UK: Labour and PFI - two cheers for a new approach.

UK: Labour and PFI - two cheers for a new approach. - Do changes to the Private Finance Initiative go far enough?

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Last Updated: 31 Aug 2010

Do changes to the Private Finance Initiative go far enough?

The new Labour government has already made an impact on a number of business issues and one obvious example is the institutional and policy changes aimed at streamlining the Private Finance Initiative (PFI). Many businesses looking at getting involved in PFI have complained at the costs (as well as the time taken) in getting projects off the ground. The Government has accepted a number of recommendations to cut red tape, including the creation of a new Treasury Private Finance Taskforce led by a chief executive, and the concentration of efforts on fewer projects. The recent go-ahead for 14 hospital projects worth £1.3 billion (out of 37 short-listed schemes) are the first fruits since the review. Do those businesses involved in the PFI now feel more comfortable with the procedure?

Geoff Haley, head of the infrastructure group at solicitors S J Berwin & Co, is optimistic. 'I think things have improved,' he says, not least because the system is now better focused. Until now, he says, 'projects were all stumbling through, with no obvious priority, lots of different advisers and no standard documentation. It all became a bit of a nightmare.' At least now, he says, 'the new taskforce will look at projects at a much earlier stage - to make sure they are both viable and that they are PFI-able.' Haley estimates that 70% of the cost of PFI has been for negotiation in projects which have a good chance of never getting off the ground.

He has calculated that 60% of these negotiation costs will be removed by the introduction of standard documentation alone.

Christine Gregory, spokesperson at the Confederation of British Industry (CBI), is also positive. The CBI is particularly pleased about the review for two reasons, namely, 'the ending of universal testing (of all public sector projects for PFI credibility) and refunds for project bidding costs if government policy changes'. Brian Hendry, director of Taylor Woodrow Construction, says: 'There is a learning curve and we believe that we are now well up that curve.' The concentration of the public sector mind on fewer projects, Hendry maintains, will assist in bringing those projects to fruition more quickly. But for him, the jury is still out on the latest changes. 'We are encouraged by attempts to streamline the process but the process itself is in its infancy and it's simply too difficult to say yet whether what has been done is too little or too much.'

Phillip Youell, head of business development at construction group EC Harris, is the least enthusiastic. 'The Government is starting to identify the blockages better than before, but we remain sceptical as to how quickly things can move.' Substantial difficulties, remain: 'There are practical difficulties with really making it fly. Legal impediments on local authority action are still a difficult area, as are local planning constraints.' Simplifying the latter and changing the law on the former will take some time, Youell feels. In addition, he suggests, there is still a philosophical dilemma for the Government over the extent to which public sector hospitals will be allowed to be in private hands. 'To be part of the running of a project, as well as the building of it, might make sense for a project participant, but to remove the running may not make sense.'

The ownership question also troubles Haley and he gives an example of the private sector running a university and employing a groundsman.

'Under PFI,' he says, 'those groundsmen will be employed by the private sector and controlled from a distance. But it would be more sensible to let the private company sub-contract a simple piece of work like that back to the public sector.' Unfortunately, he adds, a change in the law will be necessary before this can be done. Gregory, meanwhile, still has doubts about whether other bureaucratic constraints have been removed: 'We say that it is still vital for this work that there is support across all government departments. Otherwise the Treasury will still miss deadlines.' And if that happens, then perhaps companies will still think twice before getting involved in certain PFI projects.

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