What does the P stand for in PFI?

The news that the government is to side-step the banks’ reluctance to lend private finance to PFI deals by doing the job itself prompted a comment on Building’s website “What does the P now stand for in PFI – phoney?”

The Treasury plan involves setting up a unit of 12-16 staff that will assess projects bids – Building reports that about 110 schemes going through the procurement process that have not reached financial close will be eligible to apply.

The move aims to ensure that the government’s target of closing £8bn of FPI deals in 2009/2010 will be met. The government will loan debt funding, leaving the banks and PFI consortia to invest the equity component of the deals.

The Treasury hopes that the existence of the unit will encourage banks back into the market. A spokesman told Contract Journal: “If the banks know we are going to co-lend on a deal it might encourage them to give better deals.” He added that the Treasury unit was not a “bank” but a temporary liquidity measure.

Meanwhile, the pipeline of health PFI deals has shrunk after it emerged that 13 hospitals worth more than £2.5bn had been axed since July 2007, according to figures released by the Department of Health last week and reported in Contract Journal.

The list included some projects contractors had hoped would survive, such as the £305m Broadmoor hospital scheme. The deals’ disappearance means that only 5 schemes are likely to come to market in the next 18 months.

But it’s good news for Procure21 framework contractors, as the cancelled schemes are likely to broken down into smaller packages funded directly by the DoH.

With the rationale of PFI now undermined by the government’s move to act as a lender, architect Lord Rogers used the pages of Building Design to call for a return to direct government funding of capital projects and traditional contracts.

RIBA president Sunand Prasad agreed: “Direct exchequer funding coupled with reform of the procurement process would be a far more effective way of getting the work flowing.”

But Brian Waters, chairman of the Association of Consultant Architects, warned that this was not the time to be debating procurement rules when architects were in desperate need of work.