About five years ago, I spoke at a conference organised by a well-known firm of solicitors. The firm was heavily into the PFI and working hard to sort out the hassles that this particular procurement route involved. I caused some consternation in the audience by expressing worries about the PFI. My doubts were not about its practicability: a great civil engineering contractor, the late Lord Cowdray, built Mexico's harbours using this procurement method in the Edwardian era. It is not a new idea. My three worries were political.
First, the Treasury cannot be regarded as a natural supporter of the PFI. Until 1990, its ministers opposed the idea in principle. By 1992, they were reluctantly agreeing to experiments. By 1994, it had become compulsory to test all capital projects against PFI. Such a total volte-face side-stepped the basic Treasury dislike of public expenditure which is not under its direct control, let alone a 25-30 year legal commitment to paying a private sector consortium.
Second, why should anyone trust governments over such a long term? How could a business be sure that a government, faced with a currency crisis or other financial pressures, might not say in 2015: "I'm not paying you any more. You have had enough over the last 15 years. Anyway, the country cannot afford it."
Third, the trade unions at that stage were the dogs that had not barked. I did not expect that silence to continue. No trade union leaders will welcome the mass transfer of their members from the public sector, which is very heavily unionised, to private firms – least of all to construction firms that have very little union membership.
The government, which has claimed to be strongly in favour of the PFI, has been reluctant to fight publicly for its policy
Two of my forebodings have been justified. There is now a political pincer movement involving those who argue that PFI costs more than traditional procurement and the very vocal opposition of major unions. Disappointingly, the government, which has claimed to be strongly in favour of the PFI, has been reluctant to fight publicly for its policy. The most depressing feature is its failure to confront the argument that "PFI costs more".
What that slogan means is that the long-term cost of funding a project over 25 years seems more expensive today than a traditional tender might have been. That ignores the reality, which is that the traditional tender may differ substantially from the actual out-turn; that the PFI is about massive transfer of risk; and that all forms of "hire purchase" cost more because full payment is being deferred.
Many new public sector projects will either be funded by the PFI outside the public sector borrowing requirement or they will not be built at all. That is hardly the intention of "Blair's billions". It is high time that senior ministers spoke up strongly. The prime minister might have done so in his speech to the TUC 10 days ago, but that was very properly cancelled because of the terrible events in the USA.
Whatever the future for the PFI, special purpose vehicles must include facilities managers in the initial planning teams. The maintenance risk will normally be transferred to the SPV for the full 25 to 30 years of its involvement. The expertise of the facilities manager should be employed at design stage to minimise the maintenance liability. If not, the financial burdens upon the SPV will worsen throughout the life of the project. The PFI does not allow the contractor to forget about defects once the 12-month liability period is over. No "snagging list" is acceptable; there is onerous financial responsibility for decades.
