Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more

Established partners The Private Finance Initiative, also dubbed Public Private Partnerships, is becoming an increasingly important public procurement tool. Andrew Bolton kicks off NCE's PFI special w

If the Channel Tunnel Rail Link crisis had struck two years ago, the Private Finance Initiative could well be struggling to get off the ground today. At the time CTRL was seen by the government as one of the PFI's flagships and its failure would have been considered a major blow.

But whatever happens, CTRL now looks unlikely to destabilise the PFI. Gone are the days when ministers had to use the CTRL's £3bn capital cost to bump up the total value of schemes in progress.

Today, projects worth more than £6.3bn have been awarded excluding CTRL. Even stripping out PRIME, the DSS's recently awarded £4bn estates refurbishment project, more than £2bn of PFI deals have been done.

More look likely to follow now that key legal and financial obstacles - to local government projects in particular - have been removed. This legislation has already led to the signing of the concession to design, build finance and operate the new Colfox school in Dorset (see page 23).

Some projects, like the first two private prisons and two of the DBFO roads, are already in the operational phase. 'No-one is going to be talking any more about whether the PFI is here to stay,' says Matthew Webber, a director of PFI investment fund Innisfree.

If anything, Labour's election victory has catalysed the emergence of the PFI as a key procurement tool for national and local government. Construction companies and bankers have been impressed by the way paymaster general Geoffrey Robinson has shaken the initiative into action since he came to office last summer.

Robinson initiated a robust review of the PFI which was carried out by Pearl Group chairman Malcolm Bates. This resulted in some tough but necessary decisions. Projects with weak economic cases were scrapped while others were deferred during a prioritisation exercise.

Priority schemes were chosen, partly at least, because they were furthest down the procurement track. Ranking projects this way has focused the attention of the lawyers and bankers behind the scenes on getting them through their final procurement hoops.

The result has been the signing of the first four hospital deals since the election. Dartford and Gravesham's £125M scheme was the first, followed by the £57.4M South Bucks scheme, the £83M Cumberland Infirmary in Carlisle and the largest scheme to date, the £214M Norfolk & Norwich hospital.

The prioritisation exercise has also enabled Labour to impose its own emphasis on the PFI. Many motorway and trunk road DBFO schemes have been put on hold as a result of the transport review, but hospital projects have replaced them to some extent, reflecting the government's emphasis on health. Smaller projects like police stations, fire stations and court houses are also starting to emerge from local government, as are schools.

The flow of deals has been helped by the Treasury's new PFI task force, led by respected merchant banker Adrian Montague. He is credited with bringing new impetus to the PFI. His team has helped get the prioritisation exercise up and running and has replaced the Private Finance Panel, considered by many to have lost direction in the last months of the Conservative government.

As the PFI gathers pace the private sector is showing signs of evolving to meet the long term demands of the market. Contractors, facilities management firms and bankers are starting to work in the same teams on projects in the same sectors.

One example is Health Management Group, comprising Amec and facilities manager Building & Property Group, which is doing the Carlisle hospital scheme as well as bidding for other projects.

At the same time PFI specific investment funds like Innisfree have committed large chunks of their money to projects and are looking to invest more.

As the sector begins to take shape the main worry is whether the government will keep up the pace of contract awards set in the months after the election.

Concern is currently focused on the Department of Health, which is due to publish its next list of priority projects in the spring. At the moment indications from the government are that between five and 10 projects will be on the next priority list, but investors fear this is too few. They are worried that momentum will be lost if only a handful of projects are pushed ahead this time as this will lead to a shortage of schemes coming through the procurement process in 1999.

As more schemes come through the pipeline, it is clear the PFI will have to evolve as it comes under the National Audit Office microscope. Reports on the first prisons and road schemes are already out. The prisons report was generally favourable, pointing to savings of £54M over a publicly funded solution.

But the NAO report on DBFO roads has raised questions about the value for money of schemes combining construction of a small bypass with the maintenance and operation of a long stretch of existing road.

Of the first four projects, the most capital intensive yielded the best value for money, according to the NAO. The public spending watchdog found that the projects with only a small construction element will actually cost the taxpayer more money over the life of their concessions.

This meant that the 84.3km A69 project incorporating the construction of the 3.2km Haltwhistle Bypass was expected to cost the taxpayer £12M more than a publicly funded project (NCE 29 January)

Ironically, this flies in the face of attempts to get smaller bypasses built using private finance. The idea was that small projects could be made more attractive to banks by tacking on sections of existing road. If that proves to be more expensive, there must be a strong chance that this approach might have to be abandoned. That would leave only large new-build schemes as the most likely to proceed with private finance.

The outcome of the CTRL crisis can also be expected to have an impact. At the heart of the project's problems is the transfer of demand risk to the private sector. This could be removed if Railtrack takes the project over, as it would mean handing the loss making Eurostar passenger service back to the government - removing immediate demand risk at a stroke.

Even if this does not happen and LCR or another operator ends up running the project, a hefty increase on the £1.2bn government subsidy for the scheme will almost certainly be needed to make Eurostar, and the project as a whole, viable.

CTRL is, however, an exceptionally complex project from a PFI point of view, combining the construction and operation of track with the operation of a train service. While it may provide lessons for some PFI schemes, it would seem unlikely that its tribulations will have too much impact on the rest of the initiative.

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Please note comments made online may also be published in the print edition of New Civil Engineer. Links may be included in your comments but HTML is not permitted.