Where will it all end?

Enron showed the world, in a spectacular fashion, how rules that are constantly being flexed can sometimes break with catastrophic effects. And when they break on the global scale of Enron, the rebound can bring down many others – such as accountancy firm Andersen.

But what are the potential longer-term effects emerging from the Enron and Andersen cases that may hit our own industry?

One issue that may capture people's attention is a re-examination of the world of PFI and PPP, where the procurement practices developed by central government, and now embraced more widely, have many potentially comparable, and some may say equally complex, accounting rules.

One of the primary original goals of PFI was to overcome the constraints inherent in the public accounting system that impacted on the availability of capital for major public works schemes. Borrowing at higher cost from the private sector in order to balance the books was the proposed solution, justified by changing the rules and demonstrating how "the transfer of risk" enabled "off-balance sheet" financing to be achieved. This is of course now deemed wholly acceptable, but if viewed objectively, it is creative accounting at its best. In fact, it runs counter to most past public procurement principles, albeit by forcing through change to serve a sound social and political purpose.

The insurance market has, as we all know, been in a spin since last year. The previous relative ease with which provisions such as fitness for purpose risks could be insured with underwriters has now disappeared. These insurance market changes are likely to force PFI-participating organisations down the road of self-insuring, with the incumbent exposure to high risks. This is a big factor in the major PFI and PFI-type financing structures that are around at the moment. As a result, the industry could already be storing up real problems for the future.

Of course many associated benefits have been claimed, and in some cases delivered, as a result of PFI. However, the fundamental efficiency of the PFI as a procurement process and the overall value for money it achieves should continue to be questioned.

Borrowing at higher cost from the private sector in order to balance the books is creative accounting at its best

For instance, how can the huge costs of failed bids be accommodated other than through big paybacks on the successful schemes? Why are major deals so valuable to the winners? And, most importantly, in the light of the Enron/Andersen scandal, what might such rewards tempt individuals or boards into?

Beyond the possible temptations for deal makers inherent in the PFI model, the Andersen side of the story should encourage us to ask further questions. To what extent are professional practices in construction exposing themselves to risks driven by the commercial pressures of their customers? Can we see where our industry's own professional advisory crisis may come from? And are our long-established professional principles being compromised already?

Within the professional advisory side of our industry, the knock-on effect of Enron is already accelerating change in the world of the auditors. PricewaterhouseCoopers and Deloitte Touche Tohmatsu are both in the process of spinning off their management consultancies to follow both Accenture and KPMG Consulting, which have already made their moves. Will this lead to more competition and an intensification of those new consultancies' involvement in major schemes? Or will their focus necessarily be narrowed and the opposite occur?

Further questions arise. Will the hike in insurance premiums (on private indemnity in particular) force out smaller firms? Will critical mass be higher as a result? And will this mean even more consolidation – as we have recently seen with the acquisition of Franklin + Andrews by Mott MacDonald and the sale of Hanscombe to Atkins? Or will the Andersen experience that shows global does not mean invincible lead to counter-intuitive trends?