PFI: back to the bad old days? By Tim Care

21 Apr 11
It seems that the appetite of the coalition government for PFI is greater than that of the previous government. Why is that?

During the 2010 election campaign the Conservatives proclaimed themselves to be vehemently anti the Private Finance Initiative. Yet despite this, recent research shows that under the current government, 61 PFI contracts are being negotiated of which 39 are due to be signed-off this year. This is more than the 32 in 2008 and 39 in 2009 (under Gordon Brown’s leadership). It seems that the coalition government’s appetite for PFI is greater than that of the previous government. Why is that?

Probably the same reason as that given in the 1990s when PFI really took off: for many authorities, it is the only game in town. Take the current round of hospital PFI projects. One example is North Tees and Hartlepool’s proposal to build a new hospital. This is the cornerstone of a service reconfiguration which is vital, not just to drive out efficiency savings, but also to improve the quality of healthcare in that area. The current government withdrew public funds for this project and now its only hope is PFI.

Even if PFI is the only choice, it doesn’t mean authorities have to follow blindly the well-trodden path that has resulted in schemes which have not demonstrated value for money and which have saddled many public authorities with unaffordable debt.

Any authority looking to enter into a PFI scheme should remember the following:-

1.       Don’t be greedy – it is important to accept that the private sector must make profits. Those profits oil the wheels of commerce and incentivise innovation and investment, thus creating jobs and contributing to much needed economic growth.

2.       Do not throw the baby out with the bath water by ignoring all the lessons learned from 15 years of PFI, for example, linking design with lifecycle and maintenance, thus ensuring that the PFI estate will last long into this century.

3.       Challenge the specifications. In the past many authorities have procured a Rolls Royce when all they needed was a Mondeo.

4.       Take a partnering approach to these long-term projects. By sharing both the pain and gain the public sector will be able to persuade the private sector to share the upside on a sale of equity or gains/savings made against maintenance and lifecycle budgets.

5.       Get the design right first time. Variations cost money and can be inefficient. The public sector must be absolutely clear about what it wants when it goes out to procurement and should not make changes later on.

I am a fan of PFI, but only advocate its use when the circumstances are right and when the public sector can demonstrate value for money.

Tim Care is a partner in the public services practice at law firm Dickinson Dees

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