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New PFI needs to deal with some old problems

Early signs of the new PFI model are encouraging, but debt funding proposals need to be fully tested.

Long awaited details of ‘the son of PFI’ have been trailed a day early. A sign, perhaps, that government is fully behind this new model and eager to promote it?

It needs to be. None of us are ideologically wedded to PFI, but years of continual discrediting of the current model with often misinformed information has left the industry lacking in confidence and hesitant about the way forward.

It’s been a long journey since PFI was first pioneered in the UK and there is no doubt we have been hamstrung by some of our early mistakes. You only have to look at international examples where new and improved programmes have been developed and applied successfully to see that the model can work.

So will this new model embrace some of the lessons we’ve already learnt? The initial details we’ve seen look positive.

One of the biggest problems has been the long delays in contract negotiations when projects chosen, by their nature, already have long planning and development phases. So, a timeframe on procurement is very welcome. But at the same time industry does not want the threat of losing funding forcing poor negotiations or compromising value for money. So the first big question is what mechanics will be in place to safeguard against this?

Similarly, the setting up of dedicated delivery units is also good but not really ‘new’. What is actually important here is ensuring that those who are involved in transacting are close enough to the end user and have the relevant authority – this can make all the difference in the end result.

Having public sector take a greater financial stake in projects is a step forward. This demonstrates underlying government commitment and trust in the model, which is so critical for long term success. We look forward to seeing how this increased ownership will be supported with expert resource dedicated to long term asset management that is vital to ensure project performance, and in turn protect the investment.

Hopes aside, the reality is that the idea of less leveraged projects and a greater share of equity needs to be tested because what everyone wants to know is, will this deliver best value for taxpayers?

Right now the debt lending markets are a challenge and bringing in long term institutional funding is very attractive, but we need to be able to see evidence that this will work in the UK. A pilot project should be a starter for ten, using debt to fund construction. It should also harness institutional funding to take the debt out on build completion to test the markets alongside the financial guarantee scheme.

Finally, in our PFI Christmas wishlist, we’d really like to see a level of reimbursement for losing bid costs, as this will continue to drive innovation in designs and technical solutions.

Gary McCarthy is a director at WSP engineering consultancy

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