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Government plans to cap profits on PFI jobs

Treasury will try to reduce bid costs n Clients must improve procurement practices

CONTRACTORS are bracing themselves for a Government clampdown on the amount of cash they make on PFI deals.

The fears took the gloss off a Treasury decision this week to take steps to reduce high bid costs on PFI projects.

The Treasury is introducing new policies to improve the performance of clients during the procurement stage and will demand more detailed plans prior to approaching contractors.

A Treasury spokesman said the new design guidance should be published within the next three months.

The announcement was welcomed by Stephen Ratcliffe, director of the Major Contractors Group.

He said: 'We have been lobbying the Treasury and the big spending departments since the beginning of last year. The announcement that there will be more preliminary design work before projects reach the market is music to our ears.

'The second piece of good news is that the Treasury will get much tougher with those authorities that don't play ball and fail to make use of the central expertise on offer.

'There is still an issue over PFI in the health sector, which is being reviewed, but health ministers have more to think about at the moment.' But the news was tempered by growing fears that PFI equity returns could soon be under attack.

One contractor warned that the Treasury could be looking at an extra tax or capping.

He said: 'I think there will be some questions asked by the Public Accounts Committee soon and people at the Treasury and contractors are getting twitchy.

'Investors are nervous as the dividend from shares in PFI and the gain on selling stakes to the secondary market could be under attack.

'I think we have a right to the returns as there is a lot of uncertainty in PFI and I know a number of projects that have cost contractors millions and then failed. But even the Treasury has to answer to its political masters and I think it is struggling to justify the cost.' The National Audit Office is due to publish a report into PFI at the end of next month.