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Construction industry takes action over Treasury PFI review

The construction industry is forming two action groups in response to the government’s review of the private finance initiative.

Constructing Excellence and the UK Contractors Group are both creating task groups to tackle the sweeping 45-question consultation put out by the Treasury last week.

The construction industry has until 10 February to put forward its views to the call for evidence.

The Treasury review has 14 sections, including reducing the time and cost of the procurement process, introducing flexibility into contracts so clients can break away from them earlier, and dropping soft facilities management from the structure.

It also looks at how to balance innovation with cost-effective standardisation, a new insurance framework and attracting institutional investment.

PFI, the government’s main public-private partnership model, is under the microscope after two damning House of Commons select committee reports labelled it inefficient and poor value for public money.

The UKCG’s team is expected to include representatives from the original PFI group formed during the creation of its manifesto in the summer, such as Sir Robert McAlpine, Balfour Beatty, BAM and Skanska.

CE’s task force will include Ian Reeves - chairman of Constructing Excellence and executive chairman of the McGee Group, as well as the GCP Infrastructure Investments fund - along with consultant Madoc Batcup, which revealed plans for an alternative to PFI in which skilled not-for-profit intermediaries would handle procurement.

Mott Macdonald is on board, while finance directors from leading contractors in the PFI arena and investment funds are being invited to join.

CE chief executive Don Ward (pictured) said: “We have got to move away from that ludicrous situation where millions of pounds are spent on the award (of a contract).”

Wates group investment director Steve Beechey said: “What is good about this is that it is going to be the platform for PFI reform and something solid we can work on, as opposed to just talking about it.”

Mr Beechey sees dropping soft FM is a logical option, but stressed the importance of contractors retaining hard facilities maintenance.
But he also warned over too much flexibility in the PFI system.

He said: “There needs to be a proper mechanism for exiting the contract, but if you make it too loose you will never attract the long-term investor.”

Costain finance director Tony Bickerstaff said there had been many successes in PFI, but welcomed the review as an opportunity to improve the PFI model.

Richard Threlfall, head of infrastructure at accountants KPMG, said the sweeping consultation throws up a lot of conflicts, including a government desire to save money while also having the flexibility to leave contracts, which could prove costly and is less attractive for contractors and investors.

“There is a lot of talk about flexibility in the contract; but you can’t have flexibility and cheapness,” he said.

Mr Threlfall said a section in the review on more efficient procurement could be good news for an industry that has often complained about a protracted and expensive process, but warned there would be a trade-off as it could mean heavy standardisation and less opportunity to argue the contract. Another potential conflict is between localism and centralised procurement.

To view the full Treasury review, click here.

 

The 14 review areas are:

Role of the private sector – whether private investment should be used, procurement models
Institutional investment – what changes to allocation of risk, procurement and delivery would attract investors
Government’s role in project funding – whether the 30 per cent cap on public capital should be increased and whether the public sector should underpin risk
Debt finance – separating construction period finance from the operational phase
Equity return – capping equity returns and sharing the gains
Risk allocation – simplifying the contract to enable the private sector to price more cost effectively
Procurement and contract management – how to streamline and reduce costs
Balancing innovation and standardisation – how to consider contractor innovation while reducing costs
Soft facilities service management – whether they should be dropped from the contract
Hard facilities management –improving public sector confidence in value for money
Insurance – creating an insurance framework
Flexibility – earlier and easier break points for clients
Transparency – opening up suppliers’ accounts
Other - general comments

 

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