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Bid costs must be slashed to save PFI

AGENDA - COMMENT

AS BUILDING gaffes go, Sir Robert McAlpine's stinging £100 million loss on the Dudley hospital PFI scheme must rank alongside Laing Construction's notorious National Physical Laboratory project.

Losses on this scale happen on big lump sum stadia projects like Cardiff and Wembley. They are certainly not reckoned for on PFI projects.

At the laboratory building project, Laing's fatal slip proved to be agreeing to taxing technical specif ications that sent rivals running for the hills.

At Dudley, the story behind the loss seems to stem from the refurbishment portion of the project and strife over the M&E package.

Two failed projects should not smear an entire procurement process, particularly one as popular as PFI, but they do raise serious questions about the massive risks contractors accept.

While astute firms should be able to cope with basic building risks, being expected to bear the extra risk of a costly and long- winded bidding process is too much to ask of any business.

The main problem is too much design detail is demanded at an early stage. On defence and court projects such design costs must be borne for four to five years before preferred bidders are selected. Even in the schools and hospitals sectors bidding usually drags on for three years.

Then there is no guarantee any job will go ahead as contractors in the chase for Whipps Cross and Plymouth hospitals can testify.

This is wasteful, puts unnecessary demand on PFI contractors' cash reserves and resurfaces as damaging payment delays to subcontractors on other jobs.

More than a decade into PFI this situation is unacceptable.

The fact is there is sufficient expertise in the public sector to reform the system. Even simply delaying detailed design until the preferred bidder stage would ease the burden and raise bidding capacity at a stroke.

Also, the time has come to organise health and education procurement centrally using the successful Highways Agency model to take advantage of expertise gleaned from the vast major ity of good PFI schemes.

Without urgent reform, the occasional scarcity of firms willing to bid for specific PFI projects will fast become a national famine that threatens the Government's ability to deliver improved public services.