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PFI in the spotlight after Carillion collapse


Pressure is mounting on the government to rethink the financing and procurement of public construction projects following the collapse of contracting giant Carillion

Architects were among those calling for new methods of setting up and structuring schemes after the £4 billion-turnover construction giant entered liquidation this week.

Carillion’s 2016 annual report said it had closed 66 public-private partnership projects and was ‘one of the world’s leading companies in delivering these projects, for which we use our sector-leading expertise in arranging project finance, combined with our construction and support services capabilities, to deliver a wide range of asset-based services for public sector customers’.

Cabinet office minister David Lidington told Parliament on Monday that 700 PFI and PF2 contracts covering investment of £60 billion were currently being delivered in the UK.

Labour MP Stella Creasy called for an end to such deals. ‘I hope this is a moment where everything changes,’ she told BBC’s Newsnight. ‘I have been particularly concerned about private finance contracts for many years as I’ve seen the impact first-hand in my local hospital.

‘We were told the reason for using these companies was to transfer the risk of construction to the private sector. But the Carillion example blows away that myth and leaves us with some very expensive contracts.

‘Outsourcing has gone up 125 per cent under this government and it doesn’t have the skills and expertise to manage that volume.’

Perkins + Will EMEA director Jack Pringle said PFI had proven to have too many risks for the taxpayer, as well as hampering good design.

‘The public purse has been ripped off in the past when PFI schemes were pitched at times of high interest rates then refinanced by a provider at a third of the cost, making hundreds of millions of pounds profit,’ said the former RIBA president.

’Now we are at the other end of the scale – when interest rates increase, the provider catches a big cold and the whole thing crashes down. Either way PFI does not seems to be a good way to go about things.’

PFI does not seems to be a good way to go about things

He called for a fresh look at how to deliver ‘much-needed’ public buildings such as houses, schools and hospitals.

’Private sector management is better than public sector management but there are ways you can buy that without handing over projects for 30 years,’ said Pringle.

‘Architects want to design great buildings that satisfy client needs – which is more likely with a procurement system that does not distance them from clients – and they want to be paid, which is more likely if their client is solvent.’

RIBA joined the chorus calling for changes to how the government gets schools and hospitals built.

Executive director Adrian Dobson said: ‘The Carillion collapse shows the need to rethink how we procure and manage public sector contracts.

‘The RIBA has voiced concerns about current procurement processes, including pre-qualification questionnaires and framework agreements. For, although these are intended to support fair bidding, they actually restrict competition and create barriers for small businesses entering the market. Standard PQQ’s tend to bias selection in favour of larger multidisciplinary suppliers. In architecture this might be requirements to have three built projects of a similar type, high turnover or professional indemnity requirements and multiple accreditations.’

The Carillion collapse shows the need to rethink how we procure and manage public sector contracts

Dobson said the current system led to a reliance on a small pool of large companies, reducing the talent pool being used and ‘concentrating risk in too few hands’.

He added: ’Smaller business, including architects, are often restricted to being tier 2 and 3 subcontractors, who are then particularly vulnerable to overhead financial collapses of this kind, where the cashflow crisis gets passed down the supply chain.

‘We will continue to lobby government for a new approach to procurement.’

Cabinet office minister David Lidington told Parliament on Monday that the private sector played an ‘important and necessary role in delivering government services’.

‘Currently 700 PFI and PF2 contracts reflecting capital investment of £60 billion are being delivered successfully,’ he added. ‘Such contracts allow us to leverage the expertise of specialist providers and deliver value for money for taxpayers.’


Readers' comments (3)

  • "PFI does not seems to be a good way to go about things" Who knew, eh? Apparently it's toxic.

    PPP schools ‘little more than a roof’
    From The Herald - Thursday 08th December 2005 )
    A stark warning over the quality of new schools in Scotland built with the help of private money will be delivered today at a design conference. Alan Dunlop, a Glasgow-based architect, will tell the Children in Scotland conference in Edinburgh that PPP process is "failing" children.

    "We are building schools for children that we wouldn't use as adults. The architects involved in the PPP process have no time for development because fees are cut to the bone so any idea of developing design is a non-starter," he said.

    Herald 2005 Several arguements against PPP
    Scotsman 2005
    Other stuff, too many too list

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  • John Kellett

    About time too. I have worked for a 'PFI Advisor' architects practice. Seven full contractor design teams were employed to RIBA Stage D, as it was then, we were then asked to design an eighth for 'comparison purposes' never to be built. If every hospital/PFI project has to undergo 8 designs, they all have to be paid for.

    Why not design one project, for the client, that meets their needs and then tender for it to be built. How can that system be more expensive and not meet the needs of the end-user? As Carillion has proved the 'transfer of risk' away from the client is illusory, both the client and their other suppliers suffer as well.

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  • In my campaign for the RIBA presidency in 2006 I drew attention to what I perceived were the many deficiencies of PFI and large packages of public sector work and the need, I thought, for the RIBA to lobby the government of the time for change.

    In response to difficulties being experienced in the Government's then huge centralised 'Building Schools for the future' programme for example, which was already experiencing difficulties before hardly any schools had been built, in a letter to the architectural press I wrote:

    "The idea that huge packages of work controlled by quangos and complex bureaucracies, remote from the user clients, can be more efficient and lead to better buildings than clients doing the own individual procurement is nonsensical. Local authorities were perfectly capable of procuring delightful and innovative schools and colleges, which were good value for money, without all this.

    Small and medium sized local practices are being levered out of public sector work by bulk packaging, and architectural diversity is being diminished as it is concentrated in the hands of fewer and larger client bodies and practices. User clients, remote from both the commissioners and the designers of their buildings, have less opportunity to influence the brief, help resolve problems, or benefit from feedback - essential elements of good design.

    The process is exacerbated by the substantial bidding costs of PFI - some so great that there are insufficient bidders for the process to be truly competitive.

    The government claims there are not enough architects to execute its expanded building programme and uses this to justify its procurement approach.

    But bulk purchasing and PFI are adding to the problem. If it wants more architectural diversity, better designed and more economic buildings, it should split up the work into more manageable packages, and let user clients do the procuring once again.

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