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PFI contracts ‘shocking abuse’ of taxpayer cash, says MP

Conservative MP Jesse Norman said this week that he wanted contractors, consultants and banks to give back to the taxpayer between £500M and £1bn earned from PFI.

Treasury ‘is not happy’

Norman said the contracts have been a “shocking abuse of public funds”. Norman sits on the powerful House of Commons Treasury Select Committee.

Norman said he would like his Campaign for a PFI Rebate to bring an “equitable settlement to recover some value from PFI contractors”.

“We are making some progress and have a lot of activity coming up,” he said, citing a hearing in the Treasury Select Committee: on 14 June and one he following day by the Public Accounts Committee.

“The Treasury Committee is looking at what a next generation of private finance would look like, which has been called ‘son of PFI’. The point is that the Treasury is not happy, I’m not happy, the prime minister is not happy, and we have contracts that have been opaque, inflexible and very bad value for money,” he said.

Government ‘disingenuous’ if they recall contracts

EC Harris partner Russell Gates warned of severe consequences if the government breaks contracts by forcing firms to repay fees.

“I think it’s highly disingenuous of the government to try and break its PFI contracts,” he said. “Whether or not he can do it is one thing, but if the government breaks contracts they have signed, it would be very difficult for the private market to sign up in future.

“If the government breaks contracts they have signed, it would be very difficult for the private market to sign up in future”

EC Harris partner Russell Gates

“The other thing is that we go through a lot to prove value for money before they are signed and it gets scrutinised at a local level and a departmental level and also for the bigger projects at a treasury level. It basically calls into question a lot of the people who have approved these contracts and have done the scrutinising and that is also disingenuous.”

Norman said he would not push the government to break contracts.However, he was sketchy about the details of how firms would refund the 0.5% of their PFI profits he is aiming for.

“One thing that gets people into panic is breaking the contract, which there is no suggestion, I’ve never made the suggestion that the government should be breaking contracts,” he said.

‘Renegoiation’ of contracts

“However, I think renegotiating them, as any large organisation would seek to renegotiate with suppliers, would be wise and of course suppliers are allowed to say ‘no’ and some players will chose to do that but it will be ill-advised to do so. So far with my conversations with the industry it’s been constructive engagement.”

Gates said better management of operational contracts by the public sector would make more sense than retrospectively changing contracts with construction firms.

“There are plenty of opportunities to revise specifications to take money back out of the service provisions and operational contracts,” he said.

“They might be better off making sure the public sector properly manages and reviews contracts that are over specified and can look at without doing anything to the risk transfer element.”

Norman said he did not agree that there would not be enough profit from construction companies to make substantial refunds to the taxpayer.

“I think I can see why someone may want to say that, but that doesn’t bear to reality,” he said.

“The government is seeking some form of correction for a very untenable long-term situation for the taxpayer that will clear the decks for a new large round of infrastructure finance.

“Truth is, this government has got tens or hundreds of billions of pounds of financing to do over the next 10 years and private capital has an important role to play. The question is striking an equitable, fair, flexible and honest system.”

Readers' comments (3)

  • Where exactly would these firms get money from?

    Unsuitable or offensive? Report this comment

  • Goody, let's set the precedent! Then the next time some Contractor loses money on a PFI Contract he can go to the Government for money to make up for his losses. Can politicians and other people not understand that contracting is a "win some, lose some, and high margin on some and losses on another" business!

    More importantly, how many organisations and individuals have been penalised/sacked for letting these contracts which have generated so called extortionate profits, and are there common details within these contracts that have generated these high profits - inadequate/ incomplete specification generating excessive VO's and an unequitable basis for costing such VO's and EOT's, vague or inadequate risk split, inadequate Client side performance such as access, information flow, or free issue items etc. etc.?

    Someone should do a study of these so called "failed" PFI contracts and determine the causes of the disatisfaction, before jumping up and down and blaming the contractors!

    If people are concerned only about the cost of PFI projects then go back to straightforward D&B contracts funded by the Client and cut out the massive bank, insurer, lawyer, bondsman, due diligence, finance, and additional consultant engineer costs involved!

    Unsuitable or offensive? Report this comment

  • Goody, let's set the precedent! Then the next time some Contractor loses money on a PFI Contract he can go to the Government for money to make up for his losses. Can politicians and other people not understand that contracting is a "win some, lose some, and high margin on some and losses on another" business!

    More importantly, how many organisations and individuals have been penalised/sacked for letting these contracts which have generated so called extortionate profits, and are there common details within these contracts that have generated these high profits - inadequate/ incomplete specification generating excessive VO's and an unequitable basis for costing such VO's and EOT's, vague or inadequate risk split, inadequate Client side performance such as access, information flow, or free issue items etc. etc.?

    Someone should do a study of these so called "failed" PFI contracts and determine the causes of the disatisfaction, before jumping up and down and blaming the contractors!

    If people are concerned only about the cost of PFI projects then go back to straightforward D&B contracts funded by the Client and cut out the massive bank, insurer, lawyer, bondsman, due diligence, finance, and additional consultant engineer costs involved!

    Unsuitable or offensive? Report this comment

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