western High Speed
Diameter in St. Petersburg with capital investments of $4.9bn; M11 Moscow-St Petersburg
Highway on 15-58 km with capital investments of $2.1bn. In reconstruction of Pulkovo airport
project E&Y participated in several phases of procurement stage from the tender documentation
preparation to the choice of the private partner and final modifications of the project agreement.
This company was also involved in projects with lower investments of $130mn - airport
Kurumoch in Samara (PPP in Russia, 2013).
If we take procurement stage of the project then the main support that consulting
companies provide is preparation and conduction of contests. In Canada legal consulting
companies are used in most cases and their reports, analyses are openly published together with
other projects documentation.
In Canada there is a special council on PPP that provides all information relevant to the
PPP projects implementation. Also it has a project database with a list of all projects in various
provinces, their short description including project scope, form of PPP, current status, and
necessary investments. Website of this council provides links to the regional websites that
provide information on all PPP projects in that province. Users can find almost everything they
need on that websites.
The similar database is created on Indian PPP projects. Users entering website can get the
basic information on the project scope including the project schedule, investments and scope of
the project. However, if user needs more information then he/she needs to search at local
websites dedicated to the PPP projects. For example, for Uttarakhand region on Uttarakhand PPP
Cell available at the official website (Nephrology Centre Haldwani….)
While in Russia the same information is dispersed and often non-available. For example
Republic of Tatarstan provides tender documentation on the PPP projects on website of Ministry
of Property and Land Relations, in Samara it is possible to find some documents on the website
of the Ministry of Economic Development. In St. Petersburg this information is partially
published on the website of city administration. Access to documents is quite often limited and
the only documentation user can find is tender documentation, sample of concession agreement,
information on the contest and sample of the request on participation in the contest.
Information on Canadian projects is more detailed, contains more information on
evaluation criteria, risks allocation, clearly defines project scope and requirements etc. Request
for Proposals of Humber River Hospital contains detailed description of the project, project
preparation/implementation. It thoroughly describes project stages and approval process. There
is a definite project scope with minimum requirements, including bed capacity, parking, utilities
and site-related infrastructure, property rights and access, degree of flexibility, clinical services
that has to be provided, facilities management services, equipment, IT services and additional
It contains information on human resources and various financial issues (like value for
money and affordability, tax issues, payment mechanisms). There is also draft of the project
agreement that includes risk allocation part and output specifications. It also describes site
characteristics, data room, insurance and workers compensation, proposal deliverables at each
stage: initial and final proposal stages, inquiries and communication process, changes to
proponents and proponent team members, procedures for amendments to proposals, closing time.
The same document contains information on review and evaluation of initial proposals including
preliminary review, interviews and meetings, right to verify, scoring, ranking, final proponent
identification, clarifications, procedures on non-conforming and qualified proposals. Then go
description of final proposal stage and contract finalization stage. RFP also describes right of
public partner to amend, cancel RFP, and reject proposals. It also includes different bed
occupancy scenarios that determine the future operations.
Russian documentation has fewer details and private partners might have some concerns
about the effects of possible negative actions. Tender documentation usually contains 4 volumes
on: General documentation for the open competition for the right to enter into concession
agreements; Pre-selection of participants for the competition for the concession agreement;
competition for the concession agreement; technical task.
At the same time this extensive information on Canadian projects can create an
arrangement that is complex and difficult to manage by the public sector. It was a problem of
Brampton Hospital in Canada. So clearly defining accountability structures in the formal
contract agreement is important to the successful execution of PPP projects. (Barrows, 2012)
If we come back to the Indian project then it is the only one that openly publishes
information on the amount of patients that received dialysis services (both BPL and APL
patients) during the whole period of operations. While Russian companies only state that they
fulfill requirements stated in the concession agreement.
Transparency increases competitiveness, attracts more bidders to the project
implementation, decreases transaction costs that are high in public sector. But the transparency
level is much lower in Russia; there is no integrated system that consequently limits sharing
experience with other regions.
The efficiency of the contest depends a lot on its the organization. If the organization
corresponds to projects needs, environment then the probability of the project implementation
should increase. Laws on the concession agreements and PPPs determine procurement
procedures. There is no Law on PPP in the UK, where it is replaced by recommendations of the
Ministry of Finance on how to apply public procurement legislation. In the U.S. public
procurement is regulated at the federal level but there is no federal law as well. The European
Commission clarifies how to apply the laws on public procurement and to PPPs (CEC, 2008).
Considering Russia and Canada, both countries have a law or special policies on PPPs but they
might regulate the implementation of PPP projects in a different way. Consequently crosscountry analysis of the legal and regulatory framework should be conducted to estimate
procurement stage regulation and critical success factors.
In Russia the common situation with PPP projects implementation is lack of competition.
Officially if there are less than two proposals the contest is declared as not taken place. As a
result grantor can sign concession agreement with the only bidder if its proposal meets
requirements of the tender documentation. In cases covered by the current analysis only for two
contests amount of bidders equaled two. At the same time only in one contest on construction of
the new building of the city clinics № 40 in Resort District two bidders were shortlisted but only
ine presented the final proposal. The second bidder decided not to participate in the following
procedures since it was a Turkish company that was not able to participate due to political
reasons after events of November 2015. For 7 cases only one bid was received but there are
some more contest that were declared as failed because of lack of applications in general. This
information is also presented in the Appendix 1.
According to the information in law criteria for the choice of private partner might have
absolutely different estimates, therefore, it is interesting to compare criteria (number and
characteristics of the criteria and weights) used in Canadian projects and Russian. But first it is
necessary to investigate how the tender is organized in Russia.
Evaluation of proposals in Russia
The tender is held in accordance with the decision on the project implementation and
includes the following steps:
1) informing on the tender in the Internet on official Russian website or in case of a
closed contest sending invitations to participate in a closed tender;
2) submission of requests for qualification
3) opening of envelopes with requests for qualification
4) preliminary selection of participants;
5) request of proposals submission;
6) opening of envelopes with requests for proposals
7) evaluation of bids and determination of the winner;
8) signing of the protocol on the results of the competition, posting messages on the
results of the competition on the official website of the Russian Federation and informing tender
participants on the results.
Tender committee performs review and evaluation of bids, determines whether bids
comply with the requirements of the tender documentation, assesses them and makes the
decision on whether it is possible to proceed with the current proposal.
The public partner applies the Highest bid – Lowest bid scoring rule while estimating
bids of the private partners and then transfers the qualitative data and quantitative data into
scores. After that the private partner is determined using rules described in the Federal law from
21 July 2005 # 115-FZ "On Concession Agreements" (art. 32-5) with last amendments from
30.12.2015. This rule was also transferred into the Federal Law of 13 July 2015 # 224-FZ "On
public-private partnership, municipal-private partnership in the Russian Federation and the
Amendments to Certain Legislative Acts of the Russian Federation" (art. 28-5).
As the competition criteria can be set:
1) The terms of creation and (or) reconstruction of the object of the concession
2) the period from the date of signing of the concession agreement to the day when
created and (or) reconstructed object of the concession agreement will comply with the
established concession agreement of technical and economic indicators;
3) technical and economic performance factors of the object of the concession agreement;
4) volume of works, services that should be provided according to the concession
5) the period from the date of signing of the concession agreement to the start day of
operations, activities according to the concession agreement will be carried out to the extent
provided for by concession agreement;
6) the size of the concession fee;
7) The maximum prices (tariffs) for goods produced, work performed, services provided,
allowances such prices (tariffs) in the implementation of the activities provided for by
concession agreement and (or) long-term regulation parameters of the concessionaire activity;
8) obligations of concessionaire in case of not meeting planned income from operations
at the object of the concession agreement, additional costs in the creation and (or) reconstruction
of the object of the concession agreement.
In case if concessionaire is responsible for preparation of project documentation the
awarding criteria might be introduced with a weight of not higher than 0.2. Another criterion is
the concession fee if it is discussed in the concession agreement.
Each criterion described above has 3 parameters that serve as a basis for evaluation:
The initial value
Increase or decrease of the initial value
Weight of each criterion reflecting its importance
Weight of the criterion should be in range from 0 to 1 and their sum must be equal to one.
Maximal weight of evaluation criteria in Russia:
Technical criteria (0 - 0.5)
Financial and economical criteria (0 - 0.8)
Juridical criteria (0-0.5)
In order to understand how the private partner can behave depending on the weight and
number of criteria used for determination of the private partner lets consider the following
situation. If there are m+1 awarding criteria (m of them for the quality assessment and price)
then scoring rule attributes to each supplier’s bid a=(q1, q2, …, qm, p) the score:
U (a ) = ∑ wq i Qi + w p P,
wqi and wp are the weights of awarding criteria defined by the public partner, and
+ w p = 1; as determined in the law.
Qi and P are the scores that bid of the private partner gets after application of the certain
rule for transfer of quantitative data in the proposal to the scores on the basis of qualitative
criteria and price (Dini et al., 2006). In RF this is a Highest bid – Lowest bid scoring rule.
According to the Federal law from of 21 July 2005 # 115-FZ "On Concession
Agreements" (art. 32-5) the proposals in Russia are estimated in the following way:
When the awarding criterion is increasing value of such criterion is calculated by
multiplying the coefficient of such a criterion on the ratio of difference between the value
in the proposal and the initial value of such criterion to the difference between the highest
value among all proposals and the initial value of this criterion.
When the awarding criterion is decreasing the bidder gets more points if the initial value
of the criterion is reduced. Value of such criterion is calculated by multiplying the
coefficient of such a criterion on the ratio of the difference between the initial value of
such criterion and value in the proposal to the difference between the initial value of this
criterion to the lowest value among all proposals.
After the value of estimates for each awarding criteria are summed up for each proposal
and the best proposals is defined.
Therefore, each contest has certain awarding criteria that are defined by the public
partner and the winner of the contest is determined by comparison of the values on awarding
criteria for each bidder. If there are just two awarding criteria: Quality and Price and private
partners submitted N number of bids (q1, p1), …(qN, pN). Then in order to evaluate bids public
partner needs to estimates the following four values to evaluate each bidder.
qmin = min qi , qmax = max qi , pmin = min pi , pmax = max pi .
1≤i ≤ N
1≤i ≤ N
1≤i ≤ N
1≤i ≤ N
Thus, the rule for bids evaluation that has been just described for increasing and decreasing
criteria takes the following expression:
qi − qmin
, Pi = max i .
qmax − qmin
pmax − pmin
The Highest bid – Lowest bid scoring rule gives maximum score to the best bid and
minimum one – to the worst bid, and scores all other bids proportionally their distance from the
worst bid (Dini at al., 2006, p. 309).
The next two graphs present the scheme for bids evaluation (Fig.8 and Fig.9).
Fig. 8 Rule for the increasing criterion
Fig. 9 Rule for the decreasing criterion
The second formula allows estimating the quantitative evaluation for each bid and then
inserting values of Qi and Pi that were received into formula 1 public partner makes the final
decision on which partner to choose.
If public partner has only two awarding criteria then it might create incentives for the
private partner to improve their proposals on one criterion while keeping value of another one
high in case of decreasing criterion or on the opposite low in case of increasing criterion. It is
especially important in the case of different weights for criterion. For instance if price has higher
weight than quality the result of this procedure and its effectiveness will depend a lot on the
information available for other participants. Assuming that one of the bidders has information on
value of price criterion suggested by its’ competitor or receives it from the public partner, Then
private partner can offer lower price and also decrease quality. Consequently, it will have the
highest grade for price and the lowest for quality. As a result the private partner with the lowest
price wins because the weight of price is much higher. As an example, wq =0.4 and wp =0.6.
Partner with lowest price has U(a) = 0.4*0 + 0.6*1 and the second one with higher quality and
price has U(a)=0.4*1 + 0.6*0 = 0.4 and evidently the first one wins.
A casen when there are more than two awarding criteria can be dangerous as well. If at
least one of the criteria has weight of more than 0.5 then the same situation as has been just
described can take place.
At the same time if weights of two criteria are equal then private partners will be more
interested in being first who sends the application. Since this will be determining criteria for
winner in case of same scores for qualitative and financial criteria.
In Russia different awarding criteria were used on projects depending on the region or
year when the decision on PPP project implementation was made. For example, 2 projects on
hemodialysis in Tatarstan (in Nizhnekamsk, and Bugulma) had only two awarding criteria and
none of them was financial (as Table 4 presents). Project on hemodialysis in Kazan had only one
awarding criteria and it was financial – share of expenses (in value terms) taken by the
concessionaire. Center of Family Planning and Reproduction in Kazan as well as HD center in
Naberezhnye Chelny had 3 awarding criteria with financial criterion of weight 0.4 and 2
qualitative (time criteria) of 0.3. Project in Samara had one criteria that was named as conformity
with requirements and it was neither increasing nor decreasing of weight 0.4, time criterion and
financial of 0.3. Project in Novosibirsk on maternity hospital had also just one criteria –
concession fee. The integrated information on awarding criteria is presented in Appendix 3.
In Moscow PPP on the reconstruction and equipment of the hospital № 63 has 2 main
criteria for evaluation with equal weights: financial (50%) and functional (50%). Financial is the
size of the concession fee (1 billion rubles) and operational (volume of medical services
provided stated in the concession agreement on CHI and High-tech medical care tariffs starting
from the sixth year of operations. Each operational criteria has weight of 6.25% (Table 7).
Documentation on PPP project in St. Petersburg does not provide clear criteria for bids
assessment. The only information provided is that it has two criteria with 50% weight each.
These are financial and technical criteria.
Situation in Canada is a bit different. There are always several criteria (more than 2) and
also the competitive level is much higher.
Therefore, current legislation in RF restricts the usage of the scoring rules to highest bid
– lowest bid scoring rule and. Since Russia has relatively high level of corruption, lack of
experience in the area of public procurement regulation, which leads to the use of inadequate
tools in case of low competition. If there are just two evaluation criteria and one has higher
weight then in case of low competition (2 bidders) private partners will have incentives to make
better offer only on the factor with highest weight because then it wins the contest regardless of
the quality. At the same time number on awarding criteria in Canada is higher and can be a
signal of positive experience since Canada has more projects that are at the implementation
Considering Porter’s value chain and valuation procedures described it is possible to
conclude that if the requirements contained in tender documentation as well as awarding criteria
should mitigate risks that are partially arising from the inefficient procurement stage like risks of
not inclusion in CHI program, changing CHI tariffs, increasing prices on equipment
maintenance, increase of actual expenses over specified, not meeting technical requirements,
non-ability to provide medical services or their non-availability, provision low quality services,
patients' health harming, having not enough qualified personnel etc.
Consequently, from the analysis conducted one more factor can be distinguished – usage
of appropriate awarding criteria. This factor aims to mitigate risks of the project through
inclusion of criteria that will be both financial and technical/qualitative where none of the criteria
is more than 0.5. If such requirement is met then the risk of misconduct is mitigated.
2.4.2 Competitive procurement
Competitive procurement process can create incentives for private partners to provide
better proposals and investigate their opportunities more accurately.
PPP projects in Tatarstan on Hemodialysis had just one bidder on all 5 projects (Clinic
of modern medicine HD). The same situation took place with project in Samara that had just one
bidder “Farm SKD” and in Moscow where the only bidder was European medical center. So in
all these 7 projects only public partner received only one bid and the contest was declared as
failed to take place. However, there are several exceptions – St. Petersburg (construction of the
City Hospital №40 of Resort District) with two bidders. However, only one reached the stage of
requests for proposals because the second one was a Turkish company and after the situation in
the end of 2015 negotiations were stopped.
Brampton Civic Hospital has just a few competitors and it was perceived as a source of
the problems aroused during the project implementation stage. Had there been more bidders then
probably not WOHC would be chosen as a partner but another company that had more financial,
operating, human resources to provide healthcare services in all hospitals. For Humber River
Hospital number of shortlisted bidders equals 3 and this is a common situation for Canada.
Competition is relatively low in Japan. Usually just one bidder reaches the request of
proposal stage. As a result of such low competition might also affect the quality of estimation of
benefits if this project. For example in a case of city clinic in Ōmihachiman the partner that met
eligibility criteria was chosen for the implementation of this project and there were no
competition for this project implementation. Had there been more bidders the result could be
different since government would accumulate information from proposals of various bidders.
On Indian projects competition is relatively low as well. However, in the case of
Nephrology Centre Haldwani number of bidders who reached request of proposals stage equals 3
and this project is considered to be successful.
Therefore, the more competitive procurement process might improve quality of
proposals, mitigate risks of corruptive or hazardous behavior. It also allows public partner to
make more accurate choice. At the same time market in Russia is not so well developed and it is
not easy to increase number of bidders. For this investors need more information (more
transparent process) and also to have public partner that will improve the current situation on
PPPs in healthcare and other sectors.
2.4.3 Well organized and committed public agency
PPP form for creation and reconstruction of healthcare organizations becomes more
common in various regions of Russian Federation. Currently 70 subjects of RF introduced
regional laws on the participation of regional authorities in the PPP. Programs or documents
approved by Russian Federation authorities on the development of public-private partnerships in
the healthcare sector contain measures for development of PPP in 68 subjects of the Russian
Federation. In addition, majority of programs on healthcare development include either subprograms on "Development of public-private partnership" (in 42 subjects) or separate sections
devoted to PPP (22 subjects). Number of regions of the Russian Federation approved concepts
on the development of the PPP in healthcare (Irkutsk, Kaluga, Orel, Tomsk, and Yaroslavl
Oblasts and Khabarovsk Krai) (Reference to question 4…).
Projects from the regions with the highest PPP development level are chosen in order to
analyze best practices (Fig. 10). Rating of regions is calculated on the basis of three factors:
Level of the institutional development in the PPP field, experience in the PPP projects
implementation, investment attractiveness of the region for infrastructure investors. Each factor
has weights: the first one has a weight of 0.4 while to others have 0.3 weights each.
The first factor has the highest share due to formation and development stage of the
institutional environment as the most important component for PPP investments attraction. It
consists of several sub factors: the presence of the regulatory framework, responsible authorities,
power or structural units (including commissions, councils, working groups) on PPP
Experience in the region for the implementation of PPP projects. This factor assumes that
the higher the number of projects implemented subject of the Russian federation has the more
managerial competencies it will have and consequently it will positively affect the success of the
PPP projects implemented. The following indicators are taken into account when assessing the
factors: current status of the project (implementation stage), investments volume, project
implementation period, projects variety (different sectors).
Investment attractiveness of the region for infrastructure investors that estimates the
potential for attracting private investment in PPP projects. The subjects of the Russian
Federation with the highest rate of development got 60% -75% out of possible 100. The leaders
of the rating are St. Petersburg and the Republic of Tatarstan, which have the highest investment
attractiveness, extensive experience in the implementation of regional PPP projects and
developed institutional environment. Among other leaders are Novosibirsk region, Sverdlovsk
and Nizhny Novgorod regions. They have high level of development of the regulatory
framework and investment attractiveness.
0.00%! 10.00%! 20.00%! 30.00%! 40.00%! 50.00%! 60.00%! 70.00%! 80.00%!
Fig. 10 Rating of regions in terms of PPP development
Source: Rating of regions
Different subjects of Russian Federation have regional programs on healthcare
development that include information on the necessity to develop PPP mechanisms in the region.
However there is no clear understanding of what is PPP project and which benefits it provides.
Most regions consider it as a method to attract additional investments and provide services to
clients or to transfer supporting activities to the private partner.
However, some regions create units that specialize on PPP projects implementation. For
example, Samara region created a specialized unit responsible for preparation, coordination and
support of PPP projects. This unit is a part of the structure of the Ministry of Economic
Development, Investments and Trade of Samara Region and it has qualified and trained
employees. Currently this region has one project with FARM SKD that is at the implementation
stage and analyzed in this paper but it also has 5 other projects that are or will be implemented.
Currently most of the projects in Canada as well as in Russia are implemented in several
regions (Table 8).
Table 8. Concentration of PPP projects in healthcare
No of regions
During implementation of Brampton Civic Hospital project Ontario have not had any
special agencies consulting and overseeing projects implementation. So the agency that could
accumulate and share experience and expertise was missing. Case studies on Brampton Hospital
report that lack of such experience was one of the reasons of high projects’ costs.
Later Infrastructure Ontario has been created in order to provide oversight and expertise
to PPP projects. This Crown agency has mandate to oversee all alternative financing and
procurement (AFP) projects in the province
In Japan concentration of PPP projects implementation is also relatively high, the greatest
amount of PPP project is near big cities and the smaller area is the lower is its’ capacity for
The same tendency exists in India. The main part of PPP projects is implemented in the
regions with relatively high development level. So the poor regions still cannot attract private
partners to project realization. For example Uttarakhand PPP Cell where the Nephrology Centre
Haldwani was constructed is situated in relatively well-developed region with more attractive
To conclude, Canada has special agency that supports implementation throughout the
project lifecycle. It also has rich database that provides general information on the project and
links to the website of the province were users can find all relevant information on the project
including project agreements, VFM analysis, schedules, news releases etc. Russia currently has a
website that lists all the projects but it is not comfortable to use it, compared to the Canadian or
Indian one, and also it has very limited information. Among positive moments in Russia is
implementation of regional laws to support projects realization and also creation of agencies in
some regions that support implementation of projects.
2.4.4 Thorough and realistic assessment of costs and benefits
Accurate assessment of costs and benefits can significantly influence the future
implementation of the project. Private partner would be more oriented on providing realistic
proposal in case if the public partner understands opportunities of the private sector and process
and results of the project implementation.
Information on Canadian projects is more detailed, contains more information on
evaluation criteria, risks allocation, clearly defines project scope and requirements etc. Russian
documentation has fewer details and private partners might have some concerns about the effects
of possible negative actions.
The important part of each report on Canadian project is the value for money analysis
that refers to the process of developing and comparing the total project costs on two different
delivery models expressed in dollar values measured at the same point in time. Value for money
is determined by directly comparing the cost estimates for the following two delivery models:
Traditional project delivery or public procurement model and Alternative Financing and
Procurement (AFP) The traditional delivery costs and AFP costs are present-valued to the date of
financial close to compare the two methods of delivering a design, build, finance and maintain
project at the same point in time.
The base costs between AFP and the traditional delivery model mainly differ as follows.
Under the AFP model, the private party charges an additional premium as compensation for the
risks that the public sector transfers to them under the AFP project documents. In the case of
traditional delivery, the private party risk premium is not included in the base costs as the public
sector retains these risks. Financing rate that the private sector is charged under AFP is higher
than the financing rate of the public sector and is not included in the traditional delivery base
The cost difference between these two models is referred to as the value for money. If the
total cost to deliver a project under the AFP approach is less than the total cost to deliver a
project under the traditional delivery approach, there is said to be positive value for money. The
value for money assessment is completed to determine which project delivery method provides
the greatest level of cost savings to the public sector.
The VFM assessment of the Humber River Regional Hospital project indicates estimated
cost savings of 19.1 per cent or $469 million, by using the AFP approach in comparison to
traditional delivery. From the graph below (Fig.11) you can see that the main value is achieved
through transfer of risks to the private sector.
Fig.11 Example of the result of VFM analysis in Canadian PPP Projects
PricewaterhouseCoopers completed the value for money assessment of the Humber River
Regional Hospital project. Their assessment demonstrates projected cost savings of 19.1 per cent
by delivering the project using the AFP model, versus what it would have cost to deliver the
project using a traditional delivery model.
However, Value for money analysis should be not just on paper. It should include all
relevant factors. For example, value-for-money analysis for Brampton hospital included not all
of them. As a result, project costs were much higher than under traditional form of the
procurement. According to the Ontario’s Auditor General, Brampton Civic Hospital cost the
public $200 million more than if it had been publicly financed and built directly by the province.
All Canadian reports are extensive and provide information on risks allocation and
impact of other negative events. Japanese cases are good examples of the situation when
inaccurate assessment of costs and benefits led to the termination of contract agreement. If it was
thoroughly investigated before then project documentation would be different and government
would have different expectations regarding services of the private partner. In the first case,
construction and maintenance of the medical complex the demand predictions were inaccurate
and consequently benefits from attraction of the private partner to implement this project were
overestimated. As a result the contract was terminated.
In the second case, construction of the city clinic in Ōmihachiman, public sector was not
careful enough in estimation of the private partner opportunities and experience. In Russia
information on risks and benefits is present in the reports however compared to Canadian project
volume is rather small and there is some room for improvements.
Considering Russian cases, VFM analysis is not disclosed on them but it should be also
conducted, especially in case if the project involves high investments.
Analysis of successful and problematic cases reveals that in case when it is conducted
and includes all relevant factors it might provide positive results for the implementation of PPP
2.5 Results: Procurement stage as a source of critical success factors
The results of the analysis conducted are divided by CSFs in order to assess the relevance
of each of the critical success factors for the project implementation in Russia and other
Transparency in the procurement process. One of the characteristics of transparency is
availability of tender documentation and other documents related to the PPP project. We can see
the following tendency. There is almost no information on PPP projects in Russia. This
information is allocated among absolutely different sources. Access to most documentation of
more than 50% of the projects is limited and in all cases just a main part of the project
documentation is published. If we take Canada or India then we see that they have all
information in one place with all the news releases, project documentation, schedules, requests
and evaluations, results of the project implementation. So level of transparency in Russia is
lower. Besides in Canada almost all projects involve assessment by fairness advisor, consulting
companies while in Russia their services are used rarely and the lower scale of the projects in
general partially determines this situation.
Competitive procurement process. This characteristic is also not typical for Russian PPP
projects. However there are not so many private investors who are able to construct and operate
healthcare units dedicated to provision of services of specific function. Like with example of
Hemodialysis center. The company “Klinika sovremennoy meditsyny HD” was the only private
company operating on that market. So it can be more important to have clear project
documentation to limit hazardous behavior of the private partner. Canadian project have high
number of bidders (around 3 bidders on average reaching request of proposal and submitting
their application form)
Moreover, highest bid-lowest bid scoring rule should not be applied in case of low
competition because it creates incentives to improve offer only on one criterion because then
private partner will win the contest even if the price is extremely high or quality is low. In
addition, more than two awarding criteria should be used to avoid hazardous behavior. Analysis
of this rule revealed that if at least one criterion has weight of more than 0.5 then private partner
would have no incentives to improve its offer on other criteria. Consequently it is necessary to
have more than two awarding criteria in tender documentation. In addition if there are only two
bidders then in case of similar scores on all criteria but one, the bidder that suggests gets just a
little bit lower scores on several criteria gets 0 scores on them and looses in the contest.
Therefore this rule also should not be applied in case of low competition.
Well-organized and committed public agency. PPP partnerships in healthcare in Russia is
relatively new concept, they started to appear in the late 2000s. However, more and more regions
of Russia introduce recommendations or policies on the PPPs in order to increase attractiveness
of such a form for private investor. Most investors are unwilling to enter PPPs because of the
high risks and these risks can be partially mitigated by the legislation and recommendations. In
addition creation of specialized units or center integrating information on all projects,
accumulating experience and sharing best practices like it is done in Canada might improve the
attractiveness of projects and rate of projects successfully implemented.
Thorough and realistic assessment of the costs and benefits. This factor is crucial for the
successful accomplishment of the project. This paper introduced several cases where private
partner could not meet the predetermined plan on procedures or number of patients because the
demand was lower than expected. But since the profit of private partner depended only on
government payments it did not have enough motivation to improve the quality of services
provided or to change the current conditions in order to increase number of patients. The
outcome of such a situation was a buy out of the infrastructural object and transferring all
operating activities to a public partner. If costs, risks and benefits are assessed in advance and
included in project agreements then it is possible to avoid such situations.
All this critical success factors at the procurement stage (transparent procurement,
competitive procurement, thorough and realistic assessment of the costs and benefits, well
organized and committed public agency) can contribute to risks mitigation of the healthcare
project. They affect it through higher quality of tender documentation, higher involvement and
interest of the public partner and usage of previous experience, increasing awareness of private
partners and greater number of bids, reduction of hazard behavior, creating more attractive
investment environment and as a result attracting more bidders and possibility to make more
accurate selection of the partner. Thereby they also reduce some medical and operational risks.
Results of the ross-case analysis reveal that there is almost no competition on PPPs in
healthcare in Russia.
According to the information gathered on websites of the projects it is
possible to conclude that Canadian projects have overall much higher transparency because
almost everyone can get the information on project documentation. Transparency in Russia is
lower overall. It is still possible to find information on project documentation but only in few
cases. Besides, there is no single database with project description as it is in Canada. So the
integrated solution can be introduced in Russia in order to increase transparency and this will
also affect the level of public agency commitment and trust of private partners.
Moreover, Canadian project have higher competition. In all the cases there were at least 3
candidates who prepared research f or proposal. As for research for qualification – the minimum
number is 4 bidders willing to participate in the project realization. Considering competition in
Russia, it is very low for healthcare projects. In most cases there were one or two potential
bidders. In addition there are several projects that failed only because no one applied for request
for qualification. Since we have low competition it is necessary to conduct thorough and realistic
assessment of costs and benefits and use another evaluation procedure in order to avoid
hazardous behavior. For instance, more than 2 evaluation criteria should be used for bidders
evaluation and weights of these awarding criteria should not exceed 50%. It also worth to
transfer opportunity to define bids evaluation procedure to the public partner (with approval of
Contracts should allow for flexibility of the private partner and at the same time it is
better to make them more complete since in most cases there is just one partner and flexibility
and completeness assume possibility to get better quality of services provided by private partner.
For example in Canada public agent include many different factors that might affect the
successful realization of the project. However in Russia it is regulated mostly by requirements in
technical assignment. So agreements should provide some degree of flexibility but clearly state
risks allocation and actions in case of some negative events (low demand, contract termination
Value for money analysis can be beneficial for government especially if independent
party participates in its conduction. Independency assumes also higher transparency. Therefore,
usage of services of fairness advisors especially for projects with high investments (>$100
thousand) can be beneficial.
Number of PPP project in healthcare in Russia is continuously growing but rate of
unsuccessful projects/ projects that had some problems during their implementation remains high
compared to other developed countries. In order to make recommendation on improvement of
Russian policies and regulations and on the process of PPP project implementation cross-case
analysis was conducted with several cases from Russia, Canada, Japan and India.
The main reasons for attraction of private partners in projects implementation in
healthcare are the same as in other sectors: attraction of private investments, allocation of risks,
introduction of private expertise and cost efficiency, that is also supported by project/concession
agreements in cases analyzed.
Some of the cases analyzed were not implemented or failed because of the inefficient
organization of the procurement stage. This stage can affect results of the whole project
implementation since each CSF at this stage identified through analysis of papers on CSFs of
PPPs project tends to mitigate risks. Among the major CSFs are transparent and efficient
procurement process, competitive procurement, well-organized and committed public agency
and thorough and realistic assessment of costs and benefits. And also case analysis and gametheoretical modeling revealed one more factor relevant for RF - usage of awarding criteria and
procedure of bids evaluation appropriate for the environment. In Russian reality each of these
factors can contribute significantly to the successful project implementation but then
international practices should be transferred where it is possible.
Overall, this paper aims to increase efficiency and effectiveness of PPP projects
implementation through management of CSFs identified and realization of recommendations
stated in this paper should help in achieving this goal.
Limitations and further research
This research was conducted on a sample of PPP projects in healthcare and analysis of
the best practices in Canada. However, there are more projects in Russia that could be analyzed
in-depth and probably they could give more results. But the chosen sample was relevant for the
scope of this paper. Second, new law on PPP was introduced in 2016 and some more regionals
after 2014. Consequently the outcome of introducing them could be more visible in the recent
future, for instance the rate of successful projects might increase. Currently part of projects have
not reached the financial closing stage and they are out of the scope of this project. There is also
no commercially closed projects but as soon as for the procurement stage financial closure is
more important it worth to analyze these projects and use experience of other countries.
Significant contribution to this research could be from expert estimates of the CSFs that
were analyzed in this research. They can express their opinions and rate this factors according to
their relative importance. That will allow to make more accurate recommendations. This
research can be also extended to other sectors including transportation, energy, water etc.
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Appendix 1. PPP projects in healthcare in Russia
№40 of Resort
which 3.5 on
Hospital № 63
28 (3 for
Size (No of
The Ministry of
Land and Property
Relations of the
The Ministry of
Land and Property
Relations of the
The Ministry of
Land and Property
Relations of the
The Ministry of
Land and Property
Relations of the
cycles of IVF
The Ministry of
Land and Property
Relations of the
of Samara Region
IVF for 48
№40 of Resort
Hospital № 63
Appendix 2. PPP projects in healthcare in Canada, Japan and India
analysis (%) Price of the (in Years)
Country and and value, Contract
and Start Form
City/ Region mn
Japan – Koti
*based on the interview
lack of experience,
lack of working
low demand, fixed
not all relevant
factors were taken
Appendix 3 Awarding criteria on case projects
Project Time needed for Time period from
Initial Weight Initial
Hospital in Samara 36
City Hospital № 63 (Moscow) *
Maternity Hospital (Novosibirsk)
Expenses taken by
technical and economic
requirement of the
object of the agreement
according to the
Share of costs of the
dialysis services that
is covered by the
Information on other cases is not available (only weights, that are presented in the cases description part)
*Specific criteria for the city Hospital № 63 in Moscow in the separate table on the next page
Criteria for the city Hospital № 63 in Moscow
Volume of medical
services provided on
CHI and High-tech
medical care tariffs
starting from the sixth
year of operations
Initial value of Weight
The number of PET studies center of up to 7000
positron emission tomography
The number of hospitalizations of up to 1 000
Endovascular Surgery center
Number of visits of endovascular surgery up to 65 000
The number of hospitalizations of up to 1 000
The number of visits of perinatal center
up to 55 000
The number of skilled births attendants
up to 1 000
The number of hospitalizations of up to 500
The number of visits of rehabilitation up to 25 000