Major public sector client Defence Estates is to experiment with a new type of contract as an alternative to the PFI, writes Roxanne McMeeken. The new contract allows new-build and refurbishment projects to be funded through the expected proceeds of the disposal of sites.

Under the “Prime Plus” contract the contractor manages the delivery of the entire programme, financing the project in the role normally taken by a developer.

The strategy seeks to align the interests of the contractor and the Ministry of Defence’s estates division through incentivisation mechanisms, including a profit-sharing arrangement. It is being trialled on the MoD Estates London project (MoDEL), which aims to rationalise the ministry’s London estates.

Among other things, the contractor will be incentivised to:

  • masterplan, design and deliver the consolidation programme
  • optimise the value of the ministry’s surplus sites
  • produce and manage a programme for the relocation of units from the disposal sites.

The National Audit Office backed the initiative in a new report on Defence Estates, which calls for improvements in procurement methods.

An NAO spokesman said: “We are not suggesting they should drop PFI. We have always said it has potential to deliver projects on time and within budget.” But he added that the NAO was “very supportive” of Prime Plus.

Defence Estates is moving towards large centrally managed contracts

NAO spokesman

The NAO’s report said the contract’s benefits included value for money achieved through a single contractual relationship, faster project delivery thanks to the use of a single initial procurement, lower costs as a result of the attraction of competitive private finance and reduced risk owing to a unified approach to churn and planning.

However, the NAO spokesman warned that Defence Estates had more work to do. “There is yet to be a coherent plan for rationalisation. They are moving towards large centrally managed contracts, but to do that successfully there will need to be a cultural change.”

The report said the MoD agency was being hamstrung by a lack of skills in project and facilities management. It recommended hiring more staff and using external consultants.

Defence Estates manages the MoD’s worldwide estate, which is valued at £15.3bn, and spends an average of £1.3bn a year on construction projects. It is facing delays and underfunding on several projects, including the £2bn Colchester Garrison PFI. According to documents obtained under the Freedom of Information Act, the agency spent more than £50m on Colchester in the nine years to January 2005, although the project only started on site in February last year.

It reached financial close last year, eight years after it was launched.

Source

QS News