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JFMPC
15,3
216
Journal of Financial Management of
Property and Construction
Vol. 15 No. 3, 2010
pp. 216-234
q Emerald Group Publishing Limited
1366-4387
DOI 10.1108/13664381011087489
Impact of governance on project
delivery of complex NHS PFI/PPP
schemes
Manju Patel
NHS Grampian, Aberdeen, UK, and
Herbert Robinson
Department of Built Environment, London South Bank University,
London, UK
Abstract
Purpose – This study aims to examine the impact of governance on project delivery in complex
private finance initiative (PFI) projects. Governance is crucial in delivering successful projects within
budget, time and in accordance with other project objectives.
Design/methodology/approach – A two-stage approach was used to address the research
questions. First, a literature review was carried out and second, a multiple case study approach based
on detailed semi-structured interviews with project directors and senior managers was conducted to
provide an in-depth insight on how two major PFI projects were planned, managed and delivered in
the National Health Service (NHS, UK).
Findings – Project governance influences project delivery in terms of cost, speed of completion, quality
and its financial viability as it is critical in providing clear organisational structure, effective decision-
making structures and control processes. The success of one scheme was attributed to an appropriate
governance structure enabling necessary reviews and adjustments to be made to render the scheme
financially viable and affordable. The failed scheme, subsequently abandoned at a cost of over £15 million
to tax payers, was due to an inadequate governance structure creating conflicting priorities of
stakeholders, complex decision making with negative impact on project deliverables such as cost and time.
Originality/value – Previous research has not addressed the management aspect of governance
which has a significant influence on financial outcomes of NHS PFI schemes. This will enable NHS and
other public client organisations to understand the need for adequate governance structure in reducing
the risks of projects running over time and incurring increase costs to ensure financial viability and
affordability, particularly in large complex schemes.
Keywords National Health Service, Governance, Organizational structures, Private finance,
Project management
Paper type Research paper
1. Introduction
The private finance initiative (PFI) is a type of public private partnerships (PPP) that is the
most dominant and well-documented model in the UK. It is described by Broadbent and
Laughlin (2003) as the “exemplar PPP”. The World Bank (2007) defines a PPP broadly as:
[. . .] an agreement between a government and a private firm under which the private firm
delivers an asset, a service, or both, in return for payments contingent to some extent on the
long-term quality or other characteristics of outputs delivered.
A commonly used PPP model for major National Health Service (NHS) hospital projects is
the PFI in which a private consortium builds and operates a new or redeveloped facility for
a period typically of 30 years. PFI involves an arrangement where “services” are provided Complex NHS
(from the hospital assets built) by the private sector to the public sector, typically by a PFI/PPP
design, build and finance operate project. The public sector pays for the services provided
by private sector through unitary charge or payment which is linked to supplying schemes
the required services. A wide range of services are included for the functioning of the
hospital from hard facilities management (FM) services (e.g. maintenance, groundwork,
landscaping car parking, etc.) to soft FM services (e.g. cleaning, catering, security, etc.). 217
The first wave of major PFI hospital developments was launched in 1995 with the
requirement to achieve value for money when measured against an equivalent public
funded project or public sector comparator (HM Treasury, 1997a, b, revised: 2003).
In 2005/2006, ten years after the launch of the first wave PFI projects, the NHS witnessed
a significant amount of new PFI activity. Six major PFI projects were completed within
the NHS, with a further 17 hospitals and other facilities under construction and
45 projects in the pipeline (Department of Health (DoH, 2009). PFI projects range from
relatively small NHS build projects to major hospitals costing hundreds of millions of
pounds[1]. Whilst the risk associated with smaller schemes may not be significant, the
risks attached to the larger schemes may be fundamental to the on-going viability of the
trust (London City Audit Consortium, 2005). Governance is critical in managing risks
and achieving the objectives of PFI schemes by ensuring standards and procedures are
followed and control mechanisms are in place to monitor their compliance (Williamson,
1996). Governance also affects the NHS Board in clarifying the reporting structure and
discharging the responsibilities of the project team hence it has a significant impact in
the delivery time, cost, affordability and financial viability of build projects.
Construction projects in the public sector have a history of not delivering on time,
budget and within the scope of the project (Latham, 1995; MacDonald, 2002). The
situation is further exacerbated by the lack of in-house public sector knowledge,
particularly in the NHS, on construction project management from conception to delivery.
Hence, to support the public sector the government has set up a wealth of knowledge
focusing on “good project governance” as this is critical for “successful project delivery”.
Several studies have recently been carried out focusing on financial aspects of governance
in PFI schemes such as financial accountability processes (Broadbent and Laughlin,
2003), value for money processes (Pollock and Vickers, 2002; Pitt and Collins, 2006), risk
allocation process (Abednego and Ogunlana, 2006) and the appraisal and evaluation
processes (Froud and Shaoul, 2001). There are also a number of general reports recently
published by public bodies such as National Audit Office (NAO, 2006) and (OGC, 2008).
Management processes relating to governance also have a critical influence on the
financial outcomes, accountability, value for money and affordability of PFI projects.
However, its impact on project delivery on NHS PFI schemes has not been adequately
addressed in academic literature. This research therefore focuses on project governance
in terms of the way the PFI process is managed and controlled to achieve project outcomes
and to avoid delays and cost overruns which may have a significant effect on project
financial viability, affordability and value for money. The objective of this study is to
examine the state of governance and its impact on the delivery of complex NHS PFI
schemes in the UK. These schemes are considered complex due to the size and nature of
the projects as well as the cooperation between several organisations and relationship
between stakeholders with conflicting priorities.
JFMPC Following this introduction, the paper is divided into five sections as follows:
15,3 Section 2 focuses on a review of governance and project delivery issues; the research
methodology is then outlined; the findings from the case study organisations on the
nature of governance and its effect on project delivery are presented followed by an
analysis and discussion of the findings and the conclusion.

218 2. Governance and project delivery issues

Governance is a term often used for describing the processes and systems by which an
organisation or society operates (Winch, 2001). To “govern” means to steer, rule with
authority, regulate, direct and control (Storey et al., 2008). For health sector PFI projects,
the government regards the NHS Trust’s Chief Executive as its highest level of project
governor, with ultimate responsibility for delivering the project (NHS, 1999). Despite
this directive, the NAO (2006) found that there was lack of clarity in key accountabilities
and roles relating to governance in major health sector PFI projects. In public sector
organisations, it is commonly used to mean “assurance” to services (e.g. clinical services
as in healthcare organisations), financial and management systems. The OGC (2008)
defines governance as a “concern with accountability and responsibilities” and describes
how an organisation is best directed and controlled through a rigorous and robust
governance structure. In NHS, it is argued that the governance agenda involves
controlling, managing, shaping and influencing the deployment of the associated
financial, staff and physical resources. This is a complex undertaking for an organisation
that spends around £100 billion and employs about 1.2 million people (Storey et al., 2008).
Storey et al. (2008) further argued that changes reflect “the state’s intent to exercise control
and influence in more effective and fiscally affordable way” (Storey et al., 2008).
Young (2007) noted that “governance has heightened the profile of risk management –
you can’t pay lip service to it any more”. Risk is an integral part of governance and should
therefore be embedded into management whether it is a company or project. A number of
research in PFI have also examined risk such as the work carried out by Abednego
and Ogunlana (2006) and Akintoye et al. (2002), which resulted in the development of
frameworks for risk assessment, allocation and management of PFI or PPP projects.
Other studies have focused on financial aspects of governance in PFI schemes such as
financial accountability processes (Broadbent and Laughlin, 2003), value for money
processes (Pollock and Vickers, 2002; Pitt and Collins, 2006) and the appraisal and
evaluation processes (Froud and Shaoul, 2001). These studies examined the processes,
judgement and application of standard documents in dealing with risk transfer and
demonstrating value for money. But there is a gap in the literature as the management
aspect of governance and its impact on project delivery, which have a significant
influence on financial outcomes of NHS PFI schemes, have not been addressed.
Badshah (1998) emphasised that good governance is essential to attract private
sector participation in public services delivery and Mustafa (1999) recognised policy
makers as the dominant influence in determining the development of PFI projects.
Governance helps to outline and understand the relationships between all internal and
external stakeholders involved in a PFI project. It ensures that appropriate structures
are put in place to facilitate a proper flow of information or reporting structure to allow
informed decision making by governing boards. The OGC identifies three key elements
of governance. First, for the organisation, this includes organisational units, structure
and co-ordinating mechanisms. Second, in terms of management, the roles and
responsibilities established to manage business change, operational services and the Complex NHS
scope of the power and authority, which they exercise. The third key element is policies PFI/PPP
and frameworks for making decisions about investment in business change. The
components of project governance, key features and some examples relevant to PFI schemes
projects are shown in Table I.
These key components or ingredients will ultimately ensure that a project has a clear
direction that is coherent with the objectives of the commissioning organisation, 219
whether it is a hospital trust or a highway authority and the outcome is financially viable
and affordable. There are many tools, standards and compliance systems developed as
part of policies and frameworks to support the delivery of projects and to achieve key
outcomes of financial viability and affordability. Table I is not an exhaustive list but an
illustration of some useful examples in the context of PFI projects.
A number of authors have identified project managers as the single most critical
factor affecting successful project delivery (Hartman, 2000; Bandow, 2001; Powl and
Skitmore, 2005). However, the organisational structure in which they operate in is
equally important. An effective organisational structure, which identifies the
stakeholders, defines the reporting structure, lines of accountability, the project
manager’s role and responsibilities within a project team, is therefore critical.
An example of a simple organisational structure is shown in Figure 1. Simple reporting
structures as shown in Figure 1 allow for clear accountability and decision making.
Project accountability for many organisations is defined by the reporting structure
reflected by arrows suggesting accountability to a particular group or stakeholders. Too
many arrows and other communication lines create problems of clarity in
accountability. Within a health PPP/PFI project, the senior user could be the medical
director representing all clinicians, the senior supplier is a director from the project
company (special purpose company/special purpose vehicle (SPC/SPV)) and the
executives are directors from the NHS client side. The senior supplier is co-opted onto the
board for development of the full business case (FBC). Also on the board are other

Components Key features and examples

Organisation (organisational units, Type/number of organisational and project units

structure and co-ordinating mechanisms)
Management (roles and responsibilities)
Policies and frameworks (standards, tools Policies (e.g. procurement rules and building standards)
and documents for compliance)
Source: Developed from OGC Guidelines
Relationship between organisational and project units
Co-ordinating mechanism and communication strategy
Defined responsibilities/terms of reference for each
organisation/project unit
Participants who should contribute
Authority to make decisions
Use of standard documentation (e.g. contract documents)
Tools to support projects (e.g. risk register or
management tool, value for money guide and project
management)
Mechanisms for monitoring compliance (e.g. output
specification, performance measurement and payment
mechanisms) Table I.
Key components
of governance
JFMPC Project board
15,3
aSenior
Senior user Executive supplier

220

Project manager

Team manager
Figure 1.
Organisational structure
showing simple lines of Note: aPost selection of preferred bidder/service supplier
accountability (SPC/SPV)
Source: CCTA (1996) © Crown Copyright

stakeholders both internal and external to the procuring NHS organisation such as: local
council, government departments, third sector, medical school and any other key
stakeholder considered important to ensure decisions can be made timely and
effectively. The inclusion of key stakeholders at the right level onto the project board is
essential for stakeholder buy-in from the outset and more significantly to ensure that
this is sustained throughout the project.
For improved project delivery through effective accountability, the key requirements
are for the top or senior management team/project board to be clear about strategic goals
and the roles and relationship between the different organisations and stakeholders
involved. Tukel and Rom (1995) identified top management support as the most critical
factor for the successful delivery of projects. This is certainly true for hospital projects
where a clinical champion is perceived by operational managers to be pivotal to
delivering significant change in service delivery. The environment such as political and
economic factors affects a project during the planning stage (Pinto and Slevin, 1989).
Critical success factors (CSF) also include “soft issues” such as social support (Frilet,
1997); commitment (Stonehouse et al., 1996); communication and characteristic of project
team leader (Pinto and Slevin, 1989) as well as mutual benefit (Stonehouse et al., 1996).
PFI projects are increasingly used in the health sector and factors correlating to
their success have been identified by various authors (Keene, 1998; Qiao et al., 2001;
Li et al., 2005; Qiao et al., 2001). This includes having a stable political and economic
situation; appropriate risk allocation; selection of suitable contractors and management
controls. Li et al. (2005) collated CSFs and systematically ranked them, particularly in
terms of the attention in the development stages of projects. Factor grouping 1
represents effective procurement and consists of four high loading CSF components,
one of which is good governance. Good governance in PFI projects has also been Complex NHS
identified by Frilet (1997) and Badshah (1998) as a CSF. PFI/PPP
But the role and impact of governance, particularly organisational and management
processes, on PFI projects have not been adequately addressed. The research will schemes
therefore address the following questions:
RQ1. How does the state of governance influence project performance and what are
the CSF? 221
RQ2. How do specific elements of governance such as organisational structure and
management (e.g. stakeholders, teams/roles, levels of responsibilities and
accountability), policies and frameworks (e.g. project management tools, risk
register, gateway reviews and best practice documents) improve project
delivery and outcome?
The theoretical framework of the work is based on the concept that good governance
will improve project performance. The framework is underpinned by two things. First,
stakeholder theory focusing on the relationships between all internal and external
stakeholders and project teams suggests that “governance mechanisms and processes
should recognise the wider influence of multiple stakeholders” with divergent goals at
times (Christopher, 2010). Second, the OGC governance model in Table I, which
encapsulates three interrelating elements – organisational units (structure and
co-ordinating mechanisms) management (roles and responsibilities, scope of the power
and authority) and policies and frameworks (such as project and risk management
systems and boundaries).

3. Research methodology
A two-stage approach was used to address the research questions. First, a literature
review was carried out, which included publications on government web sites such as,
the OGC and DoH to identify “Best Practice” and “Guidance” for managing and
delivering build projects. Second, a case study approach was selected for further
exploration and to provide an in-depth insight on how PFI projects are planned, managed
and delivered. The methodology used to collect primary data is a qualitative approach
using a multiple case study method to compare the findings across different cases and to
overcome some of the limitations of a single case study. This approach is a very effective
way to facilitate an in-depth investigation and to allow for a comparison and contrast
of the issues “between the cases as well as a deeper and richer look at each case”
(Meyer, 2001).
The case studies involved identifying suitable and accountable persons in each
organisation and conducting interviews focusing on key themes of governance and project
delivery (Appendix). The rationale for the questions are as follows: questions in Theme A
were aimed at understanding governance from the perspective of stakeholders as this term
is now widely used in health services but there is sometimes different interpretation and
meanings attached to it (Storey et al., 2008). Theme B was structured to capture key issues
of governance relating to organisation and management such as reporting structure
of organisational units, decision making, who makes decisions and how they are made,
accountability and levels of responsibilities. Theme C focused on specific aspects of
governance dealing with policies and frameworks and their application such as project
JFMPC management systems and other controls such as risks management, gateway reviews and
15,3 capital planning process to ensure compliance with the government’s Capital Investment
Manual and to assess how they influence CSF in project delivery. Theme D focused on the
outcome of the projects, how governance framework and project management systems
affected the delivery time, costs, financial viability and affordability of PFI schemes.
Four interviews, two in each case study organisation, were carried out with project
222 directors and senior project managers responsible for the delivery of the projects using
semi-structured interview techniques. Two complex NHS PFI projects offering
comparison in terms of complexity and size of the build programmes were selected for
investigation. Case Study A represents more than one NHS Trust co-locating on a single
site together with a third, non NHS, organisation. The business case identified a single
site as the preferred option for redeveloping services currently provided by three
organisations. Case Study B represents another complex project spanning years of
public consultation and eventual merging of two separate trusts with pioneering
medical history and logistics into one single trust. This scheme started during the early
entry of PFI into the public health sector but the project’s complexity and strong public
opinion against the closure of one of the two hospital sites led to various reiterations of
the original scheme.

4. Case study findings

The case studies represent two highly publicised and ambitious NHS PFI Build Projects
that were heavily influenced by both internal and external governing politics prevailing
at the time. The status of governance and its impact on the build programmes adopted
by each case study organisation are presented below.

4.1 Case Study A (project over £500 million)

The project was complex for three reasons. First, there were three organisations
involved and therefore three chief executive officers (CEOs)/senior responsible officers
(SROs) with often conflicting priorities. Second, the non-NHS organisation had slightly
different corporate processes for financial accounting and third, the two NHS Trusts
involved in the project scheme were to remain as separate entities. The project director
appointed in the later years was an external candidate with no previous associations
with any of the three organisations (unlike his two predecessors).
The project director was appointed for his knowledge and experience from having
recently commissioned a new PFI hospital. He described governance as: “a decision
and responsibility hierarchy that is fit for purpose and without which project success
proved to be difficult”. When asked to define the key elements of good governance he
reiterated, “a structured hierarchy with direct access to the trust board, plus
experienced people with the right skills in the right place in the reporting structure”. In
his view having good project governance is important and he qualified this by adding,
“The more rigorous the governance in the early stages of the project the better is the
downstream delivery of the project”. This was re-emphasised when he argued that the
ingredient lacking from this project was lack of investment in governance at the front
end of the project, i.e. at the outline business case (OBC) stage.
Early decision-making process during project conception was somewhat flawed with
senior managers from one of the organisation leading the project with some support
from the partnering organisations. The process improved with the introduction of an
additional decision-making tier in the form of an overarching group with executive Complex NHS
members from all three organisations to oversee the work of the joint project board. PFI/PPP
The decision makers on the joint project board were generally of a wide-skill mix but
lacked individuals with specific PFI and construction project experience for a project schemes
of this size and complexity.
In terms of management systems the project was controlled via a complex matrix
of project programming linking timeline charts, critical path, progress monitoring, action 223
lists and update reviews. Poor project delivery of early milestones were cited to be
mainly due to ill-defined project start-up, inadequate front-end resources, lack of single
accountable officer for the scheme, lack of relevant experience in team and project
board and poor communication between the project and key stakeholders such as the
commissioners. These issues were constantly being addressed and during the latter years
of the project there was evidence of a strong project team developing through
appointments of internal and external advisers with hands-on experience of projects.
Both the project director and the senior manager interviewed agreed that during the
conception stage, when in-house managers were managing the project, there was a definite
failure in the process of decision making. The reason cited for this was the absence of a
wide range of stakeholders at the board meeting and therefore decisions took longer than
normal through this absence of critical decision makers being present at all times. Two
years later, when systems were eventually put in place, decision making improved with
the right people on the board but consensus on critical issues were often hindered because
clinical opinion from the two trusts was often opposing due to conflicting priorities.
The project director and senior manager believed that once a more robust reporting
system was embedded the decisions emerging from the two trust boards were correct
but politics influenced decisions overall and either one or two of the trust boards often
wavered on decisions previously made by the joint project board. Lack of knowledge in
specific areas of PFI and project management experience for a project of this size
hindered decision making.
The key success factors identified for project delivery were consistent leadership and
development of an effective project team committed in their belief of achieving the
long-term benefits of the project. Unfortunately, the success factors were not fully realised
as the project team constantly battled to keep parity in planning actions between the two
trusts and the university. Hence, the project suffered in terms of consistent and timely
delivery of milestones despite having robust project management systems in place to
support the project such as: good programming with timeline charts; critical path planning
with aligned progress monitoring and regular reviews; action lists to support programme
and risks analysis/registers with review updates at key stages. There was also a problem
with too much reporting to no good purpose which nevertheless required more external
resources to manage effectively. Furthermore, the level of control was considered low,
as these controls were not adequately resourced in terms of trained personnel, budget and
time required for monitoring to make them effective for a project of this size.
During a period of political uncertainties and following some costly reiterations of the
new build options, the project was eventually terminated after a second re-write of the
OBC. The outcome was a failed and abandoned PFI scheme and the cost to the taxpayer
was estimated at over £15 million. Owing to significant delays, the estimated final building
costs also increased by over £450 million representing an increase of over 110 per cent
from the original building cost estimates.
JFMPC 4.2 Case Study B (project over £500 million)
15,3 The project when inherited at OBC stage lacked any readily available guidance from the
Treasury on project management of major capital projects and hence, lacked a good
reporting structure for hospitals projects. It was clear that governance was not well
articulated at project conception or at the early OBC stage. However, during FBC stage
with more government-directed guidance available to the project director it was clear
224 that governance of the project had improved. The project was said to have benefited
from having an informed board and CEO with a robust framework for decision making.
The project director noted “there was no assurance of how the project was proceeding
until the FBC stage, when the project was subjected to the government directed external,
Gateway Review”. The Gateway Review team consisted of health professionals with
experience of similar project management issues. The project director further argued
that governance was important in an alteration or new-build PFI/PPP scheme to support
the transformational change in the way in which healthcare is delivered by the trust
in the future. He noted that this importance is reflected in the guidance now made
available from the OGC but there is still the issue that it will take some time for this
knowledge to filter into the system and become common practice.
Poor governing structure or processes during the early days was narrowed down to
lack of experienced people in the project team and board which meant, there was no clear
direction from the board. Project governance dramatically altered post OBC stage, when
the project was subjected to the government directed, Gateway Review. Poor project
discipline and direction was immediately addressed with the formation of a transparent
and robust decision-making structure. This further improved as “good practice”
guidance from the government web sites started to filter into the system and become
common practice. By the time the project reached FBC status, the board included more
experienced and knowledgeable non-executives that challenged proposals and
gave the project team clearer actions to take forward with confidence.
Although there were problems at the beginning, the project clearly benefited from
two key factors, namely the peer review by the Gateway team and the application of
project management methodology, PRINCE2. The project director explained that there
was no requirement for a strategic outline case (SOC) and accordingly no structured
allocation of roles and responsibilities was made early in the project. The first project
stage was therefore the completion of the OBC. Whilst the board initially approved this,
there was still no formal reporting structure and boundaries of authority were unclear.
In the absence of a formal reporting structure, the project lacked discipline and presence
of authority to ensure consistency in the decision-making process. This was confirmed
by the findings from the Gateway Review team, who reported the absence of a formal
reporting structure, resulting in a number of projects moving off at a tangent from the
core objectives. This message from the Gateway Review resulted in the formation of a
project board (“New Hospitals Board”) to govern the entire capital programme for the
trust. The reason given for poor project governance initially was quite simply, ignorance
and lack of understanding of its importance by the wider executive team which meant
there was no top-down drive for good governance.
The project director felt that governance when embedded at a later stage was found to
be most helpful. He cited difficulties that could have been avoided with good governance.
For example, with regards to decant issues, good governance could have alerted the
team to dangers ahead much earlier and set appropriate contingency actions in place.
The levels of control in this project moved from initial low levels to high levels following Complex NHS
recommendations by the Gateway Review team. Hence, subsequent to Gateway 1, PFI/PPP
all project managers were trained to use PRINCE2, project management tools.
This large and complex project with a high degree of political interest and pressure schemes
to deliver flagship “Super Hospitals”, completed financial close and took the next step
of moving into the construction phase and preparing operationally to realise its benefits
from creating a centre of healthcare excellence. Good governance introduced at a later 225
stage enabled necessary adjustments to be made to the FBC by introducing flexibility in
the implementation of the PFI scheme through phased development to reduce capital
and operating costs, restructuring funding and reducing interest costs, reviewing
cost and attracting alternative funding sources for medical equipment and enabling
works and restructuring the payment formula. The outcome was a financially viable
scheme with unitary charge significantly reduced to a sustainable level that was
affordable to the NHS Trust.

5. Analysis and discussion

The two case studies provide a snapshot of how “governance” was applied and practiced
in two complex NHS PFI schemes. Tables II-IV examine the key similarities and
differences in each organisation’s approach to project governance and project delivery
issues. The impact of governance on project delivery is discussed below.

5.1 Reporting structure and responsibilities

Case Study B had a simple reporting structure that is reflective of the project
management methodology of choice (PRINCE2) for the NHS (DoH, 1994; CCTA, 1996).
In Case Study A, with no single perceived SRO, the reporting structure was visible but
complex. In projects where roles and responsibilities are not clear (e.g. Case Study A) or

Case Study A Case Study B

Reporting structure
Complex: 3 senior reporting officers and two trust Reporting structure absent in the initial stages of
boards the project
Robust and simple structure established during
OBC stage
Levels of responsibility
Level 1: project manager; head of planning and Level 1: project manager
head of design and technical team Level 2: project director
Level 2: project director Level 3: project board
Level 3: joint project board Level 4: trust board
Level 4: project executive group Level 5: DoH
Level 5: two trust boards and university board
Level 6: DoH
Project controls
Complex controls were not adequately resourced Clear and visible project controls implemented
for effectiveness in a project of this size following the first Gateway Review Table II.
Levels of controls Reporting structure,
Complex controls but at low level as it is not Moved from low to high levels of project controls responsibilities and
effectively managed control
JFMPC
Case Study A Case Study B
15,3
Project management
Project management (PRINCE2) evident but absence Project management improved with good
of experience for a project of this size and delivery at late OBC and FBC stage
complexity resulted in poor project management Post Gateway Review, all project managers
226 structure and poor communication with external were trained in PRINCE2
stakeholders
Performance rating (1 – low to 5- high)
3 out of 5 3 out of 5; moving up to: 4 out of 5
Risk management
Absence of a single SRO put the management of Risk management improved with experienced
the project at high risk from conception and knowledgeable recruitment of non-
Table III. executives to the project board
Effectiveness of Levels of project risk
project management High-risk project Moved from high to low risk project

Case Study A Case Study B

Factors contributing to successful delivery of key milestones

Joint project board but decision making still Effective project monitoring/control
complex with commitment required from three Knowledgeable project board members making
separate governing boards investment decisions
Communication structure between stakeholders Commitment to project objectives
and different organisations (established although Communication (effective in this scheme because
it is complex in this particular scheme) of simple structure)
Factors contributing to poor delivery of milestones
All control factors appeared to be inadequately Inadequate resources applied at the front-end of
resourced project planning
Shifting leadership Unrealistic and manageable timescale
Lack of experienced and knowledgeable staff Lack of contingency planning
Clear benefits not realised by organisations Some poor decisions at project conception
involved
Limited buy-in from stakeholders
Risk register not updated
Delivery outcome
Many non-deliverables resulting in a failed OBC and FBC delivered successfully but
scheme and millions spent (estimated to over £15 construction delayed and over budget. FBC was
million) in project preparation. Final estimated subsequently adjusted in key areas by phased
completion date extended by few years and development, reviewing funding sources, finance
Table IV. estimated cost of scheme increased by over £450 costs and payment formula to make the scheme
CS and failure factors million – more than doubled including the cost of financially viable and affordable to the public
in project delivery risk adjustment (optimism bias) sector client/NHS Trust

absent all together (e.g. in the initial stages of Case Study B), the chances of project
failure is arguably high (DoH, 1994; CCTA, 1996; NAO, 2006).

5.2 Effective controls

Both case studies experienced difficulties in making efficient and effective use of
management tools to drive through change management actions (Table II). Case Study
A lacked manageable project control systems quoting complexity of the project Complex NHS
as the underlying issue. In contrast, Case Study B demonstrated project effectiveness PFI/PPP
through the use of a simple control system (Table II). Inadequate controls are cited in
project reviews as the leading source of governance problems (NAO, 2006). Capital schemes
investment projects need rigorous processes and controls to ensure their delivery aligns
with the organisation’s overall strategic goals. Both case study organisations indicated
their awareness of the importance of having in place robust and effective project controls 227
but did not necessarily implement the best approach particularly at project start for
projects of this magnitude.

5.3 Project management

The project management methodology endorsed by the DoH for the NHS is PRINCE2
and its usage was reflected in both case study organisations (Table III). The PRINCE2
manual reflect three main principles. First, that all vital interests or stakeholders are
represented on the project board at all times: executive, user and supplier. Second, that
the project manager is the key person for the running of a project on a day-to-day basis
and is responsible for reporting to the project board. Third, a sound project management
methodology is crucial. Looking at Case Study A, application of PRINCE2 is evident
but absence of knowledge and skills for a project of this size and complexity
resulted in poor project management and communication. Clarke (1999) identified good
communication throughout a project as a key success factor to improve the effectiveness
of project management. Both project directors interviewed were aware of the importance
of communication.
Both case studies involved major projects and therefore appointed advisers in line
with other PFI projects in the health sector to assist with high-risk processes such as
project procurement and contract negotiation (Ernst and Young, 2002). Case studies
A and B were both subject to political and economic risks due to the significantly
high levels of funding involved (greater than £500 million). The project with the
greatest risk of failing was Case Study A, not only because of its size and number of
external stakeholders but also because of the absence of a single SRO or a single
sponsor/accountable officer to champion the project. Tukel and Rom (1995) argued that
one of the most critical factors for the successful completion of projects is top management
support which is usually strongest if there is a project champion from the top management
team (Avots, 1969; Rubin and Seeling, 1967 cited in Belassi and Tukel, 1996). The highest
level of governance for any NHS PFI scheme is assigned to the appropriate chief
executive, who is the SRO (NHS, 1999). For Case Study A, this was somewhat confusing as
there were effectively three SRO’s. The Committee of Public Accounts has expressed their
concern in the past about the high level of risks associated with capital investment
schemes with complex partnership arrangements (Comptroller and Auditor General,
2006). Akintoye et al. (2003) argued that detailed risk analysis and appropriate risk
allocation in crucial to achieve best value and the successful delivery of PFI schemes.

5.4 Critical success and failure factors (FF) in projects

For the two case studies, it was essential to understand the critical success (CS) and
failure factors for the key areas of project activity identified such as, establishing a case
for change (i.e. SOC); developing a value for money business case (i.e. OBC);
procurement to select a PFI partner; and developing an FBC with PFI partner (FBC).
JFMPC Both project directors in the case study organisations cited project governance
15,3 as critical to project delivery and its’ significance was further emphasised when one
of the project directors argued that the governance components whilst all in place were
not adequately supported or managed for a project of such size and complexity and
that this was evident in project delivery (Table III). Both case studies identified the soft
issue of communication as an important success factor for project delivery. Other CSF
228 noted were commitment, good project management, clear project objectives, strong
leadership, clear roles and lines of responsibilities, knowledgeable decision makers,
good project monitoring and effective controls (Table IV). Both project directors
experienced difficulties in managing and controlling large and complex projects. They
recognised the importance of more resources particularly at the front end of the project
and the need to employ good advisers with established track record of managing
significant projects. Project directors also identified a range of negative factors relating
to some aspect of governance which contributed to the failure of achieving key
milestones (Table IV).

5.5 Project outcome

In Case A, lack of resources and experienced project team for a project of this size,
exacerbated by poor communication between partnering organisations, limited buy-in,
inadequate risk register to manage risks all contributed to poor delivery at key
milestones resulting in delays and reiteration of OBC. The significant negative factors
outweighing the positive ones contributed towards the final decision to abort project in
Case Study A with cost of over £15 million to the taxpayer. In Case B, poor decisions at
the early stages, poor timescales, ineffective controls and project management in the
early planning stages led to project delays and overspending on advisory budget. As a
result adjustments were subsequently made in key areas by phased development,
reviewing funding sources, finance costs and payment formula to make the scheme
financially viable and affordable to the NHS Trust. The success of Case Study B can be
attributed to the introduction of governance structures at a later stage to deal effectively
with people and processes whereas, the failed PFI scheme (Case Study A), reflects an
inadequate governance with negative impact on project staff and processes to deal with
a project of this size and complexity. It should be noted that whilst some governance
tools to support PFI projects were readily available and some introduced later; these are
of little value without appropriate training as to “when” and “how” to use the tools
effectively. It is therefore necessary to consider the implications for training and
capacity building in developing a governance framework to improve project delivery.

6. Conclusions
The study has shown that the success of one of the schemes (Case Study B) was
attributed to the introduction of appropriate governance structure whereas, the failed
PFI scheme (Case Study A) reflects an inadequate governance structure with significant
negative impact on project deliverables and key milestones. In Case Study A, with no
single project sponsor or governor the scheme was always vulnerable to high risks and
delays as all three CEOs from the partnering organisations had to govern and agree on
issues before the project could move forward at each critical PFI milestone. A key lesson
learnt is that the organisational and management structure of capital projects should
always have clear accountability arrangements with a single project sponsor
responsible for the stewardship of the project. This helps to provide clear leadership Complex NHS
responsibilities, simplify decision-making structures and speed up processes that are PFI/PPP
fundamental for project delivery, financial success and managing organisational change
that is the underlying issue for complex NHS PFI projects. A further lesson learnt is schemes
that project governance cannot be achieved by organisational structures alone but
the way they are put in use in terms of discharging management responsibilities.
Also, policies and frameworks such as project management tools, risk management 229
systems to support and control PFI projects are available; appropriate training as to
“when” and “how” to use the tools is vital. It is therefore necessary to consider the
implications for training and capacity building in developing and implementing a
governance framework to improve project delivery.
Effective governance speeds up the decision-making process during the long
gestation period between planning, design and construction which can leave many PFI
projects vulnerable to changes in clinical practices, regulations, codes of practice and
technology. It is also important to have a simple organisational structure with clearly
defined responsibilities and clarity between a person’s “role” and their associated
“responsibilities” in the decision-making structure. The other CSF are robust reporting
structure; effective project controls and tools for risk and project management, strong
leadership, good project management skills and good communication strategy.
However, a major limitation of the study is the problem of generalising with only a small
sample size (two projects), the limited number of interviews carried out with
stakeholders and the research setting in a particular sector which may be different from
other sectors.

Note
1. Directive from Treasury, no project less than £150 million would be value for money under
PFI.

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Appendix. Case study template

Theme A: Understanding, interpretation and application of governance
Qu 1. Define governance and from your experience and knowledge, describe the importance
of governance in terms of project delivery?
Qu 2. How did you apply governance to your particular project?
Qu 3. In your experience with this PFI scheme, what ensured good project governance?
 Qu 4. On reflection what were, if any, the reasons for poor project governance? Complex NHS
Qu 5. Is governance important in NHS building programmes and if Yes, why? PFI/PPP
Qu 6. To-date, how effective in your opinion is current guidance on governance? schemes
Qu 7. How accessible are these guidance?

233
Theme B: Organisation, management structure and levels of responsibilities
Qu 1. In view of the planning process as outlined in the Capital Investment Manual (CIM),
can you explain who was responsible for decisions and at what stage of the process?
Qu 2. What was the scenario for your particular project? In your opinion were the right
people present to make the decisions?
Qu 3. Were the decisions made, in your opinion, the correct decision?
Qu 4. How knowledgeable were the decision makers and if not knowledgeable, how well
were they informed to make critical decisions?
Qu 5. How were levels of responsibility managed? In other words, who was responsible for
making informed decision at each critical milestone?
Qu 6. In your opinion and experience, does level of responsibilities differ between
procurement methods and size of projects?

Theme C: Project management systems and CSF

Qu 1. What are the crucial planning stages of a build process and what are the necessary
controls at each stage? Were these applied to your PFI project, if not why not?
Qu 2. What in your opinion are the key success factors for project delivery on time and
within resources allocated? Were these achieved for your PFI project?
Qu 3. What project management systems, if any, supported your ability to deliver a
successful project?
Qu 4. What project management systems, if any, hindered your ability to deliver a successful
project?
Qu 5. Has governance played a significant role in your project and has it been a hindrance or
help?

Theme D: Project delivery outcome

Qu 1. What components of project management do you think ensured successful project
delivery?
Qu 2. Outline the reasons for the difficulties experienced with delivering your critical
milestone during the various planning stages.
Qu 3. What needed to happen and when, for it to have run smoothly?
Qu 4. Is governance of NHS building programmes a good thing or a necessary paper
exercise?
Qu 5. What is the governing framework for a successful project delivery? Please describe
based on your experience?
JFMPC About the authors
Manju Patel is the Acute Sector Planning Lead at NHS Grampian in Scotland, UK. She has over
15,3 15 years experience working as a Senior Health Service Manager for various health
organisations delivering strategic and operational changes and build solutions for major capital
developments. She was also an Internal Healthcare Adviser/Consultant on one of the most
complex healthcare PFI projects in the UK.
Herbert Robinson is a Reader in Construction Economics and Management and the Director
234 of the MSc Quantity Surveying Programme at London South Bank University, UK. He has over
20 years experience in the construction industry working with a leading international consulting
firm, Arup, the public sector as well as in academia. He was involved in major research projects
on knowledge transfer and PFI/PPP projects. Herbert Robinson is the corresponding author and
can be contacted at: robinshb@lsbu.ac.uk

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