How universities can minimise risk in infrastructure management in the post-CoViD world

Published On: 18 October 2021|

There has been a worldwide digital acceleration of higher education as a result of CoViD-19 but universities have been impacted in other ways due to the pandemic.

Apart from residences, construction of new buildings is unlikely in the near future, says Professor Ron Watermeyer (left), Adjunct Professor at the University of the Witwatersrand.

“The coronavirus changed things and the whole new style of teaching doesn’t require these large lecture theatres. So, we need to become more efficient in the usage of our spaces. We’ve got to find ways of repurposing [infrastructure] which helps mitigate our risk.”

Risk – and how to manage it – was a key component in Professor Watermeyer’s address as he looked at the challenges and resource strategies required for the sustainability of The Engaged University. This was at the 2nd Universities South Africa (USAf) Higher Education Conference, conducted recently in collaboration with the Council on Higher Education (CHE).

“The biggest challenge the higher education sector faces is the cuts in Department of Higher Education and Training (DHET) infrastructure grants from the fiscus, and decreasing revenues arising from limitations on fee increases. It makes it even more essential to reduce risks; form public-private partnerships (PPP) and make projects more attractive to investors, contractors and financiers through win/win partnerships.”

Professor Watermeyer talked about physical structures, infrastructure and some of the issues facing today’s universities.

ISO 31000 is a family of standards relating to risk management codified by the International Organisation for Standardisation. ISO 31000:2018 provides principles and generic guidelines on managing risks faced by organisations –

“There are many permutations available to deliver infrastructure but it is always delivered through a supply chain. Risk, management skills and efficiencies determine the outcome of a project but there are many variables to consider. However, risk is the key issue that needs to be addressed. It doesn’t matter which resources you’re looking at financing; risk is central to it.

“In general, with goods and services for consumption, there is very little uncertainty in requirements and therefore very little risk. With infrastructure, there is a large proportion of uncertainty and so one has increasing risk. Risk management is all about identifying the salient risks, assessing their likelihood and deciding on how best to manage the project in the light of this information. The actual cost of any infrastructure projects includes risk pricing which inevitably effects the contract price.”

When it comes to physical infrastructure projects, it is all about the distribution of risk and who holds it as they are the ones who will be financially liable. “At times, in South Africa, we’ve struggled to transfer risk,” he said.

“The whole idea is to look at the design, built operation side and shift responsibility of capital asset procurement from the public sector to the private sector – in our case university to private sector. However, it is important to emphasise that the resulting outcomes still remains with the client, the public sector. You can’t transfer the accountability for projects to the private sector,” he reiterated.

Professor Watermeyer examined a case study from the University of the Witwatersrand and revealed the lessons that the university had learned.

In 2007, the university appointed a PPP partner to provide 1200 beds at the Wits Junction residence. “We are a university so we weren’t going to get to the private sector to set their own prices. Our agreement was to pay them per bed over the period of time that the concession was in operation. It would be privately operated where our other residences were run by our own staff.

“The first problem that occurred was when the operator wanted a guarantee for a 95 percent occupation rate. They didn’t want to bear any of the risk but only get paid for a service. We decided to cancel the operational contract and went purely for the delivery of infrastructure.”

However, there were obstacles.

“We realised the finance costs were too high when we were trying to get the financial model to work. We then asked the concessionaire to step aside so that we could engage directly with the banks. As a result, Wits received the best rates that had ever been given by that particular bank to a public state-owned entity. We soon realised that the cost of finance depends upon the strength and reputation of who is financing the project,” he revealed.

ISO 31000 seeks to provide a universally recognised paradigm for practitioners and companies employing risk management processes to replace the myriad of existing standards, methodologies and paradigms that differed between industries, subject matters and regions. For this purpose, the recommendations provided in ISO 31000 can be customised to any organisation and its context –

“We then started looking at the interior design as the university was going to run the residence and was at risk if students were not happy with the final outcome and it didn’t work for them. Layouts for student housing is very different to those for hotels. So you might get yourself a cheap deal in getting the buildings delivered but the operational costs still rest with the university and may not be as cost effective as they could be.

“The university finally thought it had a viable project running, with structured loan repayments; then Fees Must Fall came and the frozen payments and the capping of fee increases caused problems and destroyed the model. These are just some of the risks we face when undergoing such projects.”

It is imperative, he says, to rethink the ways we do things.

“In the past the private sector has often only been brought in late in the development. What we’ve got to do is to try and find ways to establish the technical viability at the earliest stages with the private sector partner.”

If we look at the modern view of public private partnerships, it’s broadly defined as a joint working arrangement between the public sector and the private sector characterised by one or more of the following:

  • Risk management can be transferred to the private sector which may be the party best able to manage it.
  • Use of private funding to finance infrastructure
  • Use of private expertise and management skills

Said Professor Watermeyer: “PPS can be involved in a whole range of things; it’s not necessarily just a concession contract, we can have management contracts with little or no capital investment where we’re purely tapping into their management abilities to bring about efficiencies. What is popular in the UK – and which is something we can learn from – is the whole joint venture characterised by sharing of ownership where the parties involved participate in the income streams and profits.”

He summarised lessons he and the university had learned including the vital difference between delivery management and project management.

“The former is the critical leadership role played by a knowledgeable client to plan, specify, procure and oversee delivery infrastructure projects efficiently which results in value for money. If you look at universities that successfully deliver infrastructure, they have a strong delivery management capability, those that struggle, do not have it. Project management is very different because it only commences when you’ve got agreed objectives.”

Janine Greenleaf Walker is a contract writer for Universities South Africa.