As the name suggests, PF2 is not hugely different from its predecessor. Some of the changes introduced include: public sector equity investment; changes to facilities management (FM) services in order to promote flexibility; and a more considered approach to risk allocation with a view to promoting better value for money. Whether these changes will cure the perceived ills of PFI depends what side of the debate you stand on. As a PR exercise it is unlikely to be successful: in many ways, it would be almost impossible to satisfy PFI’s critics without jettisoning it altogether as a procurement model. But that would mean a return to the techniques of the past, beset with cost and time overruns and poor whole-life planning.
PFI’s critics claim the private sector profits unfairly from PFI, that it is poor value for money and that ultimately it is unaffordable. But in many respects these arguments are superficial, and over-burdened by political ideology. It is unrealistic to expect contractors to construct and maintain government facilities on a charitable basis. Critics forget that traditional procurement models were profit-earning, and that under PFI contracts there is a greater risk-transfer to the private sector. On value for money, the usual complaint is that a £200m hospital will cost the taxpayer £2bn over the lifetime of the project. But that is a meaningless comparison of capital costs and the aggregate of capital, financing, whole life costs and FM services costs over a 30 year period. This points to a fundamental misunderstanding of the PFI model.
Critics will point to NHS Trusts suffering under the weight of unreasonable PFI ‘debts’. However, PFI is competitively tendered and the payments are relatively predictable. If a procuring authority is unable to afford its PFI payments, that is not the fault of the procurement tool.
PFI/PF2 supporters must articulate their case better. PFI has delivered new facilities on time, on budget and on a basis determined by the Treasury to be better value for money than traditional public financing. For those interested in infrastructure development, the real concern is the lack of a coherent plan, as the Public Accounts Committee recently noted (see news). PAC’s report said: “The Treasury’s Infrastructure Plan is a list of projects, not a real plan with a strategic vision and clear priorities”.
James Larmour is a partner at Freeth Cartwright specialising in infrastructure and PPP