Objectives, success and failure factors of housing public–private partnerships in Malaysia

Habitat International 35 (2011) 150e157

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Objectives, success and failure factors of housing publiceprivate partnerships in Malaysia A.-R. Abdul-Aziz*, P.S. Jahn Kassim Universiti Sains Malaysia, Penang, Malaysia

a b s t r a c t Keywords: Housing development Publiceprivate partnership Malaysia Public agencies

From time to time, various public agencies in Malaysia have developed houses using the publiceprivate partnership (PPP) approach. The few failed housing PPP projects captured by National Audit point to the necessity for proper implementation. A study was conducted to examine the objectives of housing PPP, the success and failure factors. All government agencies which had adopted housing PPP were targeted. They ranged from state-owned companies to Islamic religious councils. Data were collected using the mixed method of postal questionnaire survey supplemented by interviews and case studies. It was found that the public agencies desired to fulfil an array of objectives when adopting PPP, the most important being to enhance organisational reputation. The success factor which had the most impact was action against errant developers. The failure factor which had the most influential was absence of robust and clear agreement. Malaysian public agencies can use the findings to ensure that their housing PPP will achieve their desired ends. Ó 2010 Elsevier Ltd. All rights reserved.

Introduction Although not as commonly adopted for infrastructure provision, publiceprivate partnerships (PPP) in the delivery of homes have been practised in Egypt, India, Pakistan, South Africa, Bulgaria, Mexico, Russia, Thailand and the United Kingdom (Payne, 2000). In 1992, the United States’ Congress, for example, created the HOPE VI programme to promote PPP between public housing agencies and private for-profit residential developers to produce affordable housing (Zhang, 1996). In 2000, Canada launched the Let’s Build programme to stimulate partnership between the various disparate parties for social housing development (Griffin, 2004). Malaysia too adopted the housing PPP concept without explicitly labelling it as such. Housing PPP in Malaysia can be traced to the broader national privatisation policy launched in 1983. Kuala Lumpur City Hall became the first government agency to implement housing PPP to complete 80,000 low-cost housing units in 3 years (Jamaluddin & Agus, 1997), which in retrospect was highly ambitious. While Kuala Lumpur City Hall has acknowledged that many squatters had been properly housed through this fast-track programme, it projects that 158,571 low-cost houses are still required by 2020 (KLCH, 2004). There have been very limited past studies on housing

* Corresponding author. Fax: þ010 604 6576523. E-mail address: [email protected] (A.-R. Abdul-Aziz). 0197-3975/$ e see front matter Ó 2010 Elsevier Ltd. All rights reserved. doi:10.1016/j.habitatint.2010.06.005

PPP in Malaysia, Jamaluddin and Agus (1997), Singaravelloo (2001), Ong and Lenard (2002), and Wan Abdul Aziz and Hanif (2005) being the notable few. In fact, worldwide, housing PPP have very much eluded scholastic scrutiny (Payne, 2000). It was against this backdrop that a study was conducted to explore housing PPP in Malaysia. Even though the study examined various aspects of PPP, this paper only dwells on two of the achieved objectives, which were: 1. To identify the objectives of housing PPP 2. To determine the success and failure factors of housing PPP. Malaysia’s housing PPP model is broadly similar to that adopted by Bulgaria (Claggett, Doukov, & Feiden, 1994), Australia (Thomas, 2009), South Korea (Choe, 2002) and India (Awil & Abdul-Aziz, 2006) in that the private developer assumes all development responsibilities including designing, constructing and financing. Additionally, the developer is also expected to provide internal infrastructure, social and public amenities and houses for the various income groups (Bardhan & Barua, 2005). The public sector on the other hand provides output specification (e.g. number for various housing types, size of open space areas, types of communal facilities), sets initial commercial parameters (such as selling prices for various housing type, phasing of development, profit-sharing arrangements) and allocates risks (i.e. delay in development approval, poor sales performance, fluctuation in construction material prices) (Gilbertson, 2005). Crucially, it also contributes

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lands to the partnership (Bardhan & Barua, 2005; Choe, 2002; Claggett et al., 1994) for free or at discounted rate, either on a freehold (Awil & Abdul-Aziz, 2006) or leasehold basis (Pint, Bondanella, Cave, & Keyser, 2001). The public sector may play the facilitative role (Bardhan & Barua, 2005; Sengupta, 2005) by accelerating the approval process for example (Agus, 1989). Virtually all the housing PPP in Malaysia require the private developer to provide low-cost housing as part of the social obligation. All dwellings, even the low-cost units, are sold rather than rented out to occupants. The present study took on heightened importance when the National Audit of Malaysia highlighted a few housing PPP which under-performed. One project took 8 years longer to complete because the developer concentrated on completing the high-end portion of the development first (National Audit Chief, 2003). Another in Selangor under-achieved its sale quota to targeted buyers as the developer focussed on a more lucrative house-buyer segment (National Audit Chief, 2000). Yet another brought financial loss to a public agency as the developer under-valued the granted land for the development (National Audit Chief, 2001). The obvious question to pose is that in situations when public agencies have been unable to develop lands on their own and therefore have had to co-opt private developers, would it not have been better to abandon public initiatives altogether? Such an act would have been construed as forsaking social obligations for quick profit. Also, it would have brought into question the rationale of maintaining sizeable technical resources which some public agencies possessed. Literature review According to Savas (2000), private partnership is a particularly malleable form of privatisation. Any act to reduce the role of the government or increase the role of the private institutions in satisfying people’s needs tantamount to privatisation. He points out that privatisation can involve delegation (i.e. the government retains responsibility and oversight but uses the private sector for service delivery), divestment (i.e. the government relinquishes responsibility) and displacement (i.e. private sector grows and displaces a government activity). Housing PPP certainly qualify for the first category. Even though the private developer is expected to perform all development tasks under PPP, the public agencies may take on the role of the ‘regulator’ (Leung & Hui, 2005), ‘enabler’ by providing the enabling environment for the private partner to step in (Sengupta, 2005), ‘moderator’ by balancing market incentives with community interests (Sengupta, 2005) and ‘facilitator’ by assisting in project completion and reducing the developer’s risks (Lynch, Brown, & Baker, 1999). In South Africa (Dewar, 1999), Bulgaria and Russia (Lynch et al., 1999), various forms of facilitation are included in their housing PPP. Under India’s Participatory Development Schemes, the public agency provides grounds of legal base, beneficial policy environment, development guidelines and even loans (Adusumilli, 1999). In Canada, the facilitation is by way of permitting design flexibility in terms of, for example, permitted height, density, site configuration and open space, in addition to streamlining the approval process (Griffin, 2004). Housing PPP in different countries were borne out of different circumstances. Their objectives may therefore differ. In the USA, budgetary constraint was the driving force, which prompted community-based-non-profit housing developers to forge creative alliances with various parties to finance affordable housing (Pomeroy, Lampert, Wallace, & Sheehan, 1998). The same was true in the UK (Webb & Pulle, 2002), India (Adusumilli, 1999), Canada (Pomeroy et al., 1998) and Australia (Maguire & Malinovitch, 2004).

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Public agencies in those countries turned to the private sector to provide capital for housing development. Innovation was listed by Partnership Victoria as among the objectives for PPP (Webb & Pulle, 2002). In India, the Andhra Pradesh Housing Board looked for freshness in design and construction practices in housing development (The Times of India Online, 2004). PPP enable the public agencies to tap the expertise of the private developers (Dewar, 1999; Susilawati & Armitage, 2004), which can be managerial, technical, financial and marketing in nature (Singaravelloo, 2001). Another attraction of PPP is the ability to transfer risks to the private sector (Dixon, Pottinger, & Jordan, 2005; Gallimore, Williams, & Woodward, 1997; Maguire & Malinovitch, 2004; Sengupta, 2005; Susilawati, Armitage, & Skitmore, 2005). The main risk in housing is the change in demand which, if it dips below expectation, could delay loan repayments, causing additional interest and debt to developers (Hussin, 2001). Other risks pertain to design, construction, completion and approval (Dixon et al., 2005; Grimsey & Lewis, 2005). Risk transfer is beneficial in that it heightens the level of commitment of the private sector (Dixon et al., 2005; Grimsey & Lewis, 2005). Often, public agencies have multiple objectives when adopting PPP. For Australia’s first housing PPP, the objectives were to obtain private sector finance, innovation and expertise, risk transfer and cost savings (Coates, 2008). Webb and Pulle (2002) also note that in the UK, housing PPP provided potential for value for money, early project delivery and gains from innovation, among others. Value for money is also noted by Maguire and Malinovitch (2004) as the key driver for adopting PPP in Australia. Value for money can take the form of lower construction costs, lower operating costs and even more efficient maintenance in the long run. Risk transfer also contributes to value for money (Maguire & Malinovitch, 2004). The European Commission (2003) considers value for money as ‘more gains’ for the given price, e.g. reduced life cycle costs, better allocation of risks, faster implementation, improved service quality and generation of additional revenue. Quality however is not limited to service, but also relates to the materials used and the level of construction workmanship (Raman, 1997). Finally, awards and recognitions may stimulate public agencies into adopting housing PPP (Alexandrou & Colpus, 2001; Singaravelloo, 2001; Susilawati et al., 2005). Past studies inclined towards identifying success factors, not failure factors. The success of particular housing PPP programme is highly influenced by the country’s economic, political and cultural circumstances (Brown, Orr, & Luo, 2006). Put simply, the success and failures may be country-specific. Selecting the right partner is crucial, as is consistent monitoring (Cuorato, 2002). Dixon et al. (2005) and Cuorato (2002) point to transparent and consistent communication between parties as critical to the success of housing PPP. According to Susilawati and Armitage (2004), trust and information have positive associations: without trust the parties do not share information and without further sharing of information, trust cannot increase. There must be compatibility between the private developer and the public agency, which is not easy as the former seeks to make profit while the latter to fulfil social and electoral responsibilities (Susilawati et al., 2005). Incompatibility has resulted in lengthy negotiations (Asenova, Beck, Akintoye, Hardcastle, & Chinyio, 2002). A few sources recommend that the public sector should not solely rely on the private sector to conduct feasibility studies because of their inclination to make overly optimistic projections simply to secure housing PPP contracts (Leung & Hui, 2005; National Audit Cheif, 2003). Payne (2000) notes that even with incentives offered by the government, the poorest group might not benefit when the private developer has a strong bias towards meeting the housing demand of the rich. Developers with a social sense of obligation therefore can ensure housing PPP success.

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Still on success factors, for Australia’s first housing PPP, competitive tendering was adopted (Coates, 2008). Likewise Andhra Pradesh Housing Board invited local and foreign housing developers for a township PPP in Hyderabad, India (The Times of India Online, 2004). There has been criticism, however, that competition leads to high bidding costs (Asenova et al., 2002). Good negotiations have been found to lead to better value for money (Asenova et al., 2002) and quality of overall project (Hanif, Wan Abdul Aziz, & Mohd. Aini, 2006). The skills of the public agency must match its private partner’s as the latter has greater expertise in commercial negotiations and usually achieve more favourable contractual outcomes in many PPP projects (Australian Procurement and Construction Council, 2002). Lack of expertise increases costs to the public sector as it has to engage external consultants. A good contract should clearly describe the responsibilities of both private and public partners, and clearly define the methodology of dispute resolution (Cuorato, 2002). Insufficient details in the contract have at least caused one housing PPP to be delayed in Malaysia (National Audit Chief, 2000). As for failure factor, one was detected from past literature. According to Ong and Lenard (2002), housing PPP can do without political intervention especially when an incorrupt and honest political regime is absent. They however did not articulate what specific form political intervention might take. Corruption inherent in political influence risks undermining public trust and hence project outcome (Rondinelli, 2003). Realistically though, public agencies in Malaysia tend attract political interference (Singaravelloo, 2001). Research method The present research was exploratory in nature. It was motivated by the desire to better understand housing PPP in Malaysia. To achieve this end, it was decided right from the beginning that the mixed method was best suited for the purpose: a postal questionnaire survey sequentially followed by interviews and case studies. The qualitative methods were used to confirm and clarify the quantitative data, and also to seek elaboration. Past studies on housing PPP (Griffin, 2004; Payne, 2000; Singaravelloo, 2001; Wan Abdul Aziz & Hanif, 2005) favoured the case studies approach. Susilawati et al. (2005) were different in that it too adopted the survey-interview combination. While mixing the qualitative and quantitative approaches is anathema to purists who believe the two have radically different philosophical assumptions, others like Greene (2008) promote the mixed method for its ability to complement strengths (the weakness of one method is compensated by the strength of another), triangulate (establish construct validity through convergence in findings from multiples studies), develop (one method to inform the development of another) and expand (to obtain a fuller picture by expanding the scope and breadth of a study). Others before her too had also broadly pointed to these same strengths (Firestone, 1993; Sieber, 1973). The distributed questionnaires were based on past literature and a pilot test. Five individuals were approached to give their comments about the draft questionnaire e a project executive who later recommended his colleague project manager also from the same housing cooperative, an engineer attached with an engineering consultancy firm, an ex-project executive of a state-owned enterprise and a project executive of a state-owned enterprise. All of them have dealt with housing PPP projects before. From their feedback, one variable was added for objectives of housing PPP (i.e. project reputation) and 3 for success/failure factors (i.e. action against errant developer, developer’s profit-sharing accountability and developer’s social accountability). Different from past studies

which just identified critical success factors, this study examined the impact of certain factors if they were absent, the rationale being the absence of certain success factors cannot be presumed to lead to failure. Neither can the absence of failure factors presumed to lead to success. Also it cannot be presumed that the degree of impact of a success factor when present is the same as the degree of the opposite effect when absent. Most of the questions contained in the questionnaire adopted the 5-point Likert Scale. Which public agencies from among the many in Malaysia should be included in the present study took careful deliberation. Borrowing Asaha’s (2004) criterion that they must all have access to public lands for housing development, the agencies initially approached were the 135 local authorities, 25 state-owned enterprises, 12 regional authorities, 14 state Islamic councils, 7 government-linked companies, 2 ministry-owned organisations. Telephone calls were made to all of them to enquire whether they had ever teamed up with private developers in housing development. From this exercise, the number of the agencies was reduced to 184 from the original 195 e three state-owned enterprises, five regional authorities and three government-linked companies were removed from the postal list. The questionnaires were sent to all of them. 19 usable questionnaires (i.e. 10.4%) were returned despite follow-up calls 4 weeks later. The poor response from the targeted government agencies can be attributed to the sulit (confidential) syndrome, even when baseless (Lee & Ahmad, 2000). The questionnaires were all completed by those intimately familiar with their organisations’ housing PPP projects. 11 Respondents indicated in the returned questionnaires their willingness to be interviewed. Prior to each interview, desk research was conducted to obtain as much additional information as possible about the organisation and its housing PPP projects. Secondary sources of information included organisation website and online newspaper articles. All except one interviewee allowed for the interviews to be tape-recorded. The data obtained from the postal questionnaire and interviews were then analysed. Upon completion of the analysis, 10 out of the 11 interviewed agencies were again approached so that in-depth case studies on specific housing PPP projects (one for every organisation) could be conducted. These were scrutinised more intensely to further grasp the intricacies of housing PPP. Although the case studies served to produce best practices which are not presented in this paper, relevant data were nonetheless incorporated in the present paper. For analysis, the quantitative data obtained from the postal questionnaire survey were ‘qualitised’ (Tashakkori & Teddlie, 1998) so that they could be interpreted together with the qualitative data. The data obtained from the interviews, secondary sources and case studies were content analysed. Despite adopting the mixed method research design which enabled a fuller picture to be obtained, the fairly small sample population renders the quantitative and qualitative observations indicative rather than representative. In terms of bias, of the 19 agencies that returned the questionnaires, seven were state-owned enterprises, six were local authorities and two each were Islamic councils, government-linked companies and regional authorities. The data were therefore skewed towards state-owned enterprises and local authorities (68% of the sample population), which was acceptable as these two categories of agencies dominated the population (85%). These state-owned enterprises had technical departments devoted to real estate development as opposed to the smaller Islamic councils and local authorities did not even have a single staff that could be devoted to property development. The distribution of the participating agencies throughout the country did not result in geographical bias. There may however have been bias towards agencies whose responding officials were at ease with the disclosure of information solicited for the research. Despite the

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limitation of the findings, exploratory studies such as the present one do play a vital role in being the basis for further in-depth subsequent studies. Findings and discussion The present study found that given the choice, public agencies would rather develop lands on their own. But because of certain inherent limitations such as unavailable (in the case of some state Islamic councils, for example) or limited (in the case of some local authorities) technical and financial resources, they had to turn to the private sector for assistance. External factors which prompted them to do likewise included prohibition to engage in commercial activities (for state Islamic councils), political pressure to suddenly increase volume of mass housing (e.g. zero squatter policy by 2005 for Selangor State) or even difficult land conditions (e.g. hilly or marshy areas). Several interviewees pointed out those housing PPP developments often appreciate the land value of the surrounding area, hence unlocking the economic value to the benefit of private landowners. They regarded this outcome as fulfilling part of their social duties. While Malaysia’s housing PPP exhibit certain unifying features with housing PPP elsewhere, the present study also found that they have certain peculiar features. Even though lands are provided to the private developer, prudent public agencies prohibit them from being charged to the bank to raise finance for development. This is because once land is charged to the banks, the public agency relinquishes ownership. The banks could auction them off if the private developer defaulted on his loan repayments. Another unique feature of Malaysia’s housing PPP is that the public agency still expects the private sector to ‘cross-subsidise’ the low-cost houses in the developments with profits made from the other housing types. The Malaysian government implemented a policy in 1981 which transferred the responsibility of housing low-income earners to private developers by requiring them to provide at least 30% low-cost housing unit within their housing schemes (Idrus & Ho, 2008; Salleh, 1997). The cost of low-cost dwellings often exceeds the government-set ceiling prices especially in major urban centres, hence the ‘cross-subsidisation’ argument which the government consistently use against dissatisfied housing developers. Returning back to the present study, public agencies maintain this policy under housing PPP arrangements with the private sector. Also as part of affirmative action policy, housing developers are required to sell 30% of their newly constructed houses to bumiputera (or Malays). Again, public agencies maintain this ruling on their housing PPP partners as well, some even expecting them to exceed this quota to cater for Malay-dominated communities. Table 1 shows that of all the objectives tested, 5 were deemed highly important, the rest important. The surveyed public agencies, just like all public organisations in Malaysia, were associated with poor service delivery performance and inefficiency (Abdul-Aziz, Jaafar, & Hussin, 2007; Ho, 2006). The interviewees only made oblique references to such imagery, most likely to avoid selfimplication. The public agencies expected their organisational reputation to be enhanced by adopting the PPP concept, especially when confronted with challenging situations. This observation coheres with that of Singaravelloo (2001), Alexandrou and Colpus (2001) and Susilawati et al. (2005). Scored slightly lower by the respondents was project reputation. The PPP arrangement promised to enhance project reputation, even from the outset as private developers are generally regarded as more efficient house-builders (Agus, 2002). The mere act of partnering with private developers attracted those who ordinarily shunned buying public agency housing, noted a few interviewees. Incidentally, project reputation was not highlighted by past scholars. The interviewees alluded to

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Table 1 Objectives of housing PPP. Objective

Mean

S.D.

Rank

Remark

Organisation reputation Project reputation Early completion On-time completion Value for money Cost certainty Quality workmanship Transfer of financial risks Transfer of delay risk Innovation in design Obtaining lowest development cost Obtaining technical expertise Transfer of defect risks Obtaining marketing expertise Transfer of cost overrun risk Transfer of sales risk Obtaining capital for development

4.74 4.63 4.63 4.63 4.50 4.33 4.28 4.12 4.06 4.06 4.06 4.06 4.00 3.89 3.88 3.82 3.72

0.56 0.68 0.60 0.60 0.71 0.59 0.84 0.86 0.75 0.80 0.87 1.00 0.75 0.96 0.86 1.13 1.13

1 2 2 2 5 6 7 8 10 10 10 10 14 15 16 17 18

H. Impor. H. Impor. H. Impor. H. Impor. H. Impor. Impor. Impor. Impor. Impor. Impor. Impor. Impor. Impor. Impor. Impor. Impor. Impor.

Note: 1.00e1.49 ¼ highly unimportant, 1.50e2.49 ¼ unimportant 2.50e3.49 ¼ neutral, 3.50e4.49 ¼ important, 4.50e5.00 ¼ highly important.

organisational and project reputation as being underpinned by other variables (e.g. completion dates, quality of workmanship, etc.) which were also tested in the present study. The respondents scored equal means to early completion and on-time completion (just as with project reputation). If early completion cannot be achieved, then the surveyed public agencies were equally contented with on-time completion. Interestingly, these two variables were given the highest means compared to all the other technical variables, a reflection of how the Malaysian public gauged housing development success. Abandoned housing projects have become staple news e the statistics from the Ministry of Housing and Local Government as of 31st December 2009 indicated that nationwide, 148 projects were abandoned involving 49,913 dwellings. Irate house-buyers burdened with loans for incomplete houses make bad publicity for the housing developers concerned as they freely air their grievance to anyone willing to lend their ears. The interviewees clarified that abandoned housing projects are a malaise of the private sector, which the public may not be aware of. Public agencies may deliver houses late, but they never abandon development projects. The interviewees explained that private developers are better able to complete houses on or ahead of schedule due to different work values (i.e. highly profit driven and tenacity in resolving challenges) and work practices (i.e. fewer internal procedures, regulations and meetings). To highlight this point, one interviewee narrated of two separate housing developments which his organisation developed. Contiguously located, one used the PPP format and the other self-developed. Even though both began at approximately the same time, the former was completed well ahead of the schedule compared to the latter. Date of completion is also emphasised by others as an objective of housing PPP (European Commission, 2003; Webb & Pulle, 2002). Value for money was the last highly important variable. The sampled public agencies did not aspire to make huge profits from their housing PPP projects, they merely hoped the house-buyers would get value for money. The agencies were satisfied as long as their returns were equivalent to the land value as assessed by the Valuation Department. In this sense, Malaysia’s housing PPP ideals cohere with that of other countries (European Commission, 2003; Maguire & Malinovitch, 2004; Webb & Pulle, 2002). The rest of the variables can be clustered under finance, private developers’ expertise and risk transfer. Under the finance cluster, cost certainty recorded higher mean than obtaining lowest development cost, which in turn was higher than obtaining capital (in

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fact obtaining capital was the lowest ranked variable). Hence, budgetary pressure was not the major driver for housing PPP in Malaysia, in contrast to the observation by Adusumilli (1999), Pomeroy et al. (1998), Webb and Pulle (2002) and Maguire and Malinovitch (2004). Cost certainty was stressed because cost overrun was likely to detrimentally affect project cash flow and certainly profit margin. The potential for project abandonment looms with serious cost overrun. The public agencies were not fixated on achieving lowest development cost, which does not resonate with Coates (2008). While several interviewees pointed out that PPP helped their cash-strapped organisations obtained capital for development, the questionnaire response suggests that this objective was the least of their concerns. Seasoned public agencies were especially wary of private developers full of promises of easy access to funds but fall short on how to meet other objectives. The returned questionnaires indicate that the sampled public agencies harnessed the expertise of private developers, hence concurring with past observations by Dewar (1999), Singaravelloo (2001), Susilawati and Armitage (2004) and Coates (2008). Of the expertise that was tapped, quality of workmanship recorded the highest mean followed by innovation in design, technical expertise and finally marketing expertise. The interviewees conceded that private developers were more attentive to workmanship quality; monitoring concreting works late into the night and inspecting roof spaces for example were normal routines for them, but not for salaried executives of public agencies and the consultants they engaged. The observation on quality workmanship supports Raman (1997). Being in a competitive industry, private developers constantly strive to produce innovative housing designs. The architects and designers the public agencies engaged might not have even been as creative as them, complained a few interviewees. The finding on innovative design coheres with past observations (The Times of India Online, 2004; Webb & Pulle, 2002). Being hands-on, private developers are also technically-minded and more creative in marketing their houses. One private partner did not undertake any major sales promotion at all. There was no on-site sale-board and showhouse for his housing PPP project, only photocopied flyers. As he anticipated, curiosity among the locals drove housing sales. In terms of risk transfer (Coates, 2008; Dixon et al., 2005; Gallimore et al., 1997; Maguire & Malinovitch, 2004; Sengupta, 2005; Susilawati et al., 2005), all the interviewees pointed out that their organisations did not deliberately set out to over-burden their partners. As found from the field study, some public agencies were moved to re-engage themselves in the development process to aid their partners when needed, but still made it known that whatever risks remained with their partners. In the same spirit of partnership, these organisations refrained from exercising the contract stringently, unless really forced to. Nonetheless they conceded that risks still had to be transferred to ensure the private developers took their responsibilities seriously, which echoes the point by Dixon et al. (2005) and Grimsey and Lewis (2005). The public agencies did not assume any risk at all arising from the housing PPP development process. Financial risk ranked the highest, followed by delay risk, defect risk, cost overrun risk and sales risk. The greatest financial risk for the public agencies was the loss of lands they committed to the housing PPP. Prudent public agencies did not give full power of attorney to their partners. If full power of attorney was given, then they demanded bank guarantees equivalent to the land value. Transferring the delay risk to the private partners spurred them to complete on time, better still earlier than schedule. It was the national requirement that all housing developers must make good any defects detected by house purchasers within 18 months from the date of delivery of vacant

possession. The surveyed public agencies pushed the defect risk to their private partners. Private partners were also made to absorb cost overrun risk to motivate them to keep within budget. Interestingly sales risk had the lowest mean compared to the other types of risk, which challenges the viewpoint of Hussin (2001) that it was a main risk item. The interviews revealed that sales were always assured no matter how remote the developments were, provided the prices of the housing units were affordable to local communities. Such was the demand for formal housing in Malaysia that sales were almost assured regardless of location. Even so, the surveyed public agencies required their partners to absorb sales risk by stating in their agreements that regardless of the sales outcome, they were still entitled to their stipulated returns, be it in cash, in kind, or both. Having examined all the objectives for housing PPP, it can be summarised that just like in other countries, housing PPP in Malaysia served to meet multiple objectives. Tables 2 and 3 must be interpreted in combination. The factor which contributed most to the success of PPP projects when it prevailed was action against errant developers (see Table 2). When action was not taken, the impact was negative (see Table 3). Following the Asian Financial Crisis of 1997, one private developer failed to complete the last phase of a 750-acre development. Sympathetic to its plight, the public agency extended the date for completion a few times. More than ten years on and 352 dwellings still had to be completed. During the intervening period, houses were being competed, but exceedingly slowly. In retrospect, the interviewee confided that prompt stern action should have been taken. Then, his organisation would not have to confront irate house-buyers’ fury. Action against errant developer as a success or failure factor had never been identified by past scholars and observers of housing PPP before. When timely actions were hesitated, problems risked festering beyond remedy. Not only that, taking the cue, subsequent PPP partners then took the dim view that the public agencies were pliant. The interviews identified inaction against errant developers mainly arose from frontline personnel with weak command of PPP contracts. Consequently they were daunted to confront astute errant developers just as they were with unsympathetic top management. The only variable deemed to produce highly negative outcome when absent was robust and clear agreement (see Table 3). When existed, it led to positive outcome (see Table 2). This finding echoes the observation by the National Audit Chief (2000) and Cuorato (2002). Some of the interviewees admitted that sharp developers, not necessarily unscrupulous, had exploited loopholes in their PPP contracts. Not many consultant lawyers in Malaysia had dealt with

Table 2 Effect on housing PPP when factors exist.

Action against errant developer Consistent monitoring House-buyers’ demand Reputable developer Robust and clear agreement Constant communication Developer’s profit-sharing accountability Developer’s social accountability PSO negotiation skills PSO’s adequate negotiation staff Compatibility between partners Realistic projection Competition Ample time to evaluate proposal Political influence

N

Mean

S.D.

Remark

14 19 17 17 16 17 13 15 17 17 19 18 16 17 12

4.50 4.47 4.41 4.41 4.31 4.24 4.23 4.13 4.12 4.12 4.11 4.06 4.00 3.88 3.33

0.52 0.51 0.62 0.62 0.60 0.44 0.44 0.35 0.49 0.49 0.46 0.80 0.52 0.78 0.866

Highly positive Positive Positive Positive Positive Positive Positive Positive Positive Positive Positive Positive Positive Positive Neutral

Note: 1.00e1.49 ¼ highly negative, 1.50e2.49 ¼ negative, 2.50e3.49 ¼ neutral, 3.50e4.49 ¼ positive, 4.50e5.00 ¼ highly positive.

A.-R. Abdul-Aziz, P.S. Jahn Kassim / Habitat International 35 (2011) 150e157 Table 3 Effect on housing PPP when factors do not exist.

Robust and clear agreement Reputable developer Action against errant developer Developer’s social accountability Constant communication Developer’s profit-sharing accountability PSO negotiation skills PSO’s adequate negotiation staff Realistic projection Ample time to evaluate proposal Political influence Competition House-buyers’ demand Consistent monitoring Compatibility between partners

N

Mean

S.D.

Remark

3 2 5 4 2 6 2 2 1 2 7 3 2 e e

1.33 1.50 1.80 2.00 2.00 2.17 2.50 2.50 3.00 3.00 3.29 3.33 3.49 e e

0.58 0.71 0.84 0.00 0.82 0.41 0.71 0.71 0.00 1.41 0.866 1.15 2.12 e e

Highly negative Negative Negative Negative Negative Negative Neutral Neutral Neutral Neutral Neutral Neutral Neutral e e

Note: 1.00e1.49 ¼ highly negative, 1.50e2.49 ¼ negative, 2.50e3.49 ¼ neutral, 3.50e4.49 ¼ positive, 4.50e5.00 ¼ highly positive.

housing PPP before, and so, engaging them did not necessarily result in water-tight PPP contracts. The interviewees divulged that eventually effective PPP contracts evolved from trials and errors which were at times costly. Apart from the two above-mentioned variables which led to extreme outcomes when either present (i.e. action against errant developer) or absent (i.e. robust and clear agreement), other variables produced no less interesting outcomes. All of them are summarised in Table 4. Factors which resulted in positive effect when they existed and negative effect when absent were reputable developer, consistent communication, developer’s profit-sharing accountability and developer’s social accountability. To minimise failure, the sampled public agencies only engaged reputable developers. This finding resonates with Cuorato (2002). Unfortunately doing so was not always fail-proof. One public-listed company deliberately stalled a housing PPP project (for more than a decade) by exploiting a loophole in the contract after making huge publicity gains from its launching. The finding on the importance of communication to the success of housing PPP in Malaysia coheres with Cuorato (2002) and Dixon et al. (2005). As found from interviews, the public agencies put the onus on their private partners to constantly update them on the development progress as they were the ones who performed the actual work. Prudent public agencies stipulated in their PPP contracts that their partners must submit monthly progress reports followed by oral presentations to top management. Some developers ignored this requirement either because of little progress (which was acceptable to the surveyed public agencies) or problems encountered (which was not). As mentioned

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earlier, if informed early, some agencies would intervene to resolve development impediments even though not obligated to do so. However this could only happen if they were made aware of their partners’ difficulties. One interviewee used his personal contacts with utility companies to expedite utility connections for a housing PPP project. Thus the communication had to be regular as well as transparent (Cuorato, 2002; Dixon et al., 2005). All of the interviews admitted that their organisations had made oversights in the past and incurred losses because profit-sharing accountability was lacking. There were cases of private developers who reneged on paying their dues as scheduled. Or when required to compensate the agencies with completed houses, unscrupulous partners had handed over units with lower quality finishings (e.g. cement rendered instead of tiled flooring), unlike those put up for sale. Developer’s profit-sharing accountability had not been identified by past scholars or observers as a success or failure factor for housing PPP. Virtually all the housing PPP examined had low-cost housing included as part of the public agencies’ social obligation, but as expected, disliked by the private partners. Given the chance, they procrastinated or even absconded from this obligation. Such was the case with one developer who constructed low-cost houses well after the rest of the development was completed. The field study found that non-compliance to the bumiputera quota was lesser of an issue than non-fulfilment of the low-cost housing quota. The identification of developer’s social accountability as a success factor concurs with Payne (2000). There was a set of factors which, when present brought positive effects but, when absent produced no effect at all (see Table 4). House-buyers’ demand and realistic projections were inter-related. Defying the advice by Leung and Hui (2005) that the private developers should not be left entirely to conduct feasibility studies, the sampled public agencies expected them to project housebuyers’ demand. If the private developer’s assessment of house-buyers demand was accurate, all housing units in the PPP development would be taken up by the market as anticipated, thereby aiding the private developer’s cash flow. Interestingly, if the assessment and projection was off-target, the impact on the housing PPP was neutral, since all the houses would eventually be bought (provided the prices are reasonable), revealed the interviewees. Also, prudent public agencies clearly stipulated in the PPP contracts that their returns were not tied to sales performance, therefore they would not have suffered at all from their partners’ miscalculations. The public agencies’ negotiation skills and adequacy of negotiation staff were also inter-related. The findings that both these factors can contribute to project success echo the works of Asenova et al. (2002). Both factors certainly came into importance when negotiating and re-negotiating of the agreement. Curiously when absent, the effect was neutral. The interview revealed that when

Table 4 Success and failure factors of housing PPP in Malaysia. Present ¼ highly positive, absent ¼ negative, or present ¼ positive, absent ¼ highly negative

Present ¼ positive effect, absent ¼ negative effect

Present ¼ positive effect, absent ¼ no effect

Present ¼ no effect, absent ¼ no effect

Present ¼ positive effect, absent ¼ unknown effect

Action against errant developer Robust & clear agreement

Reputable developer Constant communication

House-buyers’ demand PSO negotiation skills

Political influence

Consistent monitoring Compatibility between partners

Developer’s profit-sharing accountability Developer’s social accountability

PSO’s adequate negotiation staff Realistic projection Competition Ample time to evaluate proposal

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these variables were missing, their organisations solicited the help of various technical approving bodies to act vicariously on their behalf in addition to the consultants they engaged. This recourse to approving authorities did not lead to increase in cost, defying the prediction by Australian Procurement and Construction Council (2002). Competition and ample time to evaluate proposal were also inter-linked. The majority of the surveyed agencies did not rely on competition to select the rightful partner, preferring instead to adopt the first-come, first-served approach. While acknowledging the benefits of competition, the interviewees explained that evaluating development proposals from competing tenderers was arduous as they varied in term of development layout, housing types, public amenities and such like. Selection solely based on the greatest monetary returns would have been easy, but as pointed out in Table 1, these agencies had to balance a whole range of objectives when adopting the PPP approach. While some agencies had suffered from poor performing housing PPP projects, none of their interviewees attributed them to absence of competition. Hence in contrast to Coates (2008), the present study does not lend credence to the view that competitive tendering is a critical success factor. The interviewees however concurred with Asenova et al. (2002) that competition increased bidding cost. Interestingly, the field study revealed that ample time to evaluate proposal was another variable which led to positive effect when present but no effect when absent. One experienced interviewee remarked that by focusing on certain key aspects, he could vet a proposal overnight. Besides, developers’ proposals tended to be succinct. Of course, ample time rendered better scrutiny. It was found from the field work that actual evaluation did not in fact consume much time; it was the waiting period for the various committees to convene that protracted the entire vetting cycle. The larger the organisation, the more committees there were to vet the developer’s proposal. Ample time allowed the entire vetting cycle to be properly completed. Ample evaluation had not been identified by any previous scholar as a success factor. Being in the public domain, the interviewees conceded that their organisations attracted political influence, the most common form being ‘recommendation’ of certain developers supposedly deserving of housing PPP projects. However when dealt with discreetly, political influence brought neutral effect when present as well as when absent (see Table 4). This finding contrasts with Singaravelloo (2001), Ong and Lenard (2002) and Rondinelli (2003). The most sensible approach to address politicians’ request was to oblige by engaging their developer friends but still to manage them like any others as political patronage did not extend beyond the initial appointment stage. Distressed developers were left to fend for themselves. None of the respondents indicated the effects of two variables when they were absent e consistent monitoring and compatibility between partners e suggesting that they had never faced such situations before. They exerted positive effect when present though, thus supporting Cuorato (2002) and Susilawati et al. (2005) respectively. Apart from technical committees designated to monitor the performance of private developers, one very effective monitoring mechanism was the joint management committee comprising of senior managers from both sides whose view of PPP projects were more strategic than operational. The power the members of this committee wielded in their respective organisations enabled decisions to be made fairly rapidly. When both sides were compatible, the entire development process became less disputatious. The interviewees explained that the frontline technical and managerial personalities were most influential in shaping the relationship between the two sides at the operational level.

Conclusion and recommendation The study found that some Malaysian public agencies involved in housing development adopted the PPP formula from time to time, as a last resort rather than first choice preference. Just like their counterparts elsewhere, they had an array of objectives to balance when implementing it, the highly important ones relating to organisational reputation, project reputation, early completion, on-time completion and value for money. The present study identified success and failure factors of housing PPP in Malaysia, which were found not to be identical. For example, while competition was a success factor, it was not a failure factor. Success factor which had the greatest impact was action against errant developers and failure factor with the greatest impact was robust and clear agreement. The findings of the present study have pragmatic value. Housing PPP will still be adopted in Malaysia in years to come. Government agencies in Malaysia can take note of the success factors and failures factors so as to ensure that the lands they invest in housing PPP projects are not squandered. Their objectives of employing this approach should also be realistic; otherwise their expectations would not be met.

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