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Don't ignore private finance as Brexit nears

Tom Fitzpatrick

Labour this week reopened a debate about the merits of using private finance for social infrastructure with its pledges on the PFI.

That Labour would end PFI under a Corbyn government wasn’t new, but shadow chancellor John McDonnell raised eyebrows on the subject of existing PFIs when he told the party conference “we’re bringing them back [in-house]” several times to prolonged applause.

The party later tried to roll back on Mr McDonnell’s rallying cry, saying instead that the party would simply “review” PFI schemes.

The shadow chancellor hasn’t always been so circumspect. When proposals for a PFI hospital in his constituency at Hillingdon were being discussed in 2006, he said: “I am not supportive of PFI schemes, but if this is the way to secure the money fair enough.”

He has since consistently railed against PFIs, but he can’t avoid the fact that the UK needs great swathes of new social infrastructure and that the private investment community, utilised correctly, should play its part – a point made after his speech by former Labour deputy prime minister John Prescott.

The decision to scrap Building Schools for the Future in 2010 caused turmoil in this industry, though scaling it back at the very least was an appropriate measure in the aftermath of a global financial crisis.

“Government still needs private sector advice, support and finance, in a sensible way”

But we now have a situation where Scape estimates that 2,122 new primary and secondary schools are required by 2020 in England and in the meantime children are still being taught in sub-standard facilities.

Government still needs private sector advice, support and finance, in a sensible way that enables the private sector to make a return, with peoples’ rights to a roof over their head, a good education and proper healthcare maintained.

Central government also doesn’t have the procurement expertise to oversee these types of projects at a large scale.

Back in 2003, a National Audit Office report recommended that experience from PFI needed to be used to make government a more “intelligent customer” in procurement and management of projects. Has that happened since? That’s why in the round, the shadow chancellor’s announcement is useful in bringing the debate back into the national consciousness.

And it puts pressure on this government, which has tried to cap private sector returns through PF2, its successor to PFI. Having pledged to publish a new suite of PF2 projects in last November’s Autumn Statement, CN revealed in May that plans had been shelved.

I’m told this PF2 list will (eventually) be published, but how many private investors will have run for the hills by then, wary of a Brexit Britain that doesn’t want their cash?

Readers' comments (1)

  • Dear Editor,

    Labour Party conference pledges to bring PFI schemes ‘back in house’ have successfully grabbed headlines in the media this week – including Construction News – but what we really need to do is employ the construction sector’s favourite buzzword ‘collaboration’.

    When PFI’s were first initiated, the concept was appealing for both partners. Investors got a good return over 30 years and the Government got new hardware without the big price tag.
    It’s been a learning curve.

    The public sector has learnt that keeping build costs down can cause operational costs to rocket over the contract period and that failing to cap profits or control outsourcing was a mistake.

    Mistakes are part of the learning process, they tell us we need to keep learning and there are plenty of opportunities to do that now that the first wave of PFI schemes has matured.

    PFI can work, but it needs closer cooperation across the delivery chain and the private and public partners to drive visionary design and robust specification that will stand the test of time and bring down the lifecycle cost of the asset.

    BIM will have a significant role in achieving more functional, cost effective and easily managed PFI schemes. Early engagement of facilities management and simulated operation during the design process to model maintenance and replacement intervals before the project even starts on site will be critical in forecasting costs and making informed design choices.

    The idea of PFI was a good one; it was the lack of detail in the financial model and the execution that were flawed. It’s not time to throw out the baby with the bath water yet. In my opinion, the Holy Grail of PFI is to find the right balance between the influence of public authority through all stages of design while ensuring sufficient profitable return for the investors to make the venture commercially viable. Let’s not reject PFI, let’s just rethink it.

    Burkhard Musselmann
    Principal, Stantec UK

    Unsuitable or offensive? Report this comment

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