Highways England was given no warning before chancellor Philip Hammond scrapped PFI and PF2 in the Budget, Construction News can reveal.
The roads client had been banking on PF2 to provide the funding for two of its flagship schemes: the £1.6bn A303 Stonehendge Tunnel and the £6bn Lower Thames Crossing.
“We weren’t pre-informed of the announcement,” Highways England CEO Jim O’Sullivan told Construction News when asked about PF2’s axe in the Budget.
He added that, during subsequent conversations with government, it was confirmed that “the two projects […] will be appropriately and adequately funded”.
However, Mr O’Sullivan acknowledged that the details behind this commitment remained undecided.
“I don’t think anybody knows what the mechanism for that is yet. It needs to be worked out,” he said.
Despite this, the chief executive insisted that the abolition of PF2 would “absolutely not” delay either project, as their ongoing development was being funded by public money.
Mr O’Sullivan told CN that the transition to a new funding model would be aided by the fact “it’s easier to go from a PFI financial model to a traditional contracting financial model”.
“We have the time to work out what it actually means,” he said.
As recently as April this year, Mr O’Sullivan had given his support to the use of PF2 on roads projects.
“There are about £400m successful PFIs in operation, PF2 is an improvement on PFI and seems to work well on roads,” he said at the time.
In October 2017 he called on international firms to get involved in “flagship projects and the private finance opportunities they represent”.
However, last month’s Budget saw the chancellor criticise both PFI and PF2 for not offering value for money or sufficient transfer of risk to the private sector.
Responding at the time to Mr Hammond’s announcement, Highways England said the Treasury remained committed to both schemes and that “their financing is not a determining factor in deciding whether they get delivered”.
Last week Highways England announced the 13 winning contractors for its £8.7bn regional framework, as well as who will deliver the initial 18 packages of work under the deal.