Hired to overhaul government procurement, Peter Gershon is a huge fan of the PFI. But, as Marcus Fairs found, the chief executive of the Office of Government Commerce is uncomfortable singing its praises.
It starts well enough. Peter Gershon is in relaxed mode as he pours coffee and patiently endures my attempts at small talk.

Marcus Fairs: "Things are busy, are they?"

Peter Gershow: "They are."

Marcus Fairs: "Any more busy than normal?"


During the next 45 minutes, however, Gershon gets increasingly irritable. He slumps deeper into his chair, his voice rises to a staccato squawk and he shakes his arms in silent frustration.

The post-interview photo shoot is the last straw: he scuttles off before the photographer has barely taken a light reading. "Right, that's enough," he snaps as he disappears.

"He's a very busy man, very passionate," explains Malcolm Graves airily. Graves is one of those mysterious government communications people who seem to exist purely to prevent communication. "You asked the wrong questions, to be honest. You hadn't done your research very well. He probably felt you were wasting his time."

Ouch. But let's start at the beginning. Peter Gershon, 55, is the chief executive of the Office of Government Commerce, an independent office set up in April 2000. Gershon, former chief operating officer at BAE Systems, is thought to be the country's highest-paid civil servant, earning £180,000.

In return, the Treasury wants him to overhaul wasteful government procurement and cut £3bn from Whitehall's £13bn procurement budget by March 2006.

Although the OGC's remit is to improve all procurement, it has become intimately associated with the PFI. This accounts for less than 5% of government capital spending but has received an inordinate amount of publicity – most of it negative. If anything, the attacks on PFI have increased in recent months and this interview seems an ideal opportunity to find out where the initiative is heading.

Sure enough, Malcolm Graves enters the room and plonks a pile of reports in front of me on new standardised PFI contracts and codes for PFI refinancing.

Malcolm Graves: "Have you been following the debate on all our initiatives recently?"

Marcus Fairs: "Yes."

Malcolm Graves: "Good. I don't know if you want to start, Peter, by making some remarks on the [PFI] refinancing deal?"

Oh, dear. Graves wants to manage the interview. But it's taken six frustrating months to set this up and I don't want to blow it. Good idea, Malcolm, let's hear about the refinancing deal.

"We've brought an element of clarity and certainty to what has been a very unclear situation," Gershon explains. "Our new deal is a voluntary code, but we think it will command support from large parts of the public and private sector."

In the early days of the PFI, consortiums discovered they could negotiate more favourable interest rates once the risky construction stage was over. News that private firms were refinancing public projects to increase their profits caused uproar and the OGC's new code allows the public sector to share in the savings achieved. Public clients can claw back 30% of savings on existing contracts and 50% on new ones.

Gershon's explanation of the code is long and eloquent but Graves keeps trying to interrupt him. Time is ticking away: Graves' people have slashed the interview time in half without warning.

Marcus Fairs: "Construction firms are suffering because the PFI bidding process is so slow and expensive. What is the OGC doing about that?"

Peter Gershow: "The new standardisation [of PFI contracts] should help take time out of the procurement process. It covers a number of new areas where there was previously no standardisation and individual contracting authorities were having to sort things out on a case-by-case basis, which takes time and ties up lawyers."

There is a revolution going on in the procurement of the built environment. The supply is responding to that in a very integrated way

Marcus Fairs: "When does this come into force?"

Peter Gershow: [angrily]: "It was out in July!"

I didn't know that; I missed it in my research. Gershon rolls his eyes and Graves smiles patronisingly. From this point on, the interview gets increasingly uncomfortable.

Marcus Fairs: "When will it start to make a difference?"

Peter Gershow: "We should start to see it now. Contracts which were very close to financial close are unlikely to be able to benefit from it but contracts that are reaching the invitation-to-negotiate stage should certainly benefit."

I produce a cutting from that day's London Evening Standard. Headlined "Wreck of the PFI", the two-page story points out how, on top of the delays, falling stock markets are damaging firms' ability to raise cash – Jarvis' shares are down 65% and Amey's 94%.

Marcus Fairs: "Have you seen this?"

Malcolm Graves: "I hope you're not going to bounce something on me …"

Marcus Fairs: "Can the OGC offer firms any reassurance?"

Malcolm Graves: "I think Peter probably needs notice of that question …"

Peter Gershow: "No, I can answer that. I've met a number of the PFI companies and yes, there are some that are saying these protracted time scales are hurting … but we are looking to see if there are other ways we can take time and cost out of the process."

Marcus Fairs: "Such as?"

Peter Gershow: "Whether there are benefits, for example, in some sectors of batching individual projects together."

Marcus Fairs: "That's been happening for a while, particularly with schools."

Peter Gershow: "Yes, but there are still some key sectors where that technique has still either not been used at all, or not used very sparingly."

Marcus Fairs: "Which areas in particular?"

Peter Gershow: "I'm not going to comment on the specific areas. You'll have to wait and see when the Official Journal comes out."

And so it continues, with Graves constantly jumping in to fend off awkward questions and Gershon ignoring him. Gershon has said before that he is "not a house-trained mandarin and not cut out to be one," and he clearly finds all this PR protocol annoying. By now, he has slumped so far down in his chair that his chin is almost at table level. I don't understand it: I met him once before at a social gathering and he was perfectly charming; warm, willing to banter, and with a mischievous grin.

He's extremely highly regarded by colleagues. "He's a great chap," says CABE chairman Sir Stuart Lipton, who worked with Gershon on the new Improving Standards of Design in the Procurement of Public Buildings report. "He's achieved a great deal. He's very trustworthy but he's quite shy."

Gershon clearly has strong opinions on most matters but is reluctant to divulge them. For example, when the issue of the way firms account for PFI bidding costs crops up:

If the private sector starts advertising that they will make huge returns, of course there is going to be adverse criticism

Peter Gershow: "We've got to be careful – in some instances there are companies where the consequences of the new accounting standard, about the accounting for bid costs, has clearly had the effect of depressing their profit."

Marcus Fairs: "Are you referring to Amey?"


Marcus Fairs: "What's your view on what's happened to Amey?"

Peter Gershow: [irritated]: "Well at the end of the day, how companies account for things like bid costs is a decision for its auditors and if a new accounting standard comes in that requires a more conservative approach, that's not the government's fault."

Firms feel they are in a lose–lose situation, I suggest: they're attacked as fat-cats if they make healthy profits yet they're blasted every time a roof leaks at a PFI hospital. Is that fair? Graves tries to intervene again but Gershon cuts him off: "No, I'll answer your point. Frankly, [sigh] if you're dealing with the public sector, you need to be quite sensitive about the public interest. In some instances, companies have made public statements about the size of their returns. The private sector is entitled to make a reasonable return – but if people start advertising from the rooftops that they are going to make [huge] returns then people are going to say – pffff, that seems a bit bigger than reasonable. Of course there's going to be adverse criticism."

Despite the hiding the unions gave the prime minister over the PFI at the recent Labour conference, Gershon insists the government is unwavering in its belief in the initiative. "The government's position is that PFI is to be used where it delivers best value for money," he says. The point is to improve public services and get schemes built on time and on budget without risking taxpayers' money.

The procurement method – be it one of the government's preferred routes (PFI, design and build or prime contracting) or the traditional route – is irrelevant.

It sounds remarkably simple – but neither the government nor the construction industry has been able to explain the benefits of PFI with any success (and no wonder, if this interview is anything to go by). As a result, all kinds of rumours have grown up around it: that it's a ploy to get public spending off the balance sheet, that it's a cunning plan to replace ineffective public services like the NHS with privately run facilities.

"It's about getting better projects," says Gershon, pooh-poohing both theories. "If we go back to 1998 or 1999, 70% of all construction projects were over cost and over schedule. The data we're getting now about PFI is indicating that nearly all the projects are coming in on or ahead of schedule. If there are cost over-runs, the private sector picks up the bill, not the public sector."

Gershon regards the progress made as little short of miraculous. "That says to me that within a period of four years the landscape has been transformed. Now this is just amazing.

If people ask why refinancing was never addressed on these early projects, part of the reason is people just didn't believe that such a radical transformation could occur in such a short space of time."

"Now let's look at the second benefit," he continues. "If we look at a whole raft of public sector buildings that were put up in the 1960s and 1970s, they're out of date, they've been badly maintained and many of them are not really conducive to the people who live and work in them. With PFI, that maintenance and repair is guaranteed, and at the end of the franchise period the public sector will get back an asset that is pretty well in as good a shape as it was in the beginning."

In the past, he points out, public sector clients had a culture of accepting the lowest up-front tendered price, rather than what was long-term value for money. Repairs and maintenance had to be funded out of annual budgets so they often got deferred. "So you had long-term deterioration. Now that won't happen under PFI."

The OGC is working to educate public clients on how to procure better buildings, but Gershon feels the PFI takes much of the risk away from the client if projects go wrong. He dismisses the furore over problems on early PFI projects such as the Cumberland Infirmary, where the media gleefully blamed overflowing drains and overheated atriums on corner-cutting contractors.

"The fact of the matter is that in any large building, certainly in the settling in period of operation, there may be defects, whether its PFI or non PFI. It's got nothing to do with PFI," says Gershon. "And what people never point out is that if these problems occur in a traditionally procured building there may very well be an argument with the contractor as to whose responsibility it is to fix it. If it occurs in a PFI hospital there is no argument. It's the contractor's responsibility to fix it. Period."

He concedes that PFI schemes are poorly designed – hence the joint report with CABE, which states that good design is fundamental to achieving high-quality public buildings. "This is clearly an area where there's room for improvement in terms of how design is being factored into procurement. We believe design has an enormous contribution to whole-life value for money and we want public sector clients to pay even greater attention to design than they have been."

Under the PFI, he insists, the private sector is already beginning to invest more up-front to get long-term improvements. "You get more natural lighting, more natural ventilation to help reduce utility costs. Or a more expensive cladding material that has a much longer life."

Gershon sums up the progress he feels he has helped bring about: "There is a revolution going on in the procurement of the built environment. The supply chain is responding to that in a very integrated way. It is starting to change quite radically."

Gershon was due to step down next April but, according to recent newspaper reports, is negotiating an extension to his contract. I ask if this is true. "Ah, you do read things in the press!" Graves exclaims. Gershon adds: "The position remains the same as my last quoted remark on the subject. The most likely scenario is that I will do an extra year."

Personal effects

Tell me about your family …
Married. Three children – all off the payroll.
Where do you live?
What kind of house?
I don't want to go into all this. My private life is my private life.
How do you get to work?
What kind?