David Metter, chairman of the PPP Forum, knows more than most about the PFI. So it’s surprising that he thinks there’s a problem with bid costs – and is not sure if the government can meet its education targets.
As chief executive of Innisfree and chairman of PPP forum, David Metter is at the heart of the theory and practice of the PFI. Innisfree, the private finance infrastructure company that Metter founded in 1995, is either bidding for or managing 60 projects with an overall capital value of £10bn. In a joint venture with Skanska, it was selected preferred bidder in December 2003 on the Barts and the Royal London hospitals – the biggest UK PFI hospital with a capital value of £1.8bn.
He is clearly a motivated and sharp man. Sitting in Innisfree’s offices near Fleet Street, which he shares with the PPP Forum, Metter first extols the virtues of PFI, offers a fairly rare and controversial view that perhaps bid costs are not all that bad, and says that the real issue is whether the government’s schools targets are deliverable through the Local Education Partnership model.
Metter, unsurprisingly, is a big fan of PFI. He was so frustrated by the bad publicity that private finance schemes attracted at the beginning of the decade that he founded the PPP Forum, so he and other private sector companies could join the debate.
He has little time for the anti-PFI lobby: “Much of the criticism was politically driven in order to discredit the Labour party, and at that time the critics were little-known accountants, lawyers and academics.”
The pro-PFI messageWhen the PPP Forum started in 2001, it secured a membership of 14. Today it has more than 100 paid-up members from the industry, as well as the financial and professional companies involved in the market. The aim of forum, Metter says, is in part to contribute to public debate from a factual and technical, rather than a political or polemic, point of view. But beyond that is has formed around eight policy groups to work with the government on areas including health, education, tax and insurance.
It is almost impossible for a contractor to integrate designs that it has not been responsible for
“The government is very keen to engage with one private sector organisation whose members are active and representative of the industry,” he says.
Of course, other industry organisations, such as the Major Contractors Group and the RIBA, are involved in separate initiatives to bring about change in PFI through discussions with the Treasury and the policy unit. The major grievance voiced by the likes of the MCG and the RIBA is high bid costs, which they complain are prohibitive. But Metter shrugs this issue aside: “You either have no competition for a project and therefore no waste of design, or you have a competitive process and some waste of design. What makes PFI value for money is that you have competition. I’m not aware of any of the leading contractors withdrawing from the PFI because bid costs are too high.”
Metter believes that a good proportion of PFI bidding costs have already been sunk before a contractor goes for a project, because for example design teams are already in place, so it is a case of deciding how much the company is prepared to commit to design and bid for the development. Besides, he says: “Many of the architects will quote a price for winning a contract and a price for losing, and that will take some of the pain away.”
The RIBA has argued for the public sector client to appoint a design team at the initial stage of a contract, before the PFI scheme is put out to tender to contractors. Metter dismisses this as a “hopeless” method, and cites the PFI project at the Berlin Embassy where this practice failed. “For risk transfer to work efficiently over the long term, the contractor must take the design risk. this means that the designer must work for the contractor where this does not happen, interface issues and design liability issues arise.”
Metter believes the key issue for PFI at the moment is whether the government’s aims for the Building Schools for the Future programme can be met. Some have calculated that preferred bidder stage should be reached on two projects worth more than £100m every quarter. Currently no projects are under way because of delays from a shortlist of three to preferred bidder. Metter suggests the problem lies with Local Education Partnerships, which are supposed to deliver the BSF programme. An LEP is a partnership between a local education authority, central government and a private sector consortium. That’s the theory, but as no LEPs have been set up yet there is much uncertainty about how it will work. “The LEP process is complicated,” says Metter. “Even if it is going to work perfectly in the long run, the structure is undeveloped and you have a process issue there. We have concerns that the government’s aims will not be met because deals have slowed to a snail’s pace.”
What do you think of the solutions to high bid costs proposed in the first article? Or the upcoming struggle over fees revealed in the second? And is Mr Metter a touch too sanguine? Email your views to email@example.com