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Health and education construction projects hit by delays

Government plans to alleviate the economic crisis by accelerating spending may be being hampered by delays to existing work, according to research for Construction News.

Nearly £1.7 billion of Government education and health construction projects have been put on hold in the last two months, the research from Glenigan shows.

The Government is bringing forward £3 billion of work to attempt to keep the UK economy going.

The vast majority of the projects are Private Finance Initiative schemes, including 69 education jobs worth £438 million and 62 health projects worth £1.3 billion.

The Conservatives this week attacked the plans in light of the number of current jobs being
held up.

The European Investment Bank is reportedly putting together a £500 million rescue package for up to five Building Schools for the Future projects.

But continuing financial uncertainty could provide problems for remaining schemes and Private Finance Initiative contracts if funders become reticent due to the economy.

BSF will provide £45 billion of investment over 15 years but this only represents 40 per cent of overall education expenditure, according to AMA Research.

Its recent report on the sector estimates that £6.4 billion is ploughed into education every
year.

AMA’s report says this figure will rise 5 per cent over the next two years but a survey by the Conservatives in October claimed that two thirds of BSF schemes are behind schedule.

Shadow secretary of state for business, enterprise and regulatory reform Alan Duncan said:
“Gordon Brown’s pledge to bring forward work is ludicrous when it’s the burdens of tax and red
tape that have accumulated over the last decade that are making it increasingly tough to finish existing projects.

“Once again, it’s British industry, and notably the construction industry, that are suffering
from that time-honoured tradition that Labour Governments always run out of money – or, more accurately, run out of other people’s money.”

A Partnerships for Schools spokeswoman said: “The 25th deal in BSF reached financial close at the end of November, showing that the programme is continuing to deliver.

“These are, however, challenging times. Lending conditions in the PFI market have tightened and we are working to minimise any delays.”

Education and health orders have been on the slide for some time and, at £168 million, the
average amount of healthcare work let in the 12 months to November 2008 is the lowest for virtually three years.

In education, an average of £500 million-worth of work was let every month in the past 12 months – down 15 per cent on a year ago.

A Treasury spokesman said: “The Treasury is working with procuring authorities and departments to ensure that projects in the late stages of procurement are able to achieve contract close.

“The Government has announced a range of measures including £200 billion under the Bank of England’s special liquidity scheme, the establishment of the bank recapitalisation fund, a credit guarantee scheme and a fiscal stimulus package in the pre-Budget report.

The Glenigan research reveals that overall, 1,246 building and civil engineering projects with
a combined value of £10.8 billion have been put on hold since the middle of October.

Analysis: Procurement must accelerate

By Allan Wilen

The number of education and health projects being put on hold is a concern. The construction industry is looking to these sectors to ease the impact of falling private sector workload.

A number of these schemes are themselves victims of the credit crisis, being private funded health or education facilities that were to be provided as part of large scale developments.

But in addition, the credit crisis also appears to be threatening the delivery of public sector projects funded through PFI.

Many of the schemes have also been placed on hold by the public sector clients themselves as they review changing priorities or address administrative issues.

The Government has brought forward £3 billion of extra funding for public sector construction projects.

These figures show it is essential that spending departments and local authorities now respond to the challenge and accelerate their procurement processes to ensure projects move ahead quickly.

Allan Wilen is economics director at information provider Emap Glenigan

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