November 28, 2006

UK experiencing positive results from PPPs — for the most part

DAN O’REILLY

correspondent

TORONTO

Not only is the British government sponsored Private Finance Initiative (PFI) become an overwhelming success with the delivery of more than 750 projects during its 10-year existence, it’s also changing the face of the construction industry.

Builders are evolving into multidisciplinary developer/ builder/operator/investor companies, participants at the Canadian Council for Public Private Partnerships’ were told.

“I don’t know if we have any traditional builders left.”

Richard Abadie

HM Treasury

“I don’t know if we have any traditional builders left — they’ve turned into developers,” said Richard Abadie, head of PFI Policy, HM Treasury, the United Kingdom’s economics and finance ministry.

Only a few general contractors remain operating in the United Kingdom and most of those are small and regionally based, he said.

The evolution of the construction industry is one of the successes of PFI, said Abadie, who was invited to the conference to provide a critical analysis of how the initiative is performing.

But the top success has been the timely and on-budget delivery of projects and facilities, and the transfer of risk away from government on to the private sector.

Research by the UK National Audit Office shows that 75 per cent of projects were delivered on time and 100 per cent were on budget compared to 30 per cent for conventional procurement, he said.

For the most part, the owners and/or users of those projects are very happy with the way their facilities are being managed.

According to research carried out for the ministry by other government departments and private firms of 100 projects, 79 per cent felt that promised service standards were always or almost always delivered, he said.

Other benefits that have accrued through PFI include the establishment of specialist PFI infrastructure funds; that government standardization of contractual terms have given all participants clear understanding of the risks involved; and that confidence has been instilled in the market from the government’s commitment to public service infrastructure.

But there have been casualties along the way and some aspects of PFI need refining.

Some contractors who tried to make the leap into design-build-finance-operate developers have gone bankrupt, some PFI consortia have lost money, others have been undermined by the risks involved, and one Dutch firm has walked away from the British construction market, said Abadie.

Other drawbacks include an ‘imbalance’ of risk during the build portion of a project compared to the maintenance period; less return on brownfield projects than greenfield ones and the need for absolute transparency compared to the current partial transparency.

“Nevertheless, PFI publishes more data than conventional (construction).”

A second seminar speaker, Timothy Stone, chairman of London-based Global Infrastructure & Projects Group Corporate Finance, supported that statement.

“The level of transparency is so much higher than went on before.”

The British government isn’t content with the status quo and is developing new PFI procurement models, said Stone. An example is NHS LIFT (Local Improvement Finance Trust), which aims to develop a new market for investment in primary care and community-based facilities and services.

Another program is Building Schools For the Future (BSF). The aim is to rebuild or renew all of England’s 3,500 state secondary schools over a 10-to-15 year period, he said.

Despite the successes of PFIs, the program is still plagued by criticism, opposition from unions and distorted perceptions by the public and the media.

“The (level) of sophistication is somewhat lower than what you would expect.”

While Tony Blair’s Labour government has done a good job on implementing PFI, it’s failed to win the argument on their value with the media and the unions, he said.

Print | Email | Comment