UK: INERTIA IN THE INITIATIVE. - Private Finance Initiative projects are proving slow to take off.

Last Updated: 31 Aug 2010

Private Finance Initiative projects are proving slow to take off.

The private finance initiative (PFI) has had a poor press. The principle of involving the private sector in projects traditionally undertaken by the public sector - and at the same time bringing work to the hard-pressed construction industry - has been warmly welcomed. But getting PFI projects under way seems easier said than done. It would hardly be surprising if the men (and women) in hard hats were losing interest.

In theory, PFI is a great idea. Cash-starved public sector organisations turn to the private sector for capital investment which will be recouped through a revenue stream. In practice, the lack of an obvious return on many projects makes them poor candidates for private funding. Even projects which attract financial backing usually face severe delay. Thus, from the point at which a contractor tenders for a financially viable project (in his judgment), there is apt to be a long lead-time before he can get a spade into the ground.

Construction companies also bemoan the waste involved in bidding for PFI projects. 'Companies have spent millions of pounds bidding and getting nothing. It's crippling enthusiasm for the process,' says Geoff Haley, leader of the infrastructure group at solicitors S J Berwin & Co (and author of The A to Z of BOOT Projects - BOOT meaning 'build-own-operate-transfer'). Roger Thompson, director of special projects at Alfred McAlpine, agrees that tendering is costly but thinks that bellyaching on the part of some failed bidders gives a false impression. 'Bid costs are high, but not as high as some in the private sector might suggest,' he says. 'There's some exaggeration going on.'

Turning to what Haley calls the 'tedious and expensive' public sector procurement process, there is little argument. 'The bidders for a project get whittled down very slowly - the whole thing can take ages,' says Haley. He believes that there has been both political and administrative failure, and that, in consequence, there is little understanding of how PFI works or of the financial risks involved. As chief executive of Taylor Woodrow, Tony Palmer has even greater reason to be concerned about the gestation period of projects. 'It's not just the Government, it's also the education of the Civil Service,' he says.

In spite of their criticisms, the major companies continue to express commitment to PFI, while regretting the lack of enthusiasm all around.

Tarmac, according to its spokesman John Davis, is 'one of the few construction companies which are strongly supportive of the PFI - others are less convinced'.

At least Thompson of McAlpine's believes that 'PFI is here to stay'. The companies, he adds, 'need to show more determination and commitment if things start to go wrong'. Haley is impatient at what he sees as the failure of any of the parties to learn from past mistakes. 'A five-year cycle should be sufficient to change any concept in any country,' he says.

There's a different five-year cycle on the mind of Christopher Vickers, chairman of E C Harris. He believes that PFI is at last on the move, but asks: 'Would it be disingenuous to suggest that, with a general election due, we should anticipate an accelerated release of PFI projects, timed to produce a favourable business environment?' If this happens, Tony Palmer is another industry leader with teams of people waiting for the go-ahead on PFI projects. 'If it comes along, this will be a very nice piece of business,' he says, 'and it will increase in importance as time goes on.'

But what if, as seems likely, the election produces a Labour government?

Thompson, for one, has few worries: 'The Labour Party has listened to the debate and has some sensible ideas on the subject.' The construction industry may not have got much out of PFI so far, but it has clearly not given up hope.

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