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SFT holds talks with Infrastructure UK on PFI alternative

The director of finance at the Scottish Futures Trust, responsible for procurement of £2.5bn in Scottish infrastructure where contractor profits are capped, said he is ‘hopeful’ that Treasury officials will consider the model as they search for a replacement for PFI.

Representatives of the Scottish Futures Trust have already held talks with Infrastructure UK officials over the Non Profit Distributing model favoured by the Scottish government, and talks are expected to continue while the Treasury seeks a replacement for PFI.

The NPD model is based on PFI but contains caps on private sector profits which allow surpluses to be redistributed to the public purse.

It is being proposed for use on massive Scottish schemes including the £400m Aberdeen Western Peripheral Route, currently being held up by a legal challenge, and the £295m Borders Rail scheme.

SFT director of finance and structures, Peter Reekie said: “I would hope [Treasury officials] are looking at it. We have had discussions and will continue to have them with IUK on what’s being done in Scotland. The ‘capped return’ model is very much swimming with the tide now and more European countries are looking at using it.

“But NPD is just one part of the solution. We are not just proposing NPD models but they have their place. We are also supporting local authorities using PFI-style arrangements on waste projects for example.”

Among the NPD schemes expected to hit the market in the first quarter of 2012 is the £350m M8 “bundle” comprising of the M8 between Baillieston and Newhouse, the M74 Raith Interchange and the M8 Associated Network Improvements.

Contracts will also be awarded for new £50m campuses at Inverness and Kilmarnock colleges next year, while procurement will get underway for the £200m modernisation of the Glasgow College estate.

OJEU notices are also expected in the first quarter of 2012 for a series of health contracts including the £150m Royal Hospital for Sick Children in Edinburgh.

The schemes are part of a £60bn infrastructure programme recently unveiled by the Scottish government to 2030 which includes 54 major infrastructure projects expected to be built as well as plans for a Scottish high speed rail link to be started to connect with HS2 in England.

The Civil Engineering Contractors Association Scottish chief executive Alan Watt has hailed the planned investment as a “potential catalyst for a new wave of prosperity across Scotland”.

Mr Reekie rejected the idea that there were contractor reservations about the NPD model north of the border, despite the recent scrapping of procurement of the £295m Borders Rail scheme.

Transport Scotland cancelled its original procurement process for the scheme after the withdrawal of two consortiums left Bam Nuttall as the sole bidder and Network Rail has now been tasked with completing the project.

Mr Reekie said: “The issues with Borders Rail were not NPD-related, they were separate matters to do with procurement and risk and I think the contractors would confirm that it wasn’t NPD issues that were at fault.”

The SFT has this month issued guidance to authorities to change their OJEU notices as it looks to avoid having to re-start procurement processes due to unexpected financial changes to projects.

In a memorandum circulated this month to authorities procuring through its NPD model, the body asks that all OJEUs amend their wording to include the line: “The contracting authority reserves the right to consider alternative funding, financing and/or contractual arrangements to support the delivery of the project”.

The guidance to procuring authorities states: “The turbulent economic events of the past [four] years and their impact on both the deliverability and cost of finance for revenue funded infrastructure projects have demonstrated the need to retain flexibility with regard to the way in which projects are funded and financed.

“Specific concerns surround the ongoing cost and availability of long term debt finance for infrastructure projects.”

Mr Reekie said: “What we don’t want to happen is to start procuring a project in the traditional style and then tie ourselves down to that – we want to make sure OJEUs are drafted so that we can put in a wider range of financing terms.”

The SFT insists it is in the best interests of both procuring bodies and supply chains as changes to financing projects during procurement could lead to the projects being sped up.

SME Protection

Main contractors are required to openly tender supply chain opportunities under the ‘Hub’ supply chains established by the Scottish Futures Trust to ensure SMEs have a fair chance of winning work.

Five hubs, where local authorities are brought together to procure work, have been brought together under the leadership of the SFT and are at various stages of procurement.

Laing O’Rourke, Morgan Sindall and Kier are among the main contractors who were shortlisted as part of joint ventures for the £500m South-west hub last month with a total of £1.4bn new community infrastructure expected to be procured through the five hubs over the next decade.

Mr Reekie, who sits on the board of the South-west Hub, said that rather than main contractors identifying preferred partners, they are required to competitively tender all work packages, to ensure transparency for SMEs looking to win work.

“This allows for much greater transparency and ensures we are seeing value driven down through the supply chain,” he said.

“The openness of the supply chain is important and payment terms are a KPI so public sector participants have the opportunity to audit payment terms being made by main contractors.

“We have found main contractors are very open with us because they know that we have already made it very clear to them that this partnering style is expected of them we haven’t had to drag them kicking and screaming into doing this.”

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