Defence projects expected to make up 18%, as government reveals that this year’s deals could reach £5bn

The Treasury this week released preliminary forecasts of its expectations about the PFI market next year. It also revealed that the value of deals reaching financial close this year would be about £5bn.

Richard Abadie, head of private finance at the Treasury, said PFI defence deals would account for about 18% of the total value of deals next year. He did not disclose the Treasury’s estimate of the value of these contracts.

Abadie, who was speaking at the annual Partnerships UK conference in London on Tuesday, emphasised that the figures were early estimations and not indicative of the long-term PFI market.

Abadie also said the Treasury expected 59 PFI deals worth £5bn to have reached financial close in the 12 months to the end of 2005. This includes the £700m Birmingham hospital project.

However, he warned that the figure could be affected if two PFI deals were closed before Christmas. These are the £1.7bn Allenby and Connaught barracks for the Ministry of Defence in Hampshire and Wiltshire, and the £1.2bn St Bartholomew’s hospital in London. “It depends on which side of Christmas these mega-deals are done,” said Abadie.

The health sector is expected to account for 51% of PFI deals this year, compared with 39% next year.

The Treasury is also expecting that the proportion of deals in the education and skills sector will fall from 21% of the market in 2005 to 10% next year.

Abadie told the conference: “The government will continue to use PFI but only when it is best value for money.”

At the same conference, accountant KPMG and the Business Services Association revealed that the findings of a survey in which 79 private sector contract managers were asked about the operational side of PFI contracts.

The results showed respondents felt partnerships worked better in the health sector than in education and that the system of penalties rather than incentives meant there was little innovation after PFI deals had come to financial close.

Tony Rocker, KPMG’s head of the support services sector, said that the message was that PFI was working. However, he added that there were still hurdles to good relations between the public and private sectors caused by a lack of give and take by public sector management.