A class of their own

PFI is bad news. That is, it fills the pages of national, local and trade press with stories of doom and gloom: hospitals that don't work, schools which need more cash thrown at them even when they're finished. But the construction industry is still going into PFI projects. Have we all gone mad? Or is there more to PFI than an easy target for the media?

EMCOR and Ballast are currently engaged in one of the largest schools PFI projects in the UK. The £345 million Tower Hamlets scheme involves two new build schools, and refurbishment work on 25 schools across the London borough. It is a complex undertaking, which has involved three years' work even before getting to site, planning the whole process. And the cost for this time has been borne by consortium members. So why do it? According to directors of EMCOR and Ballast, because in the long run PFI projects make financial sense, and, with planning, the potential problems can be managed.

Gary Nash, PPP sector leader with EMCOR Drake & Scull agrees that the bidding process is lengthy. "It takes time to formulate an effective bid, particularly if you start right back at the OJEC notice. But if you understand the process and manage it properly you can also manage the costs."

Nash says that getting into PFI is very different from normal m&e contracts, and should be approached with a different mind set: "You can't just put a price together and know in a short space of time whether you've won or lost the contract. You really have to judge the page. If you throw too many resources at the bidding process in the early days, I think you could certainly see costs escalate quickly. You have to pace it, and respond at each particular stage."

Peter Fortune, regional director of EMCOR Drake & Scull, concurs that the bidding process needs careful control. "I think the bidding process breaks down into two parts. It varies from job to job of course, but there is a period up to Best and Final Offer (BaFO), and then another period up to financial close. Really, there's no reason why the time up to BaFO cannot be reduced. You really start to burn money at the preferred contractor stage, and even then you still have no commitment to a job. There could be time restraints placed on that, for example, which would make it more attractive for people to get involved."

Bruce Dickinson, project director of Ballast Special Projects comments: "The bidding period takes a long time, and is also episodic. There's also an element of uncertainty. You don't always know if you are going to be involved in the best and final offer process and that can be difficult. As part of any rationalisation process, we'd like to see the number of bidders reduced to say three rather than the larger numbers we've experienced. And the brief should be as fully developed as possible before it's given to us."

However, in spite of the lengthy bidding process, there are those who say it's a lot faster than the old method, particularly for complex projects such as hospitals. "I've been involved in one PFI hospital project which took five years from concept to completion," comments Fortune. "I've heard people say that there's no way we could build a hospital that fast under the old regime. The process was so bureaucratic, and waiting for funding to come through took a very long time. So we may say the bidding process is long, but from a client's perspective they may see it as a lot quicker. For example, with the schools project in Tower Hamlets, when the project's finished it will have taken six years from the first idea to creating two new schools and completing the first tranche of refurbishment on 25 others. We may feel that the first part of that process – three years before we were on site – has been long, but the client doesn't see it that way."

One of the other major criticisms of PFI projects has been poor design. The Council for Architecture and the Built Environment (CABE) has been working to provide more information for schools on how to commission better buildings. This focus on the client-side reflects the views of the panel that headteachers and governors often don't have the knowledge or skills to brief the PFI team fully – and that this has lead to misunderstandings about what exactly the building will look like and how it will function.

Bruce Dickinson says that debate over design quality comes back to the issue of quality of the brief. But he points out that design time in PFI can be very contracted. "With an 18 month period between OJEC to financial close, you probably get four and a half months, which is the invitation to negotiate period; then maybe a three month evaluation period; and then possibly BaFO. So you only have around 30% to 35% of the time devoted to design, and the problem there is that you are starting with a blank sheet of paper so you do need thinking time."

Dickinson adds that on top of time pressures from the bidders' side, briefing can also be difficult for the clients. "With schools, you could have three consortia going round asking headteachers and governors what their brief is, and that can take up a lot of their time. Getting the brief out of people isn't easy. These end users need to be educated so they understand what they are asking for, and know what to expect at the end."

The issue of what clients expect and what they get – and the gap between is particularly noticeable on the facilities management side. EMCOR Facilities is a key part of the organisation's business, and commercial director John Knight has much experience of what happens after the buildings are finished. "My perception, from the operating end of PFI, is that there is a lack of understanding on the part of the users as to what PFI is all about, and I think that's really where a lot of the criticism stems from. In general terms, when you look at school PFI projects we have found that the head teachers have very little concept of what PFI is and what the concessionaire has committed to provide. This creates a lot of problems with end users after the building has been constructed. There's a learning process which needs to be gone through."

Fortune agrees: "You have to ask if there is a mismatch between what the client's looking for, and what's in the brief. But clarity of the brief has always been an issue with design and build contracts for years. It's more true of PFI than design and build because in PFI projects you are given an out-turn spec, and a blank sheet of paper so your ability to innovate is much greater than under other types of contract."

The element of freedom in the design process is seen as an advantage of PFI. Gary Nash says: "In PFI, you have more flexibility in what I term 'financial engineering' to ensure that you can deliver the design to budget. You are more in control working to the output spec, than you are when you're given drawings and told to put a price on it. The process gives best use of money."

If PFI projects lack evidence of outstanding innovation, it is not because the financial backers (the big banks) or consortium members are against it per se. Rather that they do not encourage novelty for its own sake. Dickinson says: "If you are going to be innovative, you have to test it, and demonstrate that it will work. Go back twenty five years and look at schools which were then lauded for their innovative design – and they often haven't lasted so well. We have to deliver a building for 25 to 30 years, so it has to be robust."

One of the major advantages the EMCOR/Ballast team found was that the PFI process encouraged a less confrontational way of working. "This is the first time we have worked this way, as a whole package, and it is certainly the way forward," says Peter Fortune.

As part of any rationalisation, we’d like to see the number of bidders reduced and the brief should be fully developed

Bruce Dickinson, project director, Ballast Special Projects

He adds: "The PFI environment is different than the normal confrontational construction environment. We are in it for the long term, and we have to work together. In normal construction it's a one-off job and teams break up at the end of the project. Here, it's a much smoother operation."

Gary Nash agrees: "One of the main reasons PFI was set up was for the government to transfer risk. We have dealt with that risk by working as an integrated team. Risk has been removed through openness; we know where the risks lie. This has enabled the flow of design into construction into operation. Risk doesn't stop at the end of design. It is carried through. We had a lot of discussion at the outset about how risk would be managed. Trust and understanding have been key."

The PFI mechanism also draws facilities management into the team. Knight comments: "We do tend to be involved from an early stage. This is because in order to price the operation of a building, you need to be involved in the design. You need some input into floor and wall finishings, for example, and their maintainability.

"The other issue is pricing life cycle maintenance, which requires a pretty detailed breakdown of the capital cost of the project at day one. So you need to know things like the quantity of wall finishings, what maintained life cycle they have and so on."

But the EMCOR team concedes that not all projects can be run this way. "PFI does promote less confrontational working," says Nash. "When you can structure it as we have here. But you get another type of job where a designer produces a design which goes to market to price. The PFI contractor then takes on what he sees as an 'rival' contractor.

There’s a lack of understanding on the part of users as to what PFI is all about, and I think that’s where a lot of the criticism stems from

John Knight, commercial director, EMCOR Facilities Services

"This is where the barriers can start to come back in, and it's just like traditional procurement methods, only funded differently."

There is a feeling of optimism among those involved in the Tower Hamlets project that PFI has a viable future, given a certain amount of tweaking to the system. John Knight says: "There's a huge learning process going on. PFI has been around since 1992, but it didn't really hit the construction industry until much later than that. There are problems with the process, but I think it will get quicker as we all get used to it, and with moves towards standardisation of documentation."

One cloud on the horizon, particularly for PFI hospitals, is the imposition of penalties for poor performance. It seems reasonable from the tax payer's point of view that private companies running public services should be under an obligation to achieve levels of service.

But it has been mooted that anything less than 100% performance levels will be penalised. Concern is that no building runs to 100% efficiency and that such unreasonable expectations will result in higher prices as consortia allow for the financial penalties.

The industry is coming to realise that it’s more the norm to work this way, but it is a bit of a painful path to get there

Gary Nash, PPP sector leader, EMCOR Drake & Scull

EMCOR and Ballast certainly wouldn't deny that they have benefited from the ability to offer a range of services from construction through to facilities management. There aren't a great many businesses which can offer this seamless approach, unless they create very close teams with other companies.

This could be one of the most difficult aspects of PFI. Teamwork is vital to the success of the project.

The PFI environment is less confrontational. We are in it for the long-term, and we have to work together. It’s a much smoother operation

Peter Fortune, regional director EMCOR Drake & Scull

Otherwise, it's simply the same old confrontational methods – except this time you're stuck with each other for a quarter of a century rather than a few months on site.

Gary Nash comments: "I think our industry is getting to grips with PFI, and getting used to the idea. PFI projects are very different in terms of their requirements from the team. It has to be a seamless approach.