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Treasury launches 'fundamental' review of PFI

The government will announce a call for evidence on infrastructure financing today as it commits to a ‘fundamental review’ of PFI.

The Treasury will be launching a call for evidence on 1 December that it says “will make full use of the wealth of experience across the public and private sectors” to learn the lessons of 20 years of PFI.

Chancellor George Osborne said: “We have consistently voiced concerns about the misuse of PFI in the past and we have already taken steps to reduce costs and improve transparency.

“But the review I have announced today will take this a step further with a fundamental reassessment of PFI. We want a new delivery model which draws on private sector innovation, but at a lower cost to the taxpayer and with better value for public services.”

The government stated it wants to find a new delivery model that will:

Be less expensive and that uses private sector innovation to deliver services more cost effectively;

Access a wider range of financing sources, including encouraging a stronger role to be played by pension fund investment;

Strike a better balance between risk and reward to the private sector;

Have greater flexibility to accommodate changing public service needs over time;

Maintain the incentive on the private sector to deliver capital projects to time and to budget, and to take performance risk on the delivery of services;

Deliver an accelerated and cheaper procurement process;

Give greater financial transparency at all levels of the project, so that the public sector is confident that it is getting what it paid for, and that the taxpayer is sure it is getting a fair deal now and over the longer term.

A damning PFI report was launched by MPs on the Treasury Select Committee in August, in which it slammed the initiative used to finance new public building programmes as “extremely inefficient” and highlighted rocketing borrowing costs since the credit crisis.

The Treasury Select Committee – appointed by the House of Commons to scrutinise HM Treasury – released its report following an inquiry into PFI in July, which heard from witnesses including Balfour Beatty deputy chief executive Anthony Rabin.

Past committees have also ruled that PFI is too expensive to procure. A report released in November 2007 by the public accounts committee said that PFI took too long, was too expensive to procure, and often did not provide value for money.

It found that as a result, one in three PFI contracts were only attracting two bids and that procurement times were on the increase.

Despite that, the construction industry has called for the system to be tweaked to ensure best value can be provided after consultancy Synaps’ managing director Madoc Batcup developed an alternative model through discussions with government.

Under Mr Batcup’s model, new entities - infrastructure investment and management vehicles - would create not-for-distributable-profit private companies limited by guarantee, as used in community and charity projects, enabling cash to be pumped back into customers or projects, rather than go to shareholders.

The Government had already announced it intended to “get tough” to deliver £1.5 billion of savings across the 495 operational Private Finance Initiative projects in England earlier this year.

Carillion chief executive Richard Howson told CN that the support services and construction giant has made representations to government on the best way forward for public private partnerships.

He said lessons can be learned from the Canadian models, where experienced procurement professionals are in place to speed up the process.

PFI is believed to account for contracts worth more than £60 billion and a total of £8bn in PFI deals are expected to be signed in 2011 alone.

The review is expected to create a model for private involvement in public-sector projects which is cheaper than PFI with greater choice in financing options.

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