The UK is a leader in procuring public buildings with private money. We should be doing much more to export that expertise to the rest of the world
The PFI has been in operation in the UK since the early nineties. In that time, more than 700 projects worth a total of about £46bn have been signed. Today, there is cross-party support for the principle of PFI: if the government isn’t the source of funds, the private sector must be. That principle applies worldwide. However, we are missing an opportunity to export one of our greatest assets: our knowledge of how to procure and deliver public buildings with private money.
Yes, some of the UK’s major contractors and top accountancy firms have penetrated the overseas market, but that’s about it. UK plc has been delivering PFIs longer than any other country. The PFI is now a mature UK market sector. This is not the case in the rest of the world.
In Australia, PFI is in its infancy but growing fast. In the huge markets of India and China, it is in early gestation. In mainland Europe, PFI has reached the toddler stage. So why are relatively few UK organisations targeting these markets?
Our extensive knowledge of how to deliver successful PFI projects is supported by the lessons we have learned about procurement process advice, standard document structures, funding structures, payment mechanisms, legal structures, output specifications and the objective definition of value for money and affordability.
Those lessons include:
- Avoiding complex legal structures
- Shortening procurement periods
- Ensuring that public sector and delivery teams have the skills they need
- Ensuring staff continuity
- Creating centres of excellence
- Developing objective and robust evaluation frameworks
- Recognising the importance of whole-life expertise
- Ensuring optimal risk transfer
- Ensuring clarity in lines of responsibility
- Recognising the importance of long-term relationships
- Clearly defining requirements that encourage innovation
- Managing strict change mechanisms.
The Japanese market may be able to teach us the way forward for the UK and, ultimately, the world PFI market.
In Australia, PFI is growing fast. In India and China, it is
in early gestation. Why are so few UK organisations targeting these markets?
A similar structure to UK’s PFIs is used, but the contract details are nowhere near as detailed as the UK. The reason is that business in Japan is predicated on trust. This results in a substantially simpler approach. Project procurement often takes a year, and the saving in bid costs and the increase in value for money is huge.
The PFI delivers social and economic improvement, a key facet of which is the education of children that will enter our industry both here and abroad. It delivers key public buildings and it is only chosen where it is demonstrated that PFI is the optimal procurement route.
The 2003 National Audit Office (NAO) PFI Construction Performance report provides some statistical reinforcement. It compares previous procurement experience, based on a 1999 government survey, with the performance of the PFI, based on an NAO census conducted in 2002. In 1999, the percentage of construction projects where the cost to the public sector exceeded the price agreed at contract was 73%. The 2002 figure was just 22%. The percentage of construction projects delivered late to the public sector was 70% in 1999, and 24% in 2002.
Gordon Brown’s recent visit to India and Tony Blair’s continuing contact with China reinforces the importance of these markets
to the UK. India is the third-largest investor in the UK and 1.5 million people of Indian origin live in Britain. Brown has, on a number of occasions, warned of the growing commercial threat from India and China. Combined, they produce more than 4 million graduates a year.
The solution is surely to embrace the Indian and Chinese challenge. UK companies have a huge PFI capability and there is a ready supply of young, intelligent and enthusiastic people in these countries. The British Asian community, for example, provides a huge contribution to the UK’s economy. This offers the UK the opportunity to exploit this vast market, with so much goodwill on both sides.
Sir Digby Jones is the government’s skills envoy and the former director-general of the CBI. He is a non-executive director of Bucknall Austin