PFI Projects Background Research and Infrastructure Definitions
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The document discusses public-private partnerships (PPI) for infrastructure projects in the UK. It notes that over 700 PPI projects have been completed, with an average 50.6% profit on equity sales. Common infrastructure includes hospitals, schools, prisons, roads, and transportation. Existing issues with PPI include ensuring value for money, flexibility over long contracts, and dealing with regulatory/knowledge changes. The document raises questions about contract lengths, financial implications, accounting treatment, suitability over the operational phase, and lessons from international experience. It introduces CftBE as an expert consultancy group with over 20 years of industry experience to provide support on PPI projects.
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PFI Projects Background Research and Infrastructure Definitions
- 1. CftBE Anna Kingsmill – Vellacott Kirk Siderman-Wolter Tomorrow’s world Today
- 2. PFI – background to research Regeneration via infrastructure projects UK experience to date ◦ Across most sectors of government ◦ Over 700 PFI projects, with 60+ in procurement ◦ Average profit on sale of equity in PFI projects: 50.6% CftBE Tomorrow’s world…Today
- 3. What is infrastructure and what is not Hospitals Schools Prisons/justice facilities Roads Public buildings Services (waste, lighting) transport CftBE Tomorrow’s world…Today
- 4. Existing issues Value for money (VfM) Pre-commissioning time lag Flexibility Inexpert client Duration Regulatory and knowledge change CftBE Tomorrow’s world…Today
- 5. Questions Length of contracts? Financial implications? On/off balance sheet? Good for construction process but not for operational phase? International experience? CftBE Tomorrow’s world…Today
- 6. What is CftBE? A group of experts in our chosen fields ◦ Minimum of 20 years’ industry experience each ◦ Global network of technical experts to support the core team of consultants ◦ Commercial, public sector, technical and Regulatory experience CftBE Tomorrow’s world…Today
Notas del editor
- Highlighted some of the issues which we have noticed in doing our research and reviewsOther countries are looking at our model as a mature model rather than an experimental mode. We are looking to give a more considered view to the process to inform discussions and thinking.In our view, a discussion with the international community to inform the next stages of the research and thinking would enable HM Gov’t to benefit from objective experience when setting policy objectives for the future.(overpayment for risk transfer and therefore invalidation of the original value for money assessment)
- No universally accepted definition of infrastructure At what point does a project cease to become infrastructure and begin to be a service delivery ? For example, building the hospital and then running it – surely two projects conflated into one.
- VfM – performance and evaluation model for central government underpins the delivery of public sector outcomes with risk, yet our work to date has not been able to identify where there has been an effective use of this model across all three segments (efficiency, effectiveness and economics) leading to value for money for the taxpayer. This is further clouded by:Select Committee findings, which show that many PFI investment funds are non-UK based, therefore decreasing tax revenues which support the cost/ benefit analysis for each PFI, but increasing profit for the private sector alternative sources of funding from a government perspective, which may lead to greater value for money and risk transfer / or reduction, but the UK has not explored these to datewe have not noticed in our research any utilisation of risk transfer via insurance within special purpose vehicles, neither has there been consideration of how this might be done, and whether it would benefit the public purse (HM Treasury’s stance on use of insurance is limited to specific instances and also that it is uniquely placed to be ‘insurer of last resort’ given its increasing revenues annually from tax. However, no insurance structures (reserving, claims protocols & monitoring for example) are in place to do thisPFIs are being managed by the private sector as a portfolio of risks, aggregating risk providing mitigation, but the UK government is not aggregating and managing in this wayPre-commissioning time lagPFIs currently take several years to get to construction phase, let alone operational phase therefore 20 or 30 years is inaccurate – add 5 or 10 years for agreeing consortium, planning, tendering etc processes. FlexibilityAs a result of the above, and of other time constraints, model is not able to respond rapidly – if at all – to regulatory, legal, environmental and/or political changes. Where such deviation is possible, it is expensive to achieve and outside the budget setThere is potentially a mismatch between the imperatives of government and the imperatives of the PFI project Civil servants are required to carry out the mandate set by the government of the day, and to advise on its effectiveness. The imperative for the PFI SPV is to to construct and design efficient processes and to ensure an ROI. These are potentially incompatible outcomes., Government may need to ‘manage’ those processes in a different way. Client lack of expertise – civil service predicated on flexibility of staff moving from department to department and role to role. This leads to lack of continuity in managing the PFI process, and lack of expertise to understand questions or, indeed, interpret answers given. Over reliance on external expertise is expensive.Role of a department or ministry is to deliver policy and operations for government. This has traditionally altered over time, with the risk of these changes being carried by the governmentLinked to value for money, client is not aware there is additional value which is not being transferred to the public sector client as a result of the Skills and knowledge being lost due to civil servant approach to postings; progress / change every couple of years.DurationLinked to flexibility - the length of time of each of these projects, as and when new technologies / approaches come into being over the course of the project. For example a PFI court which is not able to utilise new sustainable technologies as the physical infrastructure Just how robust is the facility at the end of the period when it is handed back in ‘working order’. What is environmental impact on built environment of a non-fit for purpose building/ non- sustainable building. Hospital with asbestos, although well designed and functioning was an ‘environmental disaster’ and needed to be removed. Regulatory & Knowledge ChangeSee ‘flexibility’ above. For example, increased carbon reduction targets will be difficult to achieveBureaucracy – everyone knows that it is expensive but required. Private sector seen as being leaner and more efficient. However, we are seeing the requirements for government bureaucracy now being performed by the private sector, therefore almost a ‘double whammy’ financially (example – finance manual in HMCS?)
- We would like to obtain the expertise of the international risk community in order to feed back, through the CftBE think tank, into Government procurement process· Whether risk can be applied within an outcome delivery model across all government sector outcomes;· What are the lessons of PFI in contributing to the discussion on the development of an evaluation framework for risk (transfer, management &/or mitigation) and value for money.· What is the implication of using Whole Life Performance as part of a PFI project, specifically its impact on outcomes and their risk transfers; and how does this impact the overall risk methodology· What innovation can the risk industry bring to central government which builsd on the learning from PFIWe’ve listed some of the issues we believe need to be discussed in more depth. What is missing? And what information have YOU got which we should be considering within these and other areas.
- We’re a bunch of international experts in our chosen fields We’ve at least 20 years’ industry experience each – We don’t have to learn it at your expense! We’ve worked together in various groups before – we don’t have to build teams, we are one! We wrote much of the science – so we understand the questions and can interpret the answers!We’ve developed many of the standards to which the industry operates – so we understand them! We know a lot of useful people – each of us has, and is part of, many networks so we can put our hands on the right expert in almost any field you care to name. We work in all sectors. We’ve got commercial, public sector, technical and Regulatory experience – so we can and do work closely with Central Government, LA Departments, BCBs (Public Sector) and others. In the private sector, we work with Contractors, Developers, Architects/Designers, specifiers and anyone else involved. Plus the other side, of course – Funders, Insurers, End users and Joe PublicAND we know how these all interactEnd with “Enough about us for now” – CLICK to “What do you want?”