Unit 4: Designing the Ownership Model

Summary

How can you assure the long-term sustainability of a solution to a need in your city? It is recommendable to consider the ownership model early on as this has a significant impact on costs, as well as balancing risks between stakeholders and influencing the type of providers that will respond. These all play an important part in determining the long-term feasibility of any given solution.

In this unit we look at how to do a market analysis, following on from your previous market discovery in Unit 3. Here we explore different ownership models in public procurement, their performance and how to determine the roles of the stakeholders involved in solving your city’s problem. You will learn about what you need to consider to design an ownership and financial architecture that assures long-term sustainability, manages risk, broadens and diversifies the provider base, and stimulates innovation in your city.

Who does what, who pays, and who owns what?

Solutions in cities are rarely delivered by a single party. Most commonly, we collaborate through business relationships and contracts of varying degrees of complexity. Solving some problems may require public spending or ownership, solving others may generate revenue for example by awarding concessions.

You will need to carry out additional analytical tasks to determine the ownership model. Below are three essential question types to ask in preparation for the ownership model: what, who and who matters.

Figure 4 — WHAT questions to start considering ownership models

Figure 5 — WHO questions to start considering ownership models

Figure 6 — WHO matters in your ownership model?

In order to answer these questions, you need to understand the market, i.e. the types of solutions that are available to you, the types of vendors that provide them, the associated business models and the kind of risks involved.

You will also need to map your internal and external stakeholders, identifying those to collaborate with (this is a task that should have been largely accomplished when drafting the problem statement). An important new dimension here is to identify who stands to gain what, who needs to contribute, and how risks can be shared across partners.

Risk is a transversal theme and requires careful consideration (also see Unit 6 on Managing risk for definitions and techniques). What kind of risks are you likely to encounter and who can share them with you? Does the market in itself pose a risk? How can you mitigate it?

Lastly, prioritize your stakeholders to see who you cannot do without, who adds value, and who might be nice to have on board. As far as possible be objective and open about this to manage expectations.

Ownership and financial models

Having carefully considered your own City’s situation, it is time to consider the most relevant ownership and financing models for procurement. These include buy-to-own, service contracts, concessions, lease, performance or impact bonds (pay for success) and regulatory action.

Table 8a — Ownership and financial models: Buy-to-own — Sources: [100] Treasury Department Government of Cyprus; [101] clean fleets

Table 8b — Ownership and financial models: Service Contracts — Sources: [102] Infrastructure Concession Regulatory Commission; [103] Navigate Change

Table 8c — Ownership and financial models: Concession

Table 8d — Ownership and financial models: Lease / Affermage

Table 8e — Ownership and financial models: Performance Bonds / Impact Bonds — Source: [104] US Department of Transportation; [105] Devin Thorpe, Forbes ;[106] John Adler, DART

Table 8f — Ownership and financial models: Regulatory Action

Each of the ownership models presented above will enable the use of a range of solutions and business models. In some cases, you bear a higher cost of acquisition, in others you pay a premium for results achieved or grant a concession. In this case you may need to consider the opportunity cost of not using your asset in a different way.

Remember that the choice of ownership model will determine the type of solutions you will attract. Yet, it is possible that you will not be in a position to identify which model will be the most advantageous. If more than one ownership model could work, you can design your procurement path to remain open and so consider different, competing ownership models.

Case study: Results-based financing — Inspiration on fighting Diabetes in Mexico

Key Takeaways

1. Different business and financial models have emerged that allow sharing risk between public authorities and providers. This means that the public authority might not need to purchase goods and services directly.
2. After defining your problem statement, reflect on different ownership and financial models by analyzing: who creates value? Who ‘receives’ value? Who can share risk? Consider doing a stakeholder mapping exercise.
3. Evaluate the pros and cons of various business models, considering short and long-term developments, as well as the concerns of all relevant stakeholders.
4. Accounting for the sustainability of investment, including lifecycle costs, and considering environmental and social objectives in the procurement process, has proved to have measurable and positive impact on procurement outcomes.
5. Consider pay-for-success schemes such as performance or social impact bonds. These are measured by clear performance goals that incentivize continued improvement and offer a low risk scaling path.

Now do your homework!

Get a copy of the Worksheet to understand solutions available in the market, their maturity and different business models in order to choose the most adequate ownership and financial model. In parallel, reach out to your procurement team and find out if your City has tried using the following ownership and financial models before. What was the most successful project for each one of them?

Congrats!

Proceed to Unit 5: Defining the evaluation framework