PFI chickens coming home to roost…

PFI is not a bad idea, it has just been implemented in a stupid manner by the state. The whole point of PFI is that risk moves to the public sector. They should carry the risk, e.g. if the building does not meet the needs then they are responsible for making the changes. However in the contracts, the risk remained with the state!

It should also be noted that the state is not very good at estimating costs and running buildings. Generally they under budget and then get surprised when the real cost comes in. At least with PFI the companies needed to get the costings right.

Also the state needs to have some control on what the companies can charge and the margins. None of this is there!

However in the contracts, the risk remained with the state!

Have you seen the size of the things? There are usually 100+ contracts associated with each PFI, with the main project/concession agreement often running to 500+ pages,. with schedules of algebra in them. Too few people really understand the implications of what’s being signed up to, and those that do are employed by the bank consortia or the private sector parties….

BTW – the Ball comments relate to the Fuel Duty not his “economical with the truth” comments about when certain PFIs were signed off. But both are examples of a bright guy acting in a rather dim way. But that’s politicians for you! Chloe Smith was doing much the same thing on Newsnight as noted in the other thread.

I think it is you that (at least here) is showing the party political bias especially with the final comment – any reason why Balls went on a media frenzy yesterday morning???

Politician courting popularity via the media and populist campaigns MADNESS…I have no idea what he was thinking of tbh and thank God Gideon and the govt stood firm and did not give in or talk to the media eh

Poilitician in being a politician shocker.

We may just both be biased
Have saved the chloe smith link to watch later as I cannot get the i player here

It should also be noted that the state is not very good at estimating costs and running buildings. Generally they under budget and then get surprised when the real cost comes in. At least with PFI the companies needed to get the costings right.

This does sometimes seem to be the case, at least with high profile projects, but as far as I can see there is no reason why the public sector should be any worse than the private sector at this.

Genuine question, as I was twenty years off being born then, but what happened during the last major period of hospital, school and council house building in the 1960s & 70s? I know many councils had their own architecture departments, which presumably provided some expertise. Did they manage to keep costs under control? How did we pay for all of it?

Junkyard – Member
We may just both be biased

Of course 😉 (but not in the way you imply!)

Junkyard – Member
Have saved the chloe smith link to watch later as I cannot get the i player here

Do and then watch the “In the thick of it” clip – which one is the spoof?

I’m a PPP lawyer, I don’t like PFI.

but what happened during the last major period of hospital, school and council house building in the 1960s & 70s?

Enoch Powell successfully lobbied the treasury to commit to a ten year funding programme for hospital construction.

Junkyard – Member
Have saved the chloe smith link to watch later as I cannot get the i player here

on youtube too on the thread to solve that problem 🙂

part of our system I believe – a problem with both politicians and the people

if you want people to vote for you then you give them something nice, saying we can’t afford it, which is what should have been said would get you out of power pretty quickly

Bankers were vilified (rightly so) for their abuse of other peoples money I can’t help but feel that not only have politicians done this but they’ve got away with it.

Generally they under budget and then get surprised when the real cost comes in

Except that Gov’s topdown enforcement of such policies (many Trusts were pretty much negotiating with their hands tied) in the NHS often involved massaging the financial comparators, so as to make PFI appear better value than usual procurement routes.

It was largely rubbish – and there was vehement opposition on the ground (see also LIFT). It all helps, of course, if policy is effectively being written by consultants and accountants seconded from industry – coupled with banks oh-so-eager for taxpayer funded revenue streams, sweet re-financing deals etc etc. Certain interests are doing well – all a long way from the front line, which is under increasing duress. Patient care is sufffering, whilst payments continue to made for for ridiculously-specified contracts.

I swear to Gawd, it’s enough to make me build a wall* and reach for a rifle. 👿

*On some sort of lease-back deal, of course.

Generally most of the ‘problems’ with PFI / PPP stem from the failure of government or the procuring departments to manage PPP …. They continued their poor track record in procurement developed over many years in traditional projects and transported their ineptitude to a then new contract form (new to them……)

Its very easy to throw blame at ppp however the NHS and MOD have been inept… Poor procurement teams…. Poor technical advisors (Selected by poor procurment teams)……….

Wonga is more ethical than PFI IMO

They should use that in their advertising.

The bloke who runs Wonga is a large Tory doner*. I expect them to be taking over the contract to pay benefits, from the Post Office soon. You’ll be able to access your benefit payments early, at very reasonable rates of interest 😉

* As in, he makes large donations to the Tory party. I don’t know if he’s a big fat biffer or not.

One of the major problems with PFI under the last government was that projects had to be expensive to attract private interest. So we had situations where hospitals needed a refit ended up being demolished and rebuilt at 10 times the necessary cost.

there is a lack of understanding of PF typified by the following post

[julianwilson – Member
hora, PFI was ‘invented’ under the Major government.

But yes, It stank under the conservatives, it stank under Labour and it stinks under the present government.

I work in a PFI building. Back of beermat calculations say our is costing the taxpayer not far off twice what it would have cost the ‘find/borrow money and pay architects/builders’ way. (bit more complicated than that, but you get the picture) And then we have to give it back after being bummed for half a million pounds rent a year for 25 years ]

Wrong ….. generally ownership reverts to the procuring authority… so it’s not ‘rent’….. secondly there is normally a handback criteria…. typically condition ‘B’ in the case of the NHS (means in good working condition with cosmetic defects blah blah blah)Thirdly there will be a residual life condition so that the assets will have a guarenteed lifespan..

fourthly government depts NHS are useless at maintaining there assets and most have huge backlog maintenance issues… a 25 yr old trad project will be in a poor condition…..

opps forgot to mention cost over runs in building and operating sit with the SPC company….

the failure of government or the procuring departments to manage PPP

Hardly a surprise when procurement itself is so dominated by external interests.

The likes of Mckinsey, PWC & other such consultancy/accountancy big guns have long been sticking their fingers in MOD/DoH pies – all of ’em enthusiastically pushed PFI, despite well-placed warnings about the consequences.

Just as we get the politicians we deserve, it says much that we have allowed such a grasping & dysfunctional culture to thrive in both Health and Defence.

Noteeth primary responsibility sits with the mod nhs trusts they generally appoint there technical team and fail to hold them to account….

I’m not saying there’s a problem with the principles of PFI just that the majority of failings are attributable to poor / weak procurement + missed opportunities to maximise benefits for joe tax payer patient pupil etc

there is a lack of understanding of PF typified by the following post

Indeed there is.

Wrong ….. generally ownership reverts to the procuring authority… so it’s not ‘rent’…..

Ownership generally reverts at the END of the contract term, so the authority does not own the asset for the first 25-30 years normally.

The unitary charge paid by the authority to SPV (mostly) works on an availability basis, so the authority is paying for the use of the asset, which is actually quite close to a lease arrangement.

secondly there is normally a handback criteria…. typically condition ‘B’ in the case of the NHS (means in good working condition with cosmetic defects blah blah blah)

Not quite sure what you mean here. If you’re talking about practical completion of the building phase so that services can commence (i.e. the building is ready for pupils, patients, staff to use), then the building will never reach full service commencement until the building has been “accepted” by the Authority – which won’t occur until the building meets the spec.

If you’re talking about handback at the end of the contact term (again, normally 25-30 years), then yes, it will need to be handed back in a specified condition, but that’s a moot point since the FM contractor will have been maintaining the building (ultimately at the authority’s expense) throughout the contract term.

Thirdly there will be a residual life condition so that the assets will have a guarenteed lifespan..

Not quite true. It’s is possible to work out the life of an asset at the end of the contract term, but that is by no means guaranteed. The problem is, and you actually touch on this below, that once an asset is handed back to an authority it often is maintained at a poorer standard than when the money was flowing to the FM contractor and the useable life of the asset will be reduced. It really comes down to how well the authority manages the asset and how much money it throws at it after it has been handed back.

It may look good to the authority on paper (e.g. “hey, once the contractor walks away, we’ll still have another 20 usable years left in the asset! Great value for money!”), but the reality is that those figures are based on a level of FM which the authority is not likely to achieve.

fourthly government depts NHS are useless at maintaining there assets and most have huge backlog maintenance issues… a 25 yr old trad project will be in a poor condition…..

Agreed.

Oddly enough, most authorities are happy to spend 2x the true value of a project when someone else is taking care of it, but when they have to do it themselves they become very shy with cash. Add in crap management and you have a sorry state of affairs.

Interestingly, the balance is to have the skills and resources of the private sector, but available within the public sector. Which of course is never going to happen, so instead the public sector will be held to ransom to pay for skills and resources they don’t have but think they can afford.

opps forgot to mention cost over runs in building and operating sit with the SPC company….

Hmmm, that’s what the authority is told will happen. SPV is cash neutral, which means the authority or sub-contractors are always going to take the hit. In reality it is often the Authority which ends up footing the bill for cost overruns. Even if not for all the overruns, certainly for a large amount which it did not take into account and often cannot afford. The private sector will NEVER take a financial hit unless there has been a major screw up, which there tend to be few of.

Noteeth primary responsibility sits with the mod nhs trusts they generally appoint there technical team and fail to hold them to account….

I’m not saying there’s a problem with the principles of PFI just that the majority of failings are attributable to poor / weak procurement + missed opportunities to maximise benefits for joe tax payer patient pupil etc

With a few exceptions (for example very small projects), technical, legal and financial advisers are appointed by way of a procurement competition. I don’t often see a poor appointment of advisers, but I do see authorties who simply don’t know what it is they want and are then surprised when things don’t go according to plan.

The MAIN problem with PFI, is that it is expensive. The costs of running a procurement competition, adviser fees, the current funder positions (i was just quoted 550 basis points by a major syndicate bank for senior debt on the construction phase of a pretty “secure” project. That’s one of the highest i’ve ever seen), the fact that contractors (both building and FM) have been so used to the bottomless pit of money thrown at PFI over the years and pricing accordingly, and most of all, that authorities have no idea how much things are truly worth to them (we’ve stuck some extremely pointless “add ons” into buldings which were unnecessary and expensive, but specified by the authority anyway).

There’s a lot that needs to be changed.

T1000, I take it you have figured out where I work, which project it is I was referring to and how much I was (reluctantly!) involved with the start-up of it then. Please note I refered to my building, not everyone’s. 😉

The silver lining to the disruption to our service from the endless ‘teething troubles’ of our building is seeing how much time and money the building company (whose name is ‘helpfully’ displayed at entrances to the building) is spending on putting them straight. 😆

julianwilson – Member

no idea which building your refering too!

[The silver lining to the disruption to our service from the endless ‘teething troubles’ of our building is seeing how much time and money the building company (whose name is ‘helpfully’ displayed at entrances to the building) is spending on putting them straight]

Hopefully whoever is administering the contract is making use of the availability criteria… and holding them too account…

[The MAIN problem with PFI, is that it is expensive] the main reason it can be expensive is because of poor procurement……..(compounded by poor advisors)

the main reason it can be expensive is because of poor procurement……..(compounded by poor advisors)

It’s not as simple as that.

I’ve advised on countless procurements globally, and they all suffer from similar problems (generally in this order):

1. politicians promising infrastructure which is unnecessary, unrealistic or prohibitively expensive

2. authority internal procurement teams formed who do not have the necessary expertise to carry out the procurement

3. in order to compensate for a lack of expertise, authorities are over reliant on external advisers, and often adopt an attitude of “if the figure attached to what you are saying is palatable, let’s do it”, without properly understanding what it is they are saying yes to

4. the public procurement procedure in EU is a one size fits all. It works OK for small to medium sized projects, but is not fit for purpose for large infrastructure projects IMO. I’ve closed almost 10bn euro of competitive dialogue competitions in the last year or so. Competitive dialogue is extremely expensive. If you have 3 bidders at dialogue stage, that means you are duplicating costs and effort x3. Some form of negotiated procedure would be far better suited to high value projects and would undoubtedly be cheaper (at the moment it is quite difficult to get treasury/IUK to buy into a negotiated procedure. The main issue with competitive dialogue (compared to a negotiated procedure) is that the authority needs to be 100% positive on every aspect of what it needs, if you go out to market to build something significant and the market says “actually, you’d be better doing it like this” then you are screwed with competitive dialogue, you can’t really move from your original spec. You’re tied to your own lack of knowledge of what it is you are procuring. By going out to the market with a negotiated procedure, you allow the industry to offer you the best solution with proper value for money – not just the best value for money based on your spec. This works well most US PPP projects I’ve worked on.

5. Because competitive dialogue (and UK procurement generally) is very expensive for bidders, those bid costs are absorbed by the prices tendered. In addition, bidders are working on the basis that they won’t have a 100% success rate for all project they bid for, so the unsuccessful bid costs are also rolled into the successful tenders.

6. This next point is the KEY reason why PFI projects are so expensive…procuring authorities have no idead what things should actually cost. They are playing with daddy’s credit card and the sky is the limit. I’ve watched high schools go up right next to each other, with a PFI costing almost double that of a non PFI school. But authorities seem to be oblivious to this, they look at what is normal in the PFI market, not building/FM generally. If you were buying a bike/car on finance and the salesperson offer you a couple of unnecessary but very attractive options for only a few quid extra a month, you’d probably say yes. If you were buying outright, the extra lump of cash for pretty components would seem much more expensive. It’s the same with infrastructure, some of the things I’ve seen specced in schools/hospitals/prisons etc is quite frankly, shocking.

I know you’re quite keen on the point that poor advisors are key to the “failure” of PFI projects achieving value for money, but I have to disagree. I am, and I work with, legal, financial and technical advisers from across the world who are extremely capable of delivering some of the largest infrastructure projects in living memory. To suggest that it is a team of professional advisers who are poor (despite a collective expertise in the field of hundereds of years) and NOT the authority client who has little or no knowledge of PFI/PPP/infrastructure etc, is crazy.

The best projects I’ve ever been involved in are those where the authority appoints a couple of industry experts to act as commerical client and leave the task of heading up the procurement to them. It’s crazy, I’ve just come off a $4bn rail project in the US where they pulled some of the leading industry figures to act as commerical client on behalf of the procuring authority. Whereas in the UK it’s not uncommon for authorties to appoint public sector “managers” to head up complex and high value procurements where those people have NO knowledge whatsoever of the industry they are working in. It’s not appropriate for me to give specific examples, but I can assure you it happens a lot. How can that ever work?

I know you’re quite keen on the point that poor advisors are key to the “failure” of PFI projects achieving value for money, but I have to disagree. <…> To suggest that it is a team of professional advisers who are poor (despite a collective expertise in the field of hundereds of years) and NOT the authority client who has little or no knowledge of PFI/PPP/infrastructure etc, is crazy.

This sounds depressingly similar to my experience of IT projects in the public sector, one principal reason so many go over budget is the client’s lack of experience and knowledge.