[Closed] Corbyn vs PFI

Why would the government, who has access to credit under better terms than any company, want to put the risk & investment onto the private sector? Particularly when the ultimate result if something does fail would be that the private firm goes bust and the government will have to ultimately pick up the pieces?

Because it doesn't at the scale of money and timescales that you're talking about and it doesn't/shouldn't pick up the bill if it goes wrong necessarily. There is specific comp on term drafting allocating who picks up what in SOPC contracts. In some situations (Norfolk waste PFI being a good example) it's the public sector (and rightly so that was a travesty) in others the bidder carries the can.

I see bidders who dont understand the financial and political juggling act that the public sector face.

This is true.

A project needs to be technically deliverable, meet a myriad of political objectives and be fundable. These objectives do not generally sit well together!

Rather like this article from 2008..

http://www.theweek.co.uk/25955/nobody-can-handle-truth-about-pfi

Generally the culture, or get too specific and they just don't need your skills everyday so you become less of the expert.

Yep - it's badly managed. I don't see a fundamental reason why it needs to be though.

Makes no sense to be to be giving loads of public money away to private companies, many of whom are overseas based. And many of whom don't really have the expertise either they just have a layer of opacity that allows them to bullshit their way through and trouser the profits.

Yep - it's badly managed. I don't see a fundamental reason why it needs to be though.

giving loads of public money away

Makes no sense to be to be giving loads of public money away to private companies,

Why not? Money changes hands between private and public all the time, it all circulates in the economy.

That's the trust's problem, not the private sector's.

Yup… and why so many of us think that PFI is flawed from the outset… the “buyer” needs so much expertise to get the initial contracts right, and to manage the ongoing supplier relationships, that they might as cut out the middle man and contract direct with the construction industry and sort out the ongoing maintenance and services themselves. They could raise the money at a cheaper rate as well. Yes, the debt is on the public sector books, but it would be cheaper debt.

Why not? Money changes hands between private and public all the time, it all circulates in the economy.

Cos it goes into the pockets of the rich execs and private shareholders of those companies perhaps? And people in other countries.

Doing something like IT in-house would seem to me to be a good way of distributing goverment money. And it *should* save public money that'd then go to other things.

Because if you don't have enough work to keep those people up to speed then they are not experts any more.

You saying there's not enough government IT work? Nothing to stop this publicly owned IT company bidding for other work is there?

You saying there's not enough government IT work?

This tread articulately identifies the issues with this type of deal, the issues the public sector has doing good deals etc.

But on top of this is a reality. Are the actual PFI deals done value for money for the tax payer vs capital investment from government as a whole (not cherry picking the spectaulalry bad ones that make the press)? I.e given all of the issues we have in implimenting them, issues that seem structral and unlikely to be removed are we still better off or not.

This may be a compicated question but it's one that has the potential for a yes/no answer.

And if the answer is no then there is a place for a ideological stance from government to say "no more PFI, no buts, it's off the menu".

All public capital investment comes from the goverment coffers, end of.

It may be great to say PFI is great if... and even give lots of options to resolve the ifs but it doesn't seem the public sector will ever be able to compete with the private on deal doing when things involve more than just actual cost.

Nothing to stop this publicly owned IT company bidding for other work is there?

Depending on how it's been set up then yes there are. In some cases quite restrictive.

And if it's an independent company then you're into having to have competitive procurement to obtain work same as every other company.

Interesting thread and cheers for the info peterfile

Tend to agree with molly though that all we did was add profit to the cost of the project and help multinational corporations and their already wealthy shareholders#

Private gives the public flexibility and allows the right people to be in the right places without the public side paying them relocation/secondment etc.

What you have outlined their is the classical debate of public waste vs private profit.

You may not be paying to re-locate your own people but you are paying cost + margin for the people that you do get to do the work.

There is obviously an optimium solution somewhere on the spectrum from everyone being employed directly by the state through to the state outsourcing everything.

The question Molgrips seems to be asking is why you can't have a state owned service provider who goverment agencies effectively outsource to? I.e. the state is the sole shareholder and take the dividens/loses incured in providing the service.

There is a good case study of this in the Met office...

There are a lot of questions this raises.
Is your new public owned service provider a profit centre or a cost centre.
If it's a profit centre then does it try to maximise profits by negotiating comerically with it's customers, other goverment agencies? And if it acts comercially then what happens when a private company has a cheaper bid for a piece of work?
If it's a cost centre then who pays the costs? Central goverment or do the costs get allocated back out to the users?
How do you ensure the costs are reasonable for the work being done without any comercial presure?

Just saying the government should run things isn't really that simple!

I've yet to see a single NHS PFI scheme that has benefited the Trust or the General Public.

In NHS land the Trusts did not decide to go PFI route, it was forced upon them higher up the food chain parts of the NHS, where to some degree I agree the contracting skills must have been woeful. But for £35,000 salary what do you expect?

As recently as 6 years ago I was involved in trying to block the go ahead for a PFI Health Centre. It just didnt stack up financially, and to some degree operationally. We knew we didnt have the cash to pay for it before it got off the drawing board.

These schemes cost £10's thousands in legal bills, come with the most ridiculous clauses etc etc.

Peterfile may well be right that people made a mess of contract negosiations, and they did, but now we are all paying for the next 25 years.... and to whos benefit ?

Couple of stupid examples of PFI - Building specced to be energy efficient and cool. Like a bloody over. So have to install more air con units. £1'000's spent on legal fees, Penalty paid to PFI co to install new units on their property. Annual Maintenance way above market rate. Annual Management fee for air con unit. So ends up that an air con unit costs well over £10k in first year. Is that best use of public money?

2nd example - Big hospital, over capacity but some rooms unused.Why, because the PFI company own the space and want to charge an extortionate rate to lease the space, plus management fee etc etc.

2nd example - Big hospital, over capacity but some rooms unused.Why, because the PFI company own the space and want to charge an extortionate rate to lease the space, plus management fee etc etc.

Is your new public owned service provider a profit centre or a cost centre.

Doesn't matter, imo. If its main business area is government contracts then it's always going to be a cost of course. It would not be run for profit. For that matter, it could use spare capacity working for charities or helping developing countries at cost - or even for free.

How do you ensure the costs are reasonable for the work being done without any comercial presure?

It'd be pretty easy to audit that - in fact, FAR easier than it is now because you'd have transparency. Commercial pressure doens't give good value AT ALL currently.

What happens is that companies bid for these projects (if they are fixed price), win them with low bids, then attempt to cut corners to make profit. Then they fail, because too many corners have been cut.

The big issue with government IT contracts is the communication between client and supplier. The client have no idea how to deal with an IT project and the supplier have no idea how to help them through it. But what the supplier is very good at is convincing them they need to spend tons of money, because the supplier's main aim is to make as much money as they can. They really do see governments as cash cows. They employ very slick managers and lawyers to convince everyone they've done nothing wrong.

Which one was it recently where the supplier bollocksed it up, the project failed, and then the supplier successfully sued for millions for breach of contract? Madness.

Private sector efficiency is absolutely a myth in IT.

Mikew - I am not disagreeing that the some one made stupid decisions at some point.

However, there is now a situation where a hospital as no physical capacity to see patients, yet there is unused space within the building.

I'm not arguing over the content of a contract, my point is that what kind of a screwed up country are we in, where companies chase profits, to the detriment of the nations Health.

What happens is that companies bid for these projects (if they are fixed price), win them with low bids, then attempt to cut corners to make profit. Then they fail, because too many corners have been cut.

I'm not arguing over the content of a contract, my point is that what kind of a screwed up country are we in, where companies chase profits, to the detriment of the nations Health.

It is easier to blame evil cooperation though

There is another issue at play and that's the bad pubilicity of making people redundant from government or local government. Once your local area has built its schools and/or hospitals those people effectively aren't needed, but its hard to get rid of them.

Also one major point of PFI deals was to de-risk construction. So its all very well saying bad PFI deals have been bad vale for taxpayers, but so can more traditionally funded projects, the Scottish Parliament overspend being a huge waste. It's not like traditional funded projects are without their problems either if poor contracts, management and budget control occur.

Or just the government one has become bloated, over capacity and not very lean.

No, it's not a case of too many people, it's that they don't know how to run an IT project. The benefit of in-sourcing it is that you retain and develop the skills on YOUR side.

It would not be run for profit. For that matter, it could use spare capacity working for charities or helping developing countries at cost - or even for free.

So you'll start losing money then and have no cash for investment.

my point is that what kind of a screwed up country are we in, where companies chase profits

Well they need to make a profit to develop new drugs, technology, etc. But why shouldn't people make profit if they put in a lot of hard work to help people?

Well they need to make a profit to develop new drugs, technology, etc. But why shouldn't people make profit if they put in a lot of hard work to help people?

No one is suggesting the company shouldn't make a profit. In my examples above though it can be quite easily seen that companies are making extraordinary profits off NHS PFI.

Fine make big profits, but to me my health is more important than having lots of money in the bank.

There are costs associated with running parts of a building, things don't get done for free.

I disagree. The contracts are that water tight that anything that is outside of them gets added in after, £1,000's have been spent on legal fees, and certainly is not done at cost + maintenance etc.

So you'll start losing money then and have no cash for investment.

Fine, we won't then. It's not hard to figure out.

I disagree. The contracts are that water tight that anything that is outside of them gets added in after, £1,000's have been spent on legal fees, and certainly is not done at cost + maintenance etc.

This is 100% true...but it has to be.

Our PPP portfolio is worth £billions. A big project will see 10 change notices PER DAY. If cost isn't built in to ensure we're not out of pocket for each and every change (including our legal costs and the banks legal costs), we'd be unprofitable within 3 months. Why should we suffer because either the client forgot to put something in their original scope/design or you've decided you'd just like something extra?

It's worth pointing out though that profit is pre agreed and capped for all changes - and it's a fair market rate which is reviewed every few years. Small changes come with no labour charge and no mark up on materials.

On top of that what would the team of rail experts do when you are not building rail projects?

I think this is a big problem. Not necessarily with central government where people can maybe be moved around a bit more, but with smaller organisations.

Say you're a local council and you're tendering for a contract to get a new bridge built, that's loads bigger than anything you've had built before. Do you employ a permanent team of bridge construction experts to check all the bids? But then why not just pay them to do the design and build themselves? And what do you do when the project is finished? Have them sat around twiddling their thumbs or having a crack at litter picking?

Or do you pay a team of consultants/contractors to manage/oversee the bids and subsequent project for you? If so, you'll inevitably find yourself in the Daily Mail for wasting cash on overpaid consultants when someone puts an FOI request in. And there's still no reason that they'd do a better job than anyone else, unless you withhold their pay until 25 years after the project, only releasing it when you're happy that the bridge has lasted as long as it should have done/everything else was ok.

Or do you get the bloke in the highways department who buys road building supplies from Lafarge to have a look at the bids because he knows the most about building stuff?

Or do you have a contracting team who look at it? But then they'll never be experts in everything so can decipher a contract but not understand the risks within it. e.g. "In the event of Type A, B, C or D subsidence a penalty of X will be payable". But how does someone who was working on a school dinner contract last month, a bridge this month and mental health services next month know that there are subsidence types E and F as well?

Why not try the 'poacher turned gamekeeper' thing mentioned above? Well, it;s possible, but try luring a lawyer in a lucrative private sector position with regular travel, expense accounts, bonus, company car etc into a job on a fifth of the money in a leaky portakabin working for Piddleshire county council.....

Compare that to the bridge building company. All they do is build bridges. They can have bridge construction experts, and lawyers who are experts in bridge building contracts, and finance people who are experts in bridge public-financing contracts, because they're building bridges for 10 different public bodies at any one time.

Also one major point of PFI deals was to de-risk construction

Why should we suffer because either the client forgot to put something in their original scope/design or you've decided you'd just like something extra?

This is a problem with any project. It's impossible to list every single requirement up front without spending huge amounts of money. And you can't force a supplier to take the risk that you forgot something because how do you know what they forgot.

This is why insourcing is sometimes better. Just pay a load of people to finish the job. Rather than pay a load of people to agree a job spec, then another load of people to argue with the supplier whether something is in the spec of not and another load of people to agree the price for the change.

In my experience fixed price contracts are a scam. Nothing is ever the suppliers fault and they would rather walk away than make a loss. Time and materials is a much better route.

So which idiot signed that contract?

Saying that the public sector does not have the expertise to not get screwed by the PFI partners only emphasises why PFI was a bad idea.

[Saying that the public sector does not have the expertise to not get screwed by the PFI partners only emphasises why PFI was a bad idea]

Not really just that the Public sector in the UK fails to recognise how bad it is or to do anything about it.

As an alternative to the usual public sector mess lots of the provinces in Canada set up organisations to handle the procurements

anyhow quite frequently the Public sector attempt to screw over their PFI partners

anyhow quite frequently the Public sector attempt to screw over their PFI partners

I wanted to say this, but people generally don't want to hear it.

Nobody cares because we're a big bad contractor, but we get decimated on some of our projects.

What tends to happen is the authority will hire some self proclaimed contractor-slayer who will keep us in line and get better value on a project. These guys are invariably people on the service [i]user[/i] side of the transaction and have made a bit of a name for themselves within the public sector for being "ruthless".

They come in to an operational project, with no real expertise, often as the authority's representative and attempt to "pull us into line" for no reason other than they have assumed we are screwing them over, they are often incredibly obstructive and misinterpret contracts to try to save money.

This destroys any relationship that we had with the authority and eventually we start getting hit with financial problems...at which point my company sends me in (I never get involved in an operational project unless we have a serious problem, we've got lots of highly skilled people and I'm rarely needed). Once you send me in the authority gets pissed off that we've lawyered up and everyone digs in and it becomes acrimonious. It's a vicious circle. I'm no relationship manager, I'm there to make sure you don't get whatever it is you think you're getting. Once we hit that point it can take YEARS to get back to a good working relationship.

All because everyone assumes WE are the ones trying to screw everyone over. 🙄

They come in to an operation project, often as the authority's representative and attempt to "pull us into line" for no reason other than they have assumed we are screwing them over, they are often incredibly obstructive and misinterpret contracts to try to save money.

Viewing this from the other side.

Often on these sorts of contracts the users have been sold the idea of "fixed price" and what they will get. When something comes up that is outside the scope of the project the users suddenly can't have what they want for the price they were willing to pay. But they have been sold the idea of fixed price, their budgets have been signed off on the basis of fixed price, so they try to get what they want without having to stump up more cash.

The issue isn't people being obstructive but the impossibility of knowing everything up front.

Managers assume fixed price means the supplier has taken every risk of change, the supplier knows they will only work within very toght boundaries. The poor shmuck in the middle is stuck between a rock and a hard place, either fight the supplier or their own budget.

But they have been sold the idea of fixed price, their budgets have been signed off on the basis of fixed price, so they try to get what they want without having to stump up more cash.

It's nonsensical though.

All contracts for the last 20 years have had some form of change protocol in it. Usually, you don't pay for small stuff because there are already staff available on site to carry out the work, but if you want to make a higher value change then you all sit down and agree it and then its implemented. This is fairly basic stuff and what will constitute each type of change is clearly set out. The problem is that the guys on the ground have never seen the contract and just try their luck to see what they can get.

The thing that pisses most people off is the fact that you need funder consent (and the associated technical and due diligence costs that go with it) for higher value changes because it could affect the risk profile of the project. So all of a sudden, your little £100k cap ex remodel looks like a £300k variation. It's the nature of the beast. If you don't want to have to funders crawling all over your project, don't make us borrow money from them.

If you are in M&S and have just scanned your weeks worth of food and the cashier says "That will be £102 please", you don't hand over £102 and then run off and grab another half a dozen items that you forgot and stick them in your bag!

kelvin - Member

Saying that the public sector does not have the expertise to not get screwed by the PFI partners only emphasises why PFI was a bad idea.

Exactly. Or maybe a different slant, much of the blame for local PFI ****ups lies higher up, with those who pushed it without ensuring that systems were in place to make it work. It's easy to blame the poor schmuck left running a project he's not fit for, rather than the guy up the ladder who decided that was how it had to be done.

[i]But I think everyone now knows that it doesn't, because just shovelling risk into the private sector actually means that you pretty much continue to retain that risk, but then pay for someone else to manage it for you, whilst you still retain it.[/i]

Agree, all too often I hear how companies/Public-sector want 3rd parties to 'take the risk'. Kidding themselves, the risk still exists and can come back to the Procurer. Whether it is a £5 purchase or a £50m contract.

And PFI, it wasn't the Private Sector that said you must adopt PFI or we won't bid for work; it was the Public Sector that said if you want the work you have to use PFI.

No different to the Govt going on about tax avoidance; they make the rules and we follow them - not our fault if they are badly thought-out and/or drafted Laws.

No different to the Govt going on about tax avoidance; they make the rules and we follow them - not our fault if they are badly thought-out and/or drafted Laws.

While this is technically allowed, it's still a shame and, much like offering the minimum wage, indicative of a cruel and selfish attitude that pervades business; to my perpetual sadness.

And PFI, it wasn't the Private Sector that said you must adopt PFI or we won't bid for work; it was the Public Sector that said if you want the work you have to use PFI.

It was a mixture of both, the private sector lobbied for it as they saw it as a way to increase public spending on infrastructure, which they could benefit from.

BSF was the biggest disaster from a public spending perspective. Local authorities acted like they'd just been given access to a credit card with no limit. People focused on the unitary charge (ie the annual payment) rather than the NPV, so when they were considering an optional element of the design (ie "gold plating"), they'd look at the [i]affordability [/i] impact from the perspective of whether there was enough annual budget to cover the increase in UC.

This was a fatal flaw, since a comparatively modest increase in the UC can come out the other end as astronomical in overall cost terms. Add in the huge costs of putting together, procuring and closing a PPP and you're miles over the true cost of putting together your project using a more regular funding solution.

While this is technically allowed, it's still a shame

I think this is where the Private Sector is more savvy simply because this is the world they live in all the time, clients or sub-contractors are always bumping up against the edges of contracts and so you quickly learn to mitigate risk or take advantage depending on which side of the fence you are on.

Although saying that IMO the relationships that work best are the ones where this is gentle and good working relationships are maintained.

dragon, your point is so true and really reflects what happened in years gone by (definitely not now though!).

The public sector was sold this idea of "partnerships". In fact, the PPP model has been around since the middle ages, it's only the contracts and funding solutions that are new.

They sit at the table with the view of developing a long lasting partnership, the private sector just wants to deliver the project and get paid, doing a good job so that you win more work and get paid some more.

To the private sector "working in partnership" means having a good relationship with your client so that a project runs smoothly from start to finish with everyone getting what they agreed.

To the public sector "we are supposed to be working in partnership" means everyone is expected to put down the contract and behave like good friends whenever they disagree on something. i.e. we're both trying to achieve the same aims here, let's work together on this. I get the "working in partnership" thing thrown at me every time we refuse to do something that they don't want to pay us for 😉

Building stuff is a numbers game. Costs are high and margins are low. You've got to be tight. Clients see our annual report and think we must be ripping them off to be making so much money. What they don't see is that we're committed to the tune of tens of billions to make that profit. If you're not as tight as can be on that portfolio, it's incredibly easy for one or two bad projects to run you into a loss.

[i]To the public sector "we are supposed to be working in partnership" means everyone is expected to put down the contract and behave like good friends whenever they disagree on something. i.e. we're both trying to achieve the same aims here, let's work together on this. I get the "working in partnership" thing thrown at me every time we refuse to do something that they don't want to pay us for [/i]

It's not just the Public Sector that acts this way, our Private Sector clients are no different - had an exact same conversation last week with a client (partner 🙂 ).

It's not just the Public Sector that acts this way, our Private Sector clients are no different - had an exact same conversation last week with a client (partner ).

It comes back to this risk thing. Buyers think they can ofload their risk to a supplier with a fixed price contract. They think they have avoided all risks. What they have avoided is the risk of a mistake by the supplier costing them money. Their mistakes will still cost them money though. And savy suppliers are always very careful to get the buyer to accept what they have done at every stage. This is so they can offload the risk back to the buyer.

"The design if wrong, you need to cover the cost of fixing it" "Not so fast, you signed off the design"

What they really want to purchase is insurance but insuring against this kind of risk would be too expensive.

much of the blame for local PFI ****ups lies higher up

There was huge opposition to PFI from within the NHS (e.g. Allyson Pollock), but it was pretty much an enforced policy (essentially, PFI or nothing), all greased by the revolving-door culture at DoH.

As widely predicted, it's a mess.

Are these things run as open book contracts ? i.e. agreed costs + margin ? If not, why not ? Our large public service contracts are run this way so it's a model to which they're accustomed with.