This prospect has clearly been focusing minds in Whitehall. The Department of Health tried to get hospitals on site faster by telling trusts to telescope the bidding the process (see box), and new guidance on PFI social housing is to be released by the Public-Private Partnership Programme (4Ps), the government's minder for councils, by the end of this month. This will tell councils to start giving estimates of the refurbishment costs of their stock to private sector bidders, which should allow tenders to be compiled more quickly. Meanwhile, contractors claim that this drive is coinciding with similar pushes in government departments, such as education and defence.
However, it is the NHS that is being given the greatest priority. This is partly because it has been the key battleground of British election campaigns over the past 20 years, and partly because the government's capital investment programme has been knocked off course by the struggle between contractors and unions over ownership of ancillary staff. Last month, nine months of uncertainty came to an end when the government caved in to union demands that staff should be retained by NHS trusts.
Contractors and consultants are hoping that the project pace will now accelerate: only two hospital PFI schemes were let between April and December last year, according to recent Construction Products Association figures.
The new DoH guidance, released in March, followed two to three months of discussions between the department's private finance unit and the Major Contractors Group. MCG director Bill Tallis says: "I am sure they have worked out that hospitals approved under the previous system will not be done by the next election." This, he adds, is the result of the fact that choosing a PFI consortium for a hospital takes a year longer than necessary. "The process has been extremely extended. Hospitals are quite complex buildings, so to take years to bid the schemes before you even start to build them is excessive."
The guidance accepts the need for time and costs to be cut during the bidding process. It says: "It is imperative that the NHS ensures the PFI programme increases momentum and continues to achieve value for money. The longer the procurement timetable, the greater the resource tied up in the NHS and the private sector will be."
But the government is considering more radical means to quicken the pace of hospital procurement. Speaking last month at a reception for PFI bigwigs, health minister John Hutton said the government was considering offering bonuses to speedy PFI consortiums. "It is only fair that incentives should be in place to discourage drawn-out negotiations," he said. "We could, for example, fund bidders' costs, subject to a budget agreed in advance. If the deal is concluded quickly, and bidders make a saving, they get to keep it. If negotiations are protracted, bidders meet any excess costs."
The clock is ticking – there is real political pressure to accelerate things
Amanda McIntyre, CBI
Amanda McIntyre, head of modernisation and government at the CBI, says the hastening of public procurement is not restricted to health projects. "I think there is a recognition across government that it would be in everyone's interest to accelerate the procurement process," she says. "The clock is ticking – there is real political pressure to accelerate things." Roger Simons, associate director at QS Cyril Sweett, agrees that there is pressure to get public sector schemes off the ground. Last month, the government approved £1bn of PFI schools. "A lot of local authorities we are advising do not say where the pressure is coming from, but are very receptive to suggestions as to how they can shorten the process," Simons says.
The general pressure on government is backed by CPA figures released last month, which show that, a year into its £19bn construction programme, the state is not hitting its spending targets. The CPA found a 3% drop in housing repair and maintenance work between April and November 2001 and said there was a lack of government information on the schools building programme.
Tallis believes that Whitehall is doing its best to respond to industry concerns. The MCG is also pushing Defence Estates, the Ministry of Defence's property arm, to speed up its prime contracting initiative. Here the problem for contractors is that it has been decided that at least five firms should be shortlisted for each prime contract. This would, some contractors claim, mean costs of up to £1m for each of them. "It's incredibly slow right now," a source at one bidder complains. "With all the other work out there in other sectors, it's an expensive hobby keeping an interest in defence work." Defence Estates has agreed to hold workshops with MCG members during the next two months to iron out their concerns.
Despite these attempts, some in the industry remain sceptical as to whether the process can be jump-started. David Clements, PFI director at consultant WS Atkins, is one. "Everybody has talked about speeding things up for at least five years. It's still painfully slow," he says. Other PFI players cite the opposition they face from some local authorities, who do not want to lose control of vital services such as education and housing. Graham Billin, director at QS Currie & Brown, says the fallout from the ancillary staff deal on health projects has yet to be felt, but could be significant. "It was a huge decision, which could have massive ramifications in terms of the cost of risk in hospital deals," he says.
Billin adds that the offer of subsidies to health consortiums could strengthen the opposition to PFI among the electorate: "There has been so much talk about PFI contractors making big profits on hospitals – this could make it even worse." Others worry that last month's decision by the government to give £300m back to Railtrack shareholders will add weight to anti-PFI arguments, as it weakened the government's claim that PFIs transfer risk to the private sector. These concerns mean that the only certainty is that the PFI will remain deeply controversial.
The new health PFI guidance
- Cutting the procurement model. Previously the bidding process would start with six bidders then reduce to three, then two, then one. Now it will start with four, reduce to two and end at one.
- Bid costs will be reimbursed to PFI consortiums by health trusts if the trusts need more clarification or design work on schemes in a competitive situation.
- The Department of Health can approve a health project valued at up to £75m instead of £10m without Treasury approval.
- Standard documents and payment mechanisms will be used so that trusts do not have to reinvent the wheel for each project.
- The Department of Health’s private finance unit is increasing its staff numbers to support health trusts.