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Ask The Experts – Special Purpose Vehicles

Saturday August 22nd, 2009

By David Griffiths, PASS Consultant

PASS Consultant David Griffiths answers some common queries regarding Special Purpose Vehicles.

What is a Special Purpose Vehicle (SPV)?

The term Special Purpose Vehicle (SPV) is often used to describe the corporate body created when private sector companies join together to provide services under a specific public-private partnership. An SPV is a legal entity (usually a limited company of some type or, sometimes, a limited partnership) created to fulfil narrow, specific or temporary objectives.

Why set up SPVs?

SPVs are typically used by companies to isolate the firm from financial risk. A company will transfer assets to the SPV for management or use the SPV to finance a large project thereby achieving a narrow set of goals without putting the entire firm at risk.

In many situations, and particularly on large-scale and/or complex procurements, it is likely that a multi-supplier proposal will be made in response to the requirement. This may be a consortium, an SPV or simply a prime contractor/subcontractor arrangement.

What should you evaluate?

Public sector authorities will evaluate special purpose vehicles in no different way to a normal procurement ie against standards set for capability, technical capacity, and financial and economic standing. Procurers may have concerns about future changes of shareholders in the SPV during the life of the contract. There is advice to public sector bodies on this subject to be found in the Office of Government Commerce guidance on Standardisation of PFI contracts.

A single supplier will be nominated as the prime contractor or lead supplier. It is with this supplier with whom the authority will be dealing with during the procurement ie they will have expressed an interest on the group’s behalf .What ever kind of multi-supplier solution is put forward, there are essential lines of enquiry to be pursued for example:

  • what is their organisational structure?
  • who is the prime contractor (are they managing the group or the voice-piece of a consortium)?
  • who has the authority within the consortium?
  • how might issues/problems be handled within the group?
  • how well does the shape of the consortium fit with the aims/objectives of the requirement?
  • what supply/value chains are present?

Financial evaluation

The decision to consider the financial viability/economic standing of each member of the consortium is one for the procurer to make. It is normal practice to only consider the prime contractor as the contract will be with them alone and the authority will only have legal recourse through them. However, there does not appear to be any restriction on taking into account the financial turnover of the consortium as a whole if it is considered to benefit the procurer as a value for money solution  in meeting it’s requirements and is deemed to  present a low-risk to the authority and the success of the project ie, default on the part of one of the individual members.

To enable the procurer to satisfy itself on this count and justify its actions to others it is advisable to carry out an assessment of all the members of a consortium.

This should include an examination of:

  • the financial gain they anticipate
  • the effort they have to put in
  • criticality of the role they will carry out
  • risks relevant to them
  • innovation/creativity they may bring to the project.

Profile…

David was formerly Head of Supply Chain at the Driver and Vehicle Licensing Agency, and has spent some 25 years in purchasing and contracts within central government. He has been responsible for procurement policy and planning, including the contractual aspects of Better Quality Services, supply chain management and the professional development of staff within DVLA.

He is a graduate member of the Chartered Institute of Purchasing and Supply and a member of IPSERA. David also played a leading role in the early development and subsequent implementation of the Government lower-value opportunities portal, Supply2.gov.uk, as a member of both the Project Board and Steering Board, and has gained a comprehensive knowledge of the service’s progress to date.

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