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Carillion sees little future in Scots junking PFI model

Proposed alternatives to private finance model leave major contractor underwhelmed

One of the country’s biggest PFI builders is not interested in working in Scotland because the ruling party wants to replace the process with new ways to finance public projects.

Carillion has stakes in more than 20 PFI deals across the UK, including one of the biggest ever let, the £8 billion Allenby/Connaught scheme to upgrade army accommodation in southern England.

Robin Herzberg, managing director of its private finance division, said he sees little benefit working in Scotland in the wake of the SNP’s decision to ditch PFI.

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.

Mr Herzberg said: “PFI in Scotland at the moment doesn’t sound very attractive. A non-profit-distributing model doesn’t sound too great. We’re a profit-making business and we’re not interested in areas that don’t make us any profit.

“Do the government help you out if it runs over budget and you make less money than you expected? I’ve not been keen on what I have seen so far.”

Mr Herzberg said Carillion had already had a bad experience with the SNP administration after bidding for a £100 million PFI deal on a 700-place medium-security prison in Bishopbriggs, Glasgow.

The SNP called the project off last August saying it wanted all prisons to be publicly run.

He said: “We had our fingers burned on Bishopbriggs because the project was cancelled the day before we were ready to submit our bid.”

Consultation on the Scottish Futures Trust is taking place and, while the non-profit-distributing PFI the Scottish government is currently using will see profits made above an agreed future returned to the public purse.

A Government spokesman said Scotland would stick to is plan to ditch PFI. He added: “By adopting non-profit-distributing principles we can remove the element of PFI that delivered the most extreme and unwarranted profits. Instead, excess profits would be directed back into our communities and savings secured for the public purse.”

The Scottish Futures Trust consultation runs until 14 March.

Public-private Secondment to learn

Carillion would be willing to train civil servants and council officers to help public sector procurement.
Private companies have long complained that public sector clients lack the procurement skills to ensure PPP projects are delivered quickly and efficiently.

Mr Herzberg said: “There should be more secondment in both directions. I’ve been seconded to the public sector myself and I found it an enormously useful experience.

“We have had procurement people seconded to us before and it’s been a great success. We would be delighted to have more. Both sides would benefit from knowing more about how the other side think.”

Analysis: What’s so obscene about making profit?

By David Rogers

The comments by the Scottish Government are telling. It talks of “extreme and unwarranted profits”.

The perception, clearly, still remains that contractors have their noses in the trough with PFI.

This is somewhat removed from reality and with many contractors typically working for a margin of two or three per cent, the chance to earn figures three or four times those numbers is too good to turn down. Nor should they.

What’s going on in Scotland smacks of a point being made, tweaking the snouts of the vicious private sector.

They would do well to remember that it will be the private sector that will build their schools, their hospitals, their prisons.

But it can’t be done under PFI, of course, because the profits are just too obscene.

Robin Herzberg makes a valid point about the public sector not coughing up when things go wrong - often the fault of civil servants and meddling politicians.

When will these people get it into their heads that the firms they deal with are in business to make money?