PFI grows up

The government's Spending Review 2000 made good on the Green Paper commitment to support the Private Finance Initiative (PFI) as one of the principal ways in which local authorities can supplement traditional capital resources for investment in their housing stock. £600m of additional funding for housing PFI is now available on top of the £160m allocated to support the housing "Pathfinder" programme: almost a four-fold increase in the size of the programme and the largest component of the DETR PFI budget for 2002 - 2004. DETR will be announcing plans to select further local authority housing PFI schemes shortly and demand for place in the next round is expected to be significant.

Whilst stock transfer continues to grab headlines and, now, we have the prospect of further borrowing by top performing councils through arms-length companies, we, and clearly government, feel that PFI has a real part to play in local housing strategies. Transfer won't be the right solution for every local authority and not every local authority will gain admittance to the arms-length club. Whilst PFI is being developed within a framework which delivers extra resources for successful authorities, it is principally a procurement route which, we think, has intrinsic benefits: the allocation of risk to the party best able to price and manage it; the long-term tie-in of the contractor in the continuing delivery of asset-based services and the principal of payment based on performance. It might be that, in time, even arms-length companies procure assets and services using a PFI approach simply because PFI is a better way to buy things.

The 4ps - the company set up by local government to help local authorities develop PFI schemes and other public/private partnerships - in association with Capita has organised a major, national one day Conference, timed to co-incide with new opportunities to move forward on housing PFI projects. The Conference, endorsed by Housing Today, will take place on December 12 in London.

The conference will offer an important opportunity to hear DETR officials responsible for the housing PFI programme explain how the process to select and develop the next round of schemes will be progressed and about the criteria that they will be using. 4ps hope that the two-stage approach used to select the Pathfinder schemes will be repeated since it was effective in enabling a clear decision about ministerial priorities at an early stage. The choice of authorities would then be followed by the development of projects for the consideration and approval of the OGC chaired Project Review Group with endorsement necessary before going out to procurement.

Authorities may well be invited to express an interest in developing a PFI approach to an element of their stock, making a case for themselves on the strength of their knowledge and understanding of PFI, their preliminary assessment of the relative value for money offered by PFI against the alternatives together with PFI's place in the context of an overall housing strategy and a Best Value assessment of the options. Once selected by government, the authorities chosen will not be competing with each other for resources when developing their projects since they will all receive PFI credits at the end of the day provided that they can deliver. A co-operation not competition message has been instrumental in the Pathfinders moving forward as part of a group and not in eight different directions at the same time. This has been important in generating interest in the market where the private sector can see a broadly consistent approach being developed with, now, the prospect of a pipeline of projects.

More money raises the possibility of bigger schemes as well as an increase in their number and it may be that government will want to see a mixture of both, particularly where housing is a component of wider regeneration initiatives. Support for such projects would be in line with the Governmentís agenda of holistic solutions to social exclusion and cross cutting regeneration initiatives. However, there is likely to be a dual emphasis on maintaining the momentum created by the Pathfinders and building on progress made to date. The timescales for selection and development of proposals will be tight and government will want to be sure that projects selected are going to be capable of spending the money in the years in which it is earmarked.

The pathfinder schemes in Leeds, Manchester, NE Derbyshire, Sandwell, Reading and the London boroughs of Islington, Newham and Camden continue to make good progress with most authorities currently finalising the documentation which will provide the basis for priced bids from shortlisted bidders. The line-up of shortlisted consortia is impressive with strong representation from contractors, funders and RSLs.

Housing guidance

December will also see the launch of the jointly commissioned 4Ps/DETR guidance on the Standardisation of Housing PFI Contracts prepared by lawyers Pinsent Curtis. This will build on the Treasury Taskforce's General PFI Guidance and the 4ps/DETR Local Authority PFI Guidance and aims to promote a standardised contractual approach to the common issues likely to feature in housing PFI schemes.

The housing guidance is intended to help local authorities to strike a balanced contractual position which is commercially deliverable for the private sector and which can provide value for money for the public sector. In providing a common understanding and approach to common issues, it is also hoped that the time and costs involved in negotiating a PFI contract can be reduced with benefits both sides of the transaction.

4ps and DETR will shortly sign off on what will be called "working guidance" in recognition of the fact that we will inevitably have to return to it in due course based on the further experiences of the Pathfinder schemes before it can legitimately claim to represent best practice. This is the right way to go about it: guidance should draw from the practical experiences of actual negotiations and not the other way round. It is important to make the point that weíve got to where we are with the help and advice of funders, contractors, advisers and RSLs involved in the Pathfinder schemes as well as the contribution made by the Pathfinder authorities themselves. The broad thrust of the guidance has thus been the subject of widespread consultation and is already being reflected in developing proposals.

Local authorities and prospective bidders new to housing PFI will hopefully find this comprehensive hierarchy of guidance uniquely helpful in covering all the relevant issues and focussing in from generic public sector issues to those principally affecting local government - best value for instance - and then to housing specific issues.

Housing specific guidance represents an important milestone along the road to developing a credible approach to housing PFI which will have the confidence of the market and secure value for money for local authorities and their tenants.