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Balfour PFI to stick with Scotland

Balfour Beatty’s PFI arm will not follow in Carillion’s footsteps and dismiss future work in Scotland because of changes to how projects are financed.

The SNP is using a non-profit-distributing method to fund work ahead of a long-term alternative called the Scottish Futures Trust, which will fund projects via bond financing.

Managing director of Balfour Beatty Capital Ian Rylatt said: “Just because it’s called a not-for-profit scheme doesn’t mean you can’t make money. We’re already bidding projects financed in that way.”

Last month Carillion’s private finance division managing director Robin Herzberg said he saw little benefit working in Scotland in the wake of the SNP’s decision to ditch PFI.

Traditional PFI schemes are financed 90 per cent from debt and 10 per cent from equity. Contractors then make a margin on the dividends.

Not-for-profit schemes are financed in the same way but the funding which makes up the majority of the equity carries a much higher margin. This, instead of the dividends, is where the contractor makes its return.

Mr Rylatt said: “We can make just as much money from them and we have no qualms at all about the not-for-profit structure being adopted across more PFI.”

In the UK, Balfour Beatty Capital will continue to concentrate on its core markets - hospitals, schools and infrastructure.

And though Building Schools for the Future remains one of the steadiest streams of work for the firm, Mr Rylatt has been meeting with Partnership for Schools - which oversees the BSF initiative - about its procurement strategy.

He said: “PfS continues to bundle its construction, design and IT procurement but why don’t they procure it separately?

“They’re reluctant because if it’s together on day one then they don’t have interface problems later. But we say they’re in danger of stifling competition by making builders link up with IT suppliers.”

Mr Rylatt added: “I think the whole thing would be a lot more competitive if it was split up - a lot more people would bid.”

Earlier this month a report into BSF procurement by accountant PricewaterhouseCoopers said IT should not be separated from construction if there were “demonstrable benefits” for building design.