Investors tell government that it could be cheaper and less risky to work on Continent as PFI markets open up

Leading PFI financiers and operators have told the Treasury that they may switch their funds to projects in mainland Europe that cost less and carry less risk.

The warning follows a similar one by the Major Contractors Group, which said the UK faced a shortage of PFI contractors because of spiralling bid costs.

Richard Weston, managing director of Laing Equion, told Building that the market in western Europe and the emerging eastern European market were developing rapidly in the accommodation and transport sectors. He said: “The experience so far is that the European projects are cheaper to bid for and close faster.”

He said: “UK investors are having to make choices about where to deploy their resources.”

Weston said investors had to think about the cost of closing deals and whether the major health and defence projects in the UK were more profitable than European counterparts.

UK equity investors are having to make choices about where to deploy resources

Richard Weston, Laing Equion

He said: “We have certainly raised the issue with the Treasury and the major spending departments, and they have accepted this as an issue.”

A source close to another leading PFI investor cited the Derriford hospital scheme in Plymouth as an example of the risks involved in PFI in the UK. This project has had to be redesigned and is set to be tendered for again. The source said: “Why should an investor put money into a UK PFI project knowing that it will be subject to massive design changes, lack of bidders and disgruntled contractors facing huge bid bills when we can invest and get a quick safe return in Europe?”

MCG chairman John Spanswick has raised the issue of escalating bid costs with the government citing the experiences that his company, Bovis Lend Lease, has had in mainland Europe. Major contractors such as Alfred McAlpine have also expressed concerns about the PFI process.