The future of PFI as a method of funding large-scale highways maintenance has been given a boost following the selection of Amey as winner of Sheffield’s mega £2bn scheme last week.
Sheffield will now get an up-front £1bn, five year investment in its highway network after Amey was named preferred bidder for the city council’s £2bn, 25 year highways maintenance PFI.
Amey beat off competition from contractor Carillion and its joint venture partner consultant Mouchel after a four year battle. It now has until August to get financing in place so that it can achieve financial close on the deal and get to work.
The announcement came four years after Sheffield City Council was selected, along with Isle of Wight Council and the London Borough of Hounslow, as a Pathfinder for the Department for Transport’s (DfT’s) Highway Maintenance PFI Programme and invited to submit an Outline Business Case (OBC) to the DfT.
All three schemes survived the October 2010 Comprehensive Spending Review on the condition that savings were found. In Sheffield’s case the DfT was originally going to provide £1.25bn in funding for the scheme but that was cut to £1.21bn in the Comprehensive Spending Review.
Each of the three schemes found the savings demanded and were given the go-ahead to proceed to contract award last March. This led to a splurge in contract awards this year, with Vinci named preferred bidder for the Hounslow PFI in March and an announcement on preferred bidder for the Isle of Wight project expected in June.
Plenty of work to last 25 years
When the contract begins in August, Amey will be charged with dealing with a backlog of repairs and refurbishing the city’s roads, pavements, bridges and streetscene within the first five years of the contract.
It then has to maintain them to the improved standard throughout the remaining 20 years of the contract.
The contract includes the improvement and ongoing maintenance of the city’s 1,900km of road, 3,300km of footway, 500 traffic signals, 68,000 streetlights, and over 18,000 items of street furniture. The contract will also include street cleaning, winter gritting and landscape maintenance.
Amey chief executive Mel Ewell said it was a clear endorsement of PFI. “This is a good news story all round,” said Ewell. “Getting hold of capital for local authorities is very difficult at the moment. So for Sheffield, this is a [procurement method] that has clearly worked.
“The fact that the DfT has reviewed it, the Treasury has reviewed it, everyone with an interest has reviewed it, definitely gives me confidence [in the model].
“In some regards there is too much talk about the future of PFI,” he said. The Treasury announced in November its intention to review and reform the PFI model.
“Highly examined scheme”
“Really, the debate is, in difficult times, what is the best way to invest in transport infrastructure?” said Ewell. “In Sheffield there is a specific method of funding - PFI. It is not the only method of funding, but using PFI here has been reviewed inside out and backwards and it has been agreed that it is a value for money solution.”
Sheffield City Council chief executive John Mothersole agreed. “In a sense it does give confidence in that this has been a highly examined scheme,” he told NCE.
“At the outset this had to be a very cost efficient and innovative scheme and we have spent a lot of the last four years demonstrating the cost efficiency of the scheme rather than finding cost efficiencies.
“The fact that this scheme hasn’t been significantly reduced through the various reviews it has been through shows this.”
“That the government has reduced its investment by just £40M over the process is pleasing.”
Mothersole stressed that Amey will be paid “on achievement”, with payments based on the contractor hitting regular milestones. The exact terms of this have to be agreed as part of the process leading to financial close.
But Amey is committed to investing around £1bn over the first five years of the contract to bring Sheffield’s notoriously poor condition roads up to standard.
In return the council is committed to upping its annual investment in highways by £1.5M from £29M a year to £30.5M in 2012/13 and by £2M a year thereafter.
Mothersole said this was money well spent. “Whether money is tight or not, the challenge of maintaining the highway isn’t going away,” he said.
“The number one priority identified by every survey we do is the state of the roads. So that this is the right thing to do is not in question.”