PFI – the biggest rip-off in UK public sector history?

And I was involved.  Yes, I was a procurement director in Government in the 1990s and had some involvement in at least one major construction PFI. Luckily NOT one I'm now seeing featured  in the report in the Telegraph on the legacy of PFI.

It seemed to me at the time that one element of PFI was absolutely right.  That was the concept that whoever was responsible for design and construction of a new building should have to consider also the ongoing running costs - which can, over the whole life of the building, be many times the capital cost.  That was one of the principles of construction PFI and as I say, it seemed very sensible.

But it does appear that in some cases rather dodgy financial engineering was taking place, I assume in order to make projects look good value and affordable.  Why a 60 year contract?  Why are seemingly trivial services or one-off type activities costing a fortune?  "Another school had to pay £302 for a socket, five times the cost of the equipment it wanted to plug in", as the Telegraph says.

That can only be that the payment mechanisms were constructed to make the basic occupation charges look lower, with the provider making their money from these 'extras'. That would improve the apparent business case; then later on the occupier gets hit with unexpectedly high charges. And let's be blunt, this represents a failure of finance and procurement across many organisations while these deals were being done; or at least a failure to stand up to pressure from other quarters and point out loudly the problems that were being stored up for the future.

I also wonder about the role of Partnerships UK (PUK) in all this.  From 2000 onwards, Treasury promoted the use of  PUK's services - at KPMG / PWC type consulting rates - for advice to public sector clients on particularly the commercial and financial elements of PFI deals.  Yet PUK was 49% government owned, and 51% owned by the banks! Might there have been a conflict of interest there in terms of PUK's enthusiasm for PFI deals which made huge profits for .. the banks?

So, what should have been an interesting and useful (in the right situation) procurement option now appears to be a millstone around our childrens' necks.  But as it was introduced by the Tories and enthusiastically embraced by Labour, don't expect to see any great 'lessons learnt' exercise coming from our politicians.

Voices (2)

  1. Rob:

    Reading the article, the point made about Innisfree is spot on…but here’s another article which touches upon the very same issue, but some over 7 years ago!
    http://www.guardian.co.uk/business/2003/feb/22/privatefinance.society

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