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Habitat International
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a b s t r a c t
Keywords: From time to time, various public agencies in Malaysia have developed houses using the publiceprivate
Housing development partnership (PPP) approach. The few failed housing PPP projects captured by National Audit point to the
Publiceprivate partnership
necessity for proper implementation. A study was conducted to examine the objectives of housing PPP,
Malaysia
Public agencies
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.
0197-3975/$ e see front matter Ó 2010 Elsevier Ltd. All rights reserved.
doi:10.1016/j.habitatint.2010.06.005
A.-R. Abdul-Aziz, P.S. Jahn Kassim / Habitat International 35 (2011) 150e157 151
lands to the partnership (Bardhan & Barua, 2005; Choe, 2002; Public agencies in those countries turned to the private sector to
Claggett et al., 1994) for free or at discounted rate, either on provide capital for housing development. Innovation was listed by
a freehold (Awil & Abdul-Aziz, 2006) or leasehold basis (Pint, Partnership Victoria as among the objectives for PPP (Webb & Pulle,
Bondanella, Cave, & Keyser, 2001). The public sector may play the 2002). In India, the Andhra Pradesh Housing Board looked for
facilitative role (Bardhan & Barua, 2005; Sengupta, 2005) by freshness in design and construction practices in housing devel-
accelerating the approval process for example (Agus, 1989). Virtu- opment (The Times of India Online, 2004). PPP enable the public
ally all the housing PPP in Malaysia require the private developer to agencies to tap the expertise of the private developers (Dewar,
provide low-cost housing as part of the social obligation. All 1999; Susilawati & Armitage, 2004), which can be managerial,
dwellings, even the low-cost units, are sold rather than rented out technical, financial and marketing in nature (Singaravelloo, 2001).
to occupants. Another attraction of PPP is the ability to transfer risks to the
The present study took on heightened importance when the private sector (Dixon, Pottinger, & Jordan, 2005; Gallimore,
National Audit of Malaysia highlighted a few housing PPP which Williams, & Woodward, 1997; Maguire & Malinovitch, 2004;
under-performed. One project took 8 years longer to complete Sengupta, 2005; Susilawati, Armitage, & Skitmore, 2005). The
because the developer concentrated on completing the high-end main risk in housing is the change in demand which, if it dips below
portion of the development first (National Audit Chief, 2003). expectation, could delay loan repayments, causing additional
Another in Selangor under-achieved its sale quota to targeted interest and debt to developers (Hussin, 2001). Other risks pertain
buyers as the developer focussed on a more lucrative house-buyer to design, construction, completion and approval (Dixon et al.,
segment (National Audit Chief, 2000). Yet another brought financial 2005; Grimsey & Lewis, 2005). Risk transfer is beneficial in that it
loss to a public agency as the developer under-valued the granted heightens the level of commitment of the private sector (Dixon
land for the development (National Audit Chief, 2001). et al., 2005; Grimsey & Lewis, 2005).
The obvious question to pose is that in situations when public Often, public agencies have multiple objectives when adopting
agencies have been unable to develop lands on their own and PPP. For Australia’s first housing PPP, the objectives were to obtain
therefore have had to co-opt private developers, would it not have private sector finance, innovation and expertise, risk transfer and cost
been better to abandon public initiatives altogether? Such an act savings (Coates, 2008). Webb and Pulle (2002) also note that in the
would have been construed as forsaking social obligations for quick UK, housing PPP provided potential for value for money, early project
profit. Also, it would have brought into question the rationale of delivery and gains from innovation, among others. Value for money is
maintaining sizeable technical resources which some public also noted by Maguire and Malinovitch (2004) as the key driver for
agencies possessed. adopting PPP in Australia. Value for money can take the form of lower
construction costs, lower operating costs and even more efficient
Literature review maintenance in the long run. Risk transfer also contributes to value
for money (Maguire & Malinovitch, 2004). The European Commission
According to Savas (2000), private partnership is a particularly (2003) considers value for money as ‘more gains’ for the given price,
malleable form of privatisation. Any act to reduce the role of the e.g. reduced life cycle costs, better allocation of risks, faster imple-
government or increase the role of the private institutions in mentation, improved service quality and generation of additional
satisfying people’s needs tantamount to privatisation. He points out revenue. Quality however is not limited to service, but also relates to
that privatisation can involve delegation (i.e. the government the materials used and the level of construction workmanship
retains responsibility and oversight but uses the private sector for (Raman, 1997). Finally, awards and recognitions may stimulate public
service delivery), divestment (i.e. the government relinquishes agencies into adopting housing PPP (Alexandrou & Colpus, 2001;
responsibility) and displacement (i.e. private sector grows and Singaravelloo, 2001; Susilawati et al., 2005).
displaces a government activity). Housing PPP certainly qualify for Past studies inclined towards identifying success factors, not
the first category. failure factors. The success of particular housing PPP programme is
Even though the private developer is expected to perform all highly influenced by the country’s economic, political and cultural
development tasks under PPP, the public agencies may take on the circumstances (Brown, Orr, & Luo, 2006). Put simply, the success
role of the ‘regulator’ (Leung & Hui, 2005), ‘enabler’ by providing and failures may be country-specific.
the enabling environment for the private partner to step in Selecting the right partner is crucial, as is consistent monitoring
(Sengupta, 2005), ‘moderator’ by balancing market incentives with (Cuorato, 2002). Dixon et al. (2005) and Cuorato (2002) point to
community interests (Sengupta, 2005) and ‘facilitator’ by assisting transparent and consistent communication between parties as
in project completion and reducing the developer’s risks (Lynch, critical to the success of housing PPP. According to Susilawati and
Brown, & Baker, 1999). In South Africa (Dewar, 1999), Bulgaria Armitage (2004), trust and information have positive associa-
and Russia (Lynch et al., 1999), various forms of facilitation are tions: without trust the parties do not share information and
included in their housing PPP. Under India’s Participatory Devel- without further sharing of information, trust cannot increase. There
opment Schemes, the public agency provides grounds of legal base, must be compatibility between the private developer and the
beneficial policy environment, development guidelines and even public agency, which is not easy as the former seeks to make profit
loans (Adusumilli, 1999). In Canada, the facilitation is by way of while the latter to fulfil social and electoral responsibilities
permitting design flexibility in terms of, for example, permitted (Susilawati et al., 2005). Incompatibility has resulted in lengthy
height, density, site configuration and open space, in addition to negotiations (Asenova, Beck, Akintoye, Hardcastle, & Chinyio,
streamlining the approval process (Griffin, 2004). 2002). A few sources recommend that the public sector should
Housing PPP in different countries were borne out of different not solely rely on the private sector to conduct feasibility studies
circumstances. Their objectives may therefore differ. In the USA, because of their inclination to make overly optimistic projections
budgetary constraint was the driving force, which prompted simply to secure housing PPP contracts (Leung & Hui, 2005;
community-based-non-profit housing developers to forge creative National Audit Cheif, 2003). Payne (2000) notes that even with
alliances with various parties to finance affordable housing incentives offered by the government, the poorest group might not
(Pomeroy, Lampert, Wallace, & Sheehan, 1998). The same was true benefit when the private developer has a strong bias towards
in the UK (Webb & Pulle, 2002), India (Adusumilli, 1999), Canada meeting the housing demand of the rich. Developers with a social
(Pomeroy et al., 1998) and Australia (Maguire & Malinovitch, 2004). sense of obligation therefore can ensure housing PPP success.
152 A.-R. Abdul-Aziz, P.S. Jahn Kassim / Habitat International 35 (2011) 150e157
Still on success factors, for Australia’s first housing PPP, which just identified critical success factors, this study examined
competitive tendering was adopted (Coates, 2008). Likewise the impact of certain factors if they were absent, the rationale being
Andhra Pradesh Housing Board invited local and foreign housing the absence of certain success factors cannot be presumed to lead to
developers for a township PPP in Hyderabad, India (The Times of failure. Neither can the absence of failure factors presumed to lead
India Online, 2004). There has been criticism, however, that to success. Also it cannot be presumed that the degree of impact of
competition leads to high bidding costs (Asenova et al., 2002). Good a success factor when present is the same as the degree of the
negotiations have been found to lead to better value for money opposite effect when absent. Most of the questions contained in the
(Asenova et al., 2002) and quality of overall project (Hanif, Wan questionnaire adopted the 5-point Likert Scale.
Abdul Aziz, & Mohd. Aini, 2006). The skills of the public agency Which public agencies from among the many in Malaysia should
must match its private partner’s as the latter has greater expertise be included in the present study took careful deliberation.
in commercial negotiations and usually achieve more favourable Borrowing Asaha’s (2004) criterion that they must all have access
contractual outcomes in many PPP projects (Australian to public lands for housing development, the agencies initially
Procurement and Construction Council, 2002). Lack of expertise approached were the 135 local authorities, 25 state-owned enter-
increases costs to the public sector as it has to engage external prises, 12 regional authorities, 14 state Islamic councils, 7 govern-
consultants. A good contract should clearly describe the responsi- ment-linked companies, 2 ministry-owned organisations.
bilities of both private and public partners, and clearly define the Telephone calls were made to all of them to enquire whether they
methodology of dispute resolution (Cuorato, 2002). Insufficient had ever teamed up with private developers in housing develop-
details in the contract have at least caused one housing PPP to be ment. From this exercise, the number of the agencies was reduced
delayed in Malaysia (National Audit Chief, 2000). to 184 from the original 195 e three state-owned enterprises, five
As for failure factor, one was detected from past literature. regional authorities and three government-linked companies were
According to Ong and Lenard (2002), housing PPP can do without removed from the postal list. The questionnaires were sent to all of
political intervention especially when an incorrupt and honest them. 19 usable questionnaires (i.e. 10.4%) were returned despite
political regime is absent. They however did not articulate what follow-up calls 4 weeks later. The poor response from the targeted
specific form political intervention might take. Corruption inherent government agencies can be attributed to the sulit (confidential)
in political influence risks undermining public trust and syndrome, even when baseless (Lee & Ahmad, 2000). The ques-
hence project outcome (Rondinelli, 2003). Realistically though, tionnaires were all completed by those intimately familiar with
public agencies in Malaysia tend attract political interference their organisations’ housing PPP projects.
(Singaravelloo, 2001). 11 Respondents indicated in the returned questionnaires their
willingness to be interviewed. Prior to each interview, desk
Research method research was conducted to obtain as much additional information
as possible about the organisation and its housing PPP projects.
The present research was exploratory in nature. It was moti- Secondary sources of information included organisation website
vated by the desire to better understand housing PPP in Malaysia. and online newspaper articles. All except one interviewee allowed
To achieve this end, it was decided right from the beginning that for the interviews to be tape-recorded. The data obtained from the
the mixed method was best suited for the purpose: a postal ques- postal questionnaire and interviews were then analysed. Upon
tionnaire survey sequentially followed by interviews and case completion of the analysis, 10 out of the 11 interviewed agencies
studies. The qualitative methods were used to confirm and clarify were again approached so that in-depth case studies on specific
the quantitative data, and also to seek elaboration. Past studies on housing PPP projects (one for every organisation) could be con-
housing PPP (Griffin, 2004; Payne, 2000; Singaravelloo, 2001; Wan ducted. These were scrutinised more intensely to further grasp the
Abdul Aziz & Hanif, 2005) favoured the case studies approach. intricacies of housing PPP. Although the case studies served to
Susilawati et al. (2005) were different in that it too adopted the produce best practices which are not presented in this paper,
survey-interview combination. relevant data were nonetheless incorporated in the present paper.
While mixing the qualitative and quantitative approaches is For analysis, the quantitative data obtained from the postal
anathema to purists who believe the two have radically different questionnaire survey were ‘qualitised’ (Tashakkori & Teddlie, 1998)
philosophical assumptions, others like Greene (2008) promote the so that they could be interpreted together with the qualitative data.
mixed method for its ability to complement strengths (the weak- The data obtained from the interviews, secondary sources and case
ness of one method is compensated by the strength of another), studies were content analysed.
triangulate (establish construct validity through convergence in Despite adopting the mixed method research design which
findings from multiples studies), develop (one method to inform enabled a fuller picture to be obtained, the fairly small sample
the development of another) and expand (to obtain a fuller picture population renders the quantitative and qualitative observations
by expanding the scope and breadth of a study). Others before her indicative rather than representative. In terms of bias, of the 19
too had also broadly pointed to these same strengths (Firestone, agencies that returned the questionnaires, seven were state-owned
1993; Sieber, 1973). enterprises, six were local authorities and two each were Islamic
The distributed questionnaires were based on past literature councils, government-linked companies and regional authorities.
and a pilot test. Five individuals were approached to give their The data were therefore skewed towards state-owned enterprises
comments about the draft questionnaire e a project executive who and local authorities (68% of the sample population), which was
later recommended his colleague project manager also from the acceptable as these two categories of agencies dominated the
same housing cooperative, an engineer attached with an engi- population (85%). These state-owned enterprises had technical
neering consultancy firm, an ex-project executive of a state-owned departments devoted to real estate development as opposed to the
enterprise and a project executive of a state-owned enterprise. All smaller Islamic councils and local authorities did not even have
of them have dealt with housing PPP projects before. From their a single staff that could be devoted to property development. The
feedback, one variable was added for objectives of housing PPP (i.e. distribution of the participating agencies throughout the country
project reputation) and 3 for success/failure factors (i.e. action did not result in geographical bias. There may however have been
against errant developer, developer’s profit-sharing accountability bias towards agencies whose responding officials were at ease with
and developer’s social accountability). Different from past studies the disclosure of information solicited for the research. Despite the
A.-R. Abdul-Aziz, P.S. Jahn Kassim / Habitat International 35 (2011) 150e157 153
fact obtaining capital was the lowest ranked variable). Hence, possession. The surveyed public agencies pushed the defect risk to
budgetary pressure was not the major driver for housing PPP in their private partners. Private partners were also made to absorb
Malaysia, in contrast to the observation by Adusumilli (1999), cost overrun risk to motivate them to keep within budget. Inter-
Pomeroy et al. (1998), Webb and Pulle (2002) and Maguire and estingly sales risk had the lowest mean compared to the other types
Malinovitch (2004). Cost certainty was stressed because cost of risk, which challenges the viewpoint of Hussin (2001) that it was
overrun was likely to detrimentally affect project cash flow and a main risk item. The interviews revealed that sales were always
certainly profit margin. The potential for project abandonment assured no matter how remote the developments were, provided
looms with serious cost overrun. The public agencies were not the prices of the housing units were affordable to local communi-
fixated on achieving lowest development cost, which does not ties. Such was the demand for formal housing in Malaysia that sales
resonate with Coates (2008). While several interviewees pointed were almost assured regardless of location. Even so, the surveyed
out that PPP helped their cash-strapped organisations obtained public agencies required their partners to absorb sales risk by
capital for development, the questionnaire response suggests that stating in their agreements that regardless of the sales outcome,
this objective was the least of their concerns. Seasoned public they were still entitled to their stipulated returns, be it in cash, in
agencies were especially wary of private developers full of promises kind, or both. Having examined all the objectives for housing PPP, it
of easy access to funds but fall short on how to meet other can be summarised that just like in other countries, housing PPP in
objectives. Malaysia served to meet multiple objectives.
The returned questionnaires indicate that the sampled public Tables 2 and 3 must be interpreted in combination. The factor
agencies harnessed the expertise of private developers, hence which contributed most to the success of PPP projects when it
concurring with past observations by Dewar (1999), Singaravelloo prevailed was action against errant developers (see Table 2). When
(2001), Susilawati and Armitage (2004) and Coates (2008). Of the action was not taken, the impact was negative (see Table 3).
expertise that was tapped, quality of workmanship recorded the Following the Asian Financial Crisis of 1997, one private developer
highest mean followed by innovation in design, technical expertise failed to complete the last phase of a 750-acre development.
and finally marketing expertise. The interviewees conceded that Sympathetic to its plight, the public agency extended the date for
private developers were more attentive to workmanship quality; completion a few times. More than ten years on and 352 dwellings
monitoring concreting works late into the night and inspecting roof still had to be completed. During the intervening period, houses
spaces for example were normal routines for them, but not for were being competed, but exceedingly slowly. In retrospect, the
salaried executives of public agencies and the consultants they interviewee confided that prompt stern action should have been
engaged. The observation on quality workmanship supports Raman taken. Then, his organisation would not have to confront irate
(1997). Being in a competitive industry, private developers house-buyers’ fury. Action against errant developer as a success or
constantly strive to produce innovative housing designs. The failure factor had never been identified by past scholars and
architects and designers the public agencies engaged might not observers of housing PPP before. When timely actions were hesi-
have even been as creative as them, complained a few interviewees. tated, problems risked festering beyond remedy. Not only that,
The finding on innovative design coheres with past observations taking the cue, subsequent PPP partners then took the dim view
(The Times of India Online, 2004; Webb & Pulle, 2002). Being that the public agencies were pliant. The interviews identified
hands-on, private developers are also technically-minded and more inaction against errant developers mainly arose from frontline
creative in marketing their houses. One private partner did not personnel with weak command of PPP contracts. Consequently
undertake any major sales promotion at all. There was no on-site they were daunted to confront astute errant developers just as they
sale-board and showhouse for his housing PPP project, only pho- were with unsympathetic top management.
tocopied flyers. As he anticipated, curiosity among the locals drove The only variable deemed to produce highly negative outcome
housing sales. when absent was robust and clear agreement (see Table 3). When
In terms of risk transfer (Coates, 2008; Dixon et al., 2005; existed, it led to positive outcome (see Table 2). This finding echoes
Gallimore et al., 1997; Maguire & Malinovitch, 2004; Sengupta, the observation by the National Audit Chief (2000) and Cuorato
2005; Susilawati et al., 2005), all the interviewees pointed out (2002). Some of the interviewees admitted that sharp developers,
that their organisations did not deliberately set out to over-burden not necessarily unscrupulous, had exploited loopholes in their PPP
their partners. As found from the field study, some public agencies contracts. Not many consultant lawyers in Malaysia had dealt with
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 Table 2
partnership, these organisations refrained from exercising the Effect on housing PPP when factors exist.
contract stringently, unless really forced to. Nonetheless they N Mean S.D. Remark
conceded that risks still had to be transferred to ensure the private
Action against errant developer 14 4.50 0.52 Highly positive
developers took their responsibilities seriously, which echoes the Consistent monitoring 19 4.47 0.51 Positive
point by Dixon et al. (2005) and Grimsey and Lewis (2005). The House-buyers’ demand 17 4.41 0.62 Positive
public agencies did not assume any risk at all arising from the Reputable developer 17 4.41 0.62 Positive
housing PPP development process. Financial risk ranked the high- Robust and clear agreement 16 4.31 0.60 Positive
Constant communication 17 4.24 0.44 Positive
est, followed by delay risk, defect risk, cost overrun risk and sales Developer’s profit-sharing accountability 13 4.23 0.44 Positive
risk. The greatest financial risk for the public agencies was the loss Developer’s social accountability 15 4.13 0.35 Positive
of lands they committed to the housing PPP. Prudent public PSO negotiation skills 17 4.12 0.49 Positive
agencies did not give full power of attorney to their partners. If full PSO’s adequate negotiation staff 17 4.12 0.49 Positive
Compatibility between partners 19 4.11 0.46 Positive
power of attorney was given, then they demanded bank guarantees
Realistic projection 18 4.06 0.80 Positive
equivalent to the land value. Transferring the delay risk to the Competition 16 4.00 0.52 Positive
private partners spurred them to complete on time, better still Ample time to evaluate proposal 17 3.88 0.78 Positive
earlier than schedule. It was the national requirement that all Political influence 12 3.33 0.866 Neutral
housing developers must make good any defects detected by house Note: 1.00e1.49 ¼ highly negative, 1.50e2.49 ¼ negative, 2.50e3.49 ¼ neutral,
purchasers within 18 months from the date of delivery of vacant 3.50e4.49 ¼ positive, 4.50e5.00 ¼ highly positive.
A.-R. Abdul-Aziz, P.S. Jahn Kassim / Habitat International 35 (2011) 150e157 155
Table 4
Success and failure factors of housing PPP in Malaysia.
Present ¼ highly positive, Present ¼ positive effect, Present ¼ positive effect, Present ¼ no effect, Present ¼ positive effect,
absent ¼ negative, or absent ¼ negative effect absent ¼ no effect absent ¼ no effect absent ¼ unknown effect
present ¼ positive,
absent ¼ highly negative
Action against errant developer Reputable developer House-buyers’ demand Political influence Consistent monitoring
Robust & clear agreement Constant communication PSO negotiation skills Compatibility between
partners
Developer’s profit-sharing PSO’s adequate negotiation staff
accountability
Developer’s social Realistic projection
accountability
Competition
Ample time to evaluate proposal
156 A.-R. Abdul-Aziz, P.S. Jahn Kassim / Habitat International 35 (2011) 150e157
these variables were missing, their organisations solicited the help Conclusion and recommendation
of various technical approving bodies to act vicariously on their
behalf in addition to the consultants they engaged. This recourse to The study found that some Malaysian public agencies involved
approving authorities did not lead to increase in cost, defying the in housing development adopted the PPP formula from time to
prediction by Australian Procurement and Construction Council time, as a last resort rather than first choice preference. Just like
(2002). their counterparts elsewhere, they had an array of objectives to
Competition and ample time to evaluate proposal were also balance when implementing it, the highly important ones relating
inter-linked. The majority of the surveyed agencies did not rely on to organisational reputation, project reputation, early completion,
competition to select the rightful partner, preferring instead to on-time completion and value for money. The present study
adopt the first-come, first-served approach. While acknowledging identified success and failure factors of housing PPP in Malaysia,
the benefits of competition, the interviewees explained that eval- which were found not to be identical. For example, while compe-
uating development proposals from competing tenderers was tition was a success factor, it was not a failure factor. Success factor
arduous as they varied in term of development layout, housing which had the greatest impact was action against errant developers
types, public amenities and such like. Selection solely based on the and failure factor with the greatest impact was robust and clear
greatest monetary returns would have been easy, but as pointed agreement.
out in Table 1, these agencies had to balance a whole range of The findings of the present study have pragmatic value. Housing
objectives when adopting the PPP approach. While some agencies PPP will still be adopted in Malaysia in years to come. Government
had suffered from poor performing housing PPP projects, none of agencies in Malaysia can take note of the success factors and fail-
their interviewees attributed them to absence of competition. ures factors so as to ensure that the lands they invest in housing PPP
Hence in contrast to Coates (2008), the present study does not lend projects are not squandered. Their objectives of employing this
credence to the view that competitive tendering is a critical success approach should also be realistic; otherwise their expectations
factor. The interviewees however concurred with Asenova et al. would not be met.
(2002) that competition increased bidding cost. Interestingly, the
field study revealed that ample time to evaluate proposal was
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