PFI had its incentives all wrong, but a laser-like focus on buildings’ operational efficiency could change all that, says ISG’s Debbie Hobbs

Debbie Hobbs ISG small

One of the very few construction acronyms that has ever cut through to wider public consciousness is PFI – the Private Finance Initiative that underpinned a generation of major building projects from the 1990s. As we now know, these three innocuous letters unfortunately came to represent largesse, gross mismanagement, staggering inefficiency and a collective failure of the core principles behind a hardworking and cost-effective public/private partnership to deliver vital infrastructure.

The subsequent launch of Private Finance 2 (PF2) and the Mutual Investment Model (MIM) in Wales, shows that despite the reputational toxicity of PFI, the concept and benefits of public/private collaboration still has resonance at the highest levels. This is also an area that we’ve been exploring in much greater detail, but importantly through the lens of sustainable construction.

What would happen if our core PFI driver is for a sustainable outcome, incorporating net zero carbon, circular economy, social value and health and wellbeing?

PFI was initially conceived as a way to keep the significant cost of major capital projects off the government’s balance sheet and spread this expense over a large number of years. The problem was of course that the risk/reward calculation was, to put it mildly, imprecise, leading to those headlines that many can instantly recall. PFI didn’t, and couldn’t, work as it was originally envisaged, because the core driver was cost, and this ultimately led to a toxic culture of mistrust and negativity.

Now, let’s consider what would happen if our core PFI driver is actually the delivery of purpose-built space that is optimised for a sustainable outcome, incorporating net zero carbon, circular economy, social value and health and wellbeing requirements. We need to move away from thinking we’re delivering a building and actually adopt more of a servitisation model for our customers - to use the jargon - in much the same way that some manufacturers sell us the service of lumens of light, rather than the light fitting itself. The IT industry made this move many years ago through its Software as a Solution (SaaS) model. 

> Comment: The changing language of construction

Let’s keep the same original principles of PFI - so the private sector picks up the cost of construction and operation of the building for a set period of years, when the asset is then handed into public ownership. Now if the contractor/consortium wants to maximise its returns, it must ensure that the space it creates is fit for purpose and performs efficiently and sustainably – all the time. With operational costs for highly engineered buildings, like hospitals, dwarfing the initial capital outlay – a laser focus on the operational efficiency and sustainability of assets has a number of key consequences.

First, we will design and build structures and systems to better performance standards, because there is either a financial benefit (overperformance) or a service level agreement (SLA) disadvantage for not doing so. Next, we will maintain our buildings more carefully, and this undoubtedly means we will make greater use of technology to pre-emptively maintain vital building services with remote condition monitoring, so that they always operate at optimum performance. Finally, our buildings will work harder for us with longevity in-built, and when the time comes to refurbish or disassemble structures – we will have an accurate database detailing how we can recover valuable materials efficiently and reuse these again and again.

Incentivising positive behaviours is invariably a more productive and sustainable, both financially and environmentally, way forward for our industry. The fixation with cost severely restricted the true impact of PFI to transform and upgrade our public estate, perhaps with a new incentivisation structure, we could breathe life and optimism into this unloved acronym once again. 

Debbie Hobbs is group director for sustainable business at ISG