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.’