The Treasury’s review of the PFI can’t come soon enough. The renewal of the grim Whipps Cross hospital was hampered rather than helped by it, and the refurbishment of St Bart’s is demonstrating how much money can be lost in a few weeks.
These are just the latest episodes to exasperate an industry that is sick of spending millions on wasted bids and is losing its appetite for more. Some critics of the PFI won’t be happy until it’s scrapped altogether; others want the private sector to start extracting gall bladders and teaching French. However, most of the industry would be grateful for a little fine-tuning, for which they have many constructive suggestions – some of which may warrant a mention in the pre-Budget report (see news).
Here are a few of them …
Clearly, the central problem is to find a faster way to close deals. A root cause of delay is the performance of the average public sector client faced with the tendering of a large, complex project in an unfamiliar industry. So one way to get to financial close faster is to help the public sector negotiators. And one way of doing that would be to set up a central team with experience of closing deals; its members could be brought in to guide the procuring team through the process. This would also allow expertise to be transferred from authority to authority. Additionally, it would help if authorities provided PFI training for their senior staff to help them understand the process and their role in it. Finally, restricting the shortlist of bidders to a maximum of three would improve the ability of the public sector to manage bids and facilitate its decision-making.
One of the reasons that bids can often take so long to close is the whole issue of affordability. The tenders go out asking for the earth, the bids come back promising it. But then when the client does its sums, it realises that it can’t afford three operating theatres, or quite as many beds. The project then goes back to the drawing board while the preferred bidder comes up with a plan that the client can afford. The most obvious way to avoid this is to set up the bids in a different way. Rather than keeping the project costs a secret, the client could start by being open about what it can afford. If it gave its suppliers accurate information, the client would benefit from the bidders’ problem-solving skills, rather than leaving a bidder to guess and submit bids that are unaffordable or sub-optimal.
Public sector partners could bring costs down by retaining those risks that can’t efficiently be managed by the private partner or insured in the market. And if the brief were better developed by the public sector before the bid went out to tender, as CABE suggested this week (page 15), it could cut waste and improve the design quality of the end product. Then there’s the question of finance: are we really getting the best deals available, given that the PFI is not the gamble for banks it might once have been? Finally, a radical move would be to allow the public sector to take an equity stake in the project, thereby extending the structure proposed for the Building Schools for the Future programme. The advantage of this approach is that it could provide authorities with much greater visibility of the entire process and reassure the private sector that the authority will not behave in a way that would prejudice its interests as a shareholder.
Denise Chevin, editor