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New PFI to reveal defence and health projects and centralised procurement units

Exclusive: Accommodation for armed forces and a hospital are set to be among a list of projects procured under the new PF2, CN can reveal.

A centralised procurement unit is also being set up for the Department for Education, to ensure a swift and more efficient procurement, with similar units mooted for the Ministry of Defence and Department of Health.

The longer term ambition is to see a dedicated procurement unit in future to act across departments.

In the meantime, projects that are not procured within the 18-month deadline revealed today will lose their funding and see it allocated elsewhere.

The new centralised units are to enable more efficient and faster procurement across departments, and to ensure the right skills are in place. It will be part of a wider push by Infrastructure UK to improve the process.

CN can reveal that the departments of defence and health are also looking at a similar structure. Two schemes are set to be announced, including a hospital and defence accommodation. CN reported last week that Treasury were looking to create a list of projects in these areas.

The Treasury is also setting up a ‘projects approval tracker’ which will be published online and enable industry to check on progress of bids and see how business proposals are progressing.

The aim is for a new, faster and more transparent model of infrastructure procurement PF2. Guidance documents are expected to go online on the Treasury website tomorrow (Wednesday).

PF2 contracts will be have competitions lasting longer than 18 months - in some of the worst cases, old PFI projects took more than 60 months to procure.

Those that fail to meet this backstop will lose their funding which will be allocated to other projects that can deliver. 

Other changes include more flexibility in how contracts are bundled, which will mean less of the FM work which have made headlines in the past.

The public sector will also inject more equity and be able to own up to 49 per cent of a project.

And there will be a focus on increasing equity more generally in schemes, though there have been suggestions that such a move could increase the overall cost of a scheme. Notwithstanding, the Treasury sees the overall benefit of the model representing better value for money for all parties.

The government said £1.5bn of savings was achieved in the last 18 months, and it has also identified over £1bn of further savings.

The new model echoes that of the Scottish Non Profit Distributing model, along with best practice from the Canadian PPP version.

The “new, faster and more transparent model of infrastructure procurement PF2” will mean:

  • A taxpayer share in the project company - public sector to become a minority shareholder, giving the public sector a seat on the board, more transparency of the contract and a share in any financial benefits.
  • Faster, cheaper procurement – no PF2 contracts will be have competitions lasting longer than 18 months - in the worst cases PFI projects took over 60 months to procure.  Those that don’t meet this backstop will lose their funding which will be allocated to other projects that can deliver. 
  • More flexibility from service contracts - fewer services will be included providing greater flexibility in the use of the assets i.e schools will no longer need to pay expensive fees for afterschool events and no more expensive charges for additional ‘facilities management’ services
  • Greater transparency for the taxpayer - forcing companies involved to disclose their profits for publication.  
  • Government will be more open with industry – “a project approvals tracker” to be published on the Treasury website so industry knows where business cases are in the approvals process enabling them to plan ahead with greater certainty.
  • Major change to the way projects are financed – encouraging more money from investors and less debt. Where appropriate ‘equity competitions’ will be introduced where investors compete for a stake in the project once the main design and planning stages are complete. This is expected to generate interest from long-term investors such as pension funds/ other institutional investors because  it will keep the cost of participation down.
  • Full transparency of liabilities created by PF2 - publishing the total cost/ liability of new PF2 deals and creating a cap on total ‘off balance sheet’ charges so the future charges for the taxpayer are clear. 

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