PFI’s back in the dock and Mouchel’s run out of luck

This week we put PFI back in the dock. It’s a politically charged argument that has been played out in town halls and bar rooms by unions, pressure groups and angry taxpayers for more than a decade. But now it is more heated than ever, on the eve of an expected government announcement of a newly modelled “Son of PFI” or at least a wholesale autumn review of the controversial procurement model. We present the evidence and give you the verdict and sentence of three leading industry experts.

This is a toxic issue for a fragile coalition and the case for the prosecution is as sound as the case for the defence is compelling. The fiercest criticism comes, unsurprisingly, from the swaths of MPs who are calling for construction consortiums to return profits deemed by their constituents to be evidence of greed. Opponents also question the validity of PFI accounting principles, criticise the rigidity of contracts and gasp at legal and transaction costs. Yet the PFI model is consistently held up to international acclaim and replicated around the globe. PFI supporters point to its ability to deliver and its quantifiable economic benefits. After all, you’ve only got to look at the hundreds of millions being redirected into schools and health facilities via forms of PFI in recent months. Perhaps, they say, major capital programmes would never have been undertaken without the private sector sharing the risk, especially when public sector spending is in the doldrums. And perhaps the private companies should be generously paid for taking on that risk.

Whitehall’s job now is to remould and rebrand PFI to serve the taxpayer, business and the long-term growth agenda. A new name, as was tried in Scotland, would be a good start. But the government needs first to address the perception of excess and greed attached to PFI. It must cut costs by looking in detail at procurement efficiencies, contract certainty and design standardisation, as well as identifying any benefits to be achieved through technology, BIM and sustainability. Then it must ensure transparency through robust methods of monitor and review, so PFI can be assessed on a regular basis and avoid the public criticism of the past. And finally, it must package it up in a simple proposition, so both business and the public can understand exactly how shiny new buildings will be delivered. Only then should you give your verdict on PFI - that is, unless you’ve already made up your mind.     

A very near thing

The extent of Mouchel’s dramatic unravelling this week has caught even the most cynical onlooker by surprise. Six months ago the firm’s then suitors - Costain and Interserve - were offering final bids that valued Mouchel at 155p and 135p per share respectively. This week, those shares were selling at 13.5p, decimating the value of the company to below £18m. But - as contractors and consultants alike are under pressure to offer clients a fuller range of project services by making a mega-merger like CH2M Hill and Halcrow, and Aecom and Davis Langdon - Mouchel offers a timely lesson: it pays not to rush in. Both its former suitors, having ultimately been rejected by Mouchel for, ironically, not valuing the company highly enough, will be celebrating a lucky escape this week. And in this market especially, luck’s not something you want to rely on.

Tom Broughton is brand director of Building