Public sector procurement – time to go private

The subject of PPP and, in particular, PFI, has always polarised opinion. Whether the view is political or commercial it is rare to find anyone sitting on the fence and we find ourselves again staring into the misty future, attempting to work out how the public sector will procure its infrastructure assets.

As a result of the Comprehensive Spending Review (CSR) the shape of PPP/PFI will change - but the format and use of private finance was already changing; the CSR and reviews it generated simply speeded up that evolution.

The private finance route has been, and can continue to be, a very efficient form of project delivery. Aligning project costs with asset life must be a desirable goal and, with capital in short supply, many accommodation and infrastructure projects will only be realised by private funding and investment.

The overall state of public sector assets remains poor, and inaction will allow the situation to worsen. here the use of private finance should be encouraged

The Scottish Futures Trust has done an excellent job of leading the procurement of infrastructure in Scotland. Alternative revenue-based models have been developed with Non-Profit Distribution; capped return Design, Build, Finance and Maintain; and Tax Incremental Financing. The drive for transparency and a realistic partnering approach is slowly convincing sceptics of the use of private money in the right way and on appropriate projects.

The development of asset-backed finance models with equal public and private sector joint ventures also shows how the sector has adapted to the changing market. Although the concept has been around for a number of years, we have seen recent acceleration in the use of asset-backed vehicles, as public sector clients seek to achieve best value.

Critics of PPP/PFI have always drawn singular examples from the past to demonstrate how this route has supposedly been a disaster for both the taxpayer and the public purse. In fact, PPP/PFI has been value for money in the majority of cases and the recent National Audit Office report, Lessons from PFI
and Other Projects, points the finger of blame for poor value projects not at the use of private finance but at the formulation of projects, the brief and how the contracts are applied.

It is encouraging that most people appear to be moving away from using old examples to paint PPP/PFI in a poor light, those early projects having suffered from the pathfinder process of developing an initiative in a live environment.

It is to be hoped that some of the conclusions of the National Audit Office report and Sebastian James Review into education capital are adopted. The cost of bidding for projects continues to be an issue and tender processes have become longer. The call for a more standardised approach to design and using standardised forms of contract should be supported. Reducing the cost of bidding will lower the cost of projects and reducing the reliance of the public sector on external advisors will generate savings.

Although the use of spending to improve growth is an unfashionable policy, many economists agree that investment in the construction industry has the biggest single impact on the economy

The overall state of public sector assets remains poor, and inaction will allow the situation to worsen and become more expensive to remedy in the future. The tightening of capital budgets has seen many public sector authorities cutting new asset delivery and here the use of private finance should be encouraged.
Although the use of spending as a mechanism to improve growth is an unfashionable policy, many economists agree that investment in the construction sector has the biggest single impact on the economy.

Despite the hiatus in this industry there is a future for PPP/PFI or similar in the UK. The structure is changing from the “one size fits all” format to more flexible, efficient and inclusive models that will continue to evolve.

Will the changes reduce the polarisation of opinions? Possibly not. But to drive support towards the use of private sector funds, the construction industry should promote and highlight successful projects to allow informed and objective decisions to be made.

Ken Gillespie is group managing director of construction at Galliford Try