The body, due to be announced in the wake of the Gershon review of government procurement, will oversee work being done by Treasury head of procurement Mike Burt.
Details of the agency and new private finance initiative body UK Capital have been circulated to senior Whitehall officials in the past fortnight.
The umbrella group will co-ordinate procurement across government, playing a particularly large role in advising smaller departments on buying in services.
The body had been expected to simply co-ordinate the bulk-buying of government supplies, but it has now emerged that it will take charge of efforts by Burt and Treasury second permanent secretary Steve Robson to improve construction procurement.
The new group will aim to improve the value for money that government gets from construction by implementing recommendations in last year’s Egan report.
There is still some uncertainty over the body, but its name is now settled after an earlier suggestion, Government Procurement, was ruled out. There were suggestions that it could have operated within the Cabinet Office, but it is now expected to be run by the Treasury.
The news of the procurement body was given to Whitehall officials in a Treasury briefing paper. This also included confirmation of government plans to set up UK Capital, a public-private body to advise on and invest in private finance initiative projects.
We do not see any need for UK Capital – banks and contractors are already putting in equity
City Source
The paper says the agency will have £50m-100m to invest in PFI projects, either through direct stakes or by paying for departmental advisers and feasibility study fees.
Officials are understood to be bracing themselves for some hostility to UK Capital when it is launched in mid-July, and a battle plan is being drawn up. There is speculation that paymaster-general Dawn Primarolo will take pre-emptive action by contacting major clearing banks shortly before the launch, so that she can announce their support when it is unveiled.
At the moment, however, bankers are still opposed to UK Capital and are focusing on the likely cost of setting it up. They claim that it will cost far more to run than the £2.3m annual budget of the Treasury’s PFI taskforce. This is because salaries higher than those paid to the taskforce members will be needed to attract high-calibre staff.
Bankers say UK Capital will require a £300 000-a-year chief executive and salaries of more than £100 000 a year for 15-20 other staff to lure people from comparable positions in the private sector.
Treasury taskforce chief executive Adrian Montague was appointed at £160 000 a year, and other taskforce members are believed to earn £40 000-70 000 a year.
One City source said: “They will need some quite expensive people, which only increases the folly of this whole exercise.
“We do not see any need for UK Capital at all – contractors and banks are already putting equity into deals, and there is a danger that this would squeeze out any need for private equity altogether. The private sector’s aims in negotiating on PFI deals are quite different from the public sector’s. I cannot see how we could work alongside each other.
