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The PFI story: how we snatched defeat from the jaws of victory

Paul Finch
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A potentially useful procurement system was distorted to give finance directors control of build quality, says Paul Finch

Images of schools in Scotland, closed because of fears about their safety, have unsurprisingly prompted a wave of criticism, not just of shoddy workmanship, but because they were all procured as Private Finance Initiative contracts. ‘Told you so’ comments have been much in evidence.

PFI has been controversial since its inception, which began when John Major was a Treasury minister, but reached a peak of popularity (at least with government) during Tony Blair’s premiership. In theory PFI was a simple idea: you get private sector suppliers to fund the capital cost of public sector projects, for which they receive a sort of super-rent for 25 or 30 years. After this period, ownership reverts to the public. In other words it is just like buying a home on a mortgage – you pay more because you are paying interest over 25 years, but on the other hand you don’t have to save for 25 years before you can buy the property.

The pre-Major Treasury was highly suspicious about all this. It had rules that said that if a £100 million bridge was 90 per cent funded by a contractor, the entire cost should be shown as government borrowing. A desire to get such projects off the public balance sheets, especially when we were thinking about joining the Euro, was one of the reasons the Treasury changed its tune.

A convoluted bidding processes meant architects did huge amounts of work that was either at risk or showed little return

It needn’t have bothered. EU rules were subsequently relaxed to allow basket-case economies to join the single currency; moreover PFI projects are now generally shown on the public balance sheet, as they should be since the government is the backer of last resort, eg in respect of hospitals.

As is the Treasury way, the PFI sceptics became zealots. If a project was to be delivered using conventional contracts it was suddenly suspect. It became an article of faith that PFI would result in buildings that were on time and on budget, because the contractors taking the lead in creating PFI consortiums would have a vested interest in introducing efficiencies into the delivery process.

The consequences for architects were varied. The upside was that a wave of public projects, particularly in the health and education sectors, was initiated and delivered much more quickly than would normally have been the case. There was plenty of work around. A few lucky souls made money as client advisers.

The downsides, however, were considerable. First, it was inherent in the PFI process, or at least the process the UK adopted, that contractors would become employers of architects via Design and Build contracts. Indeed a simple description of PFI is a finance deal with a Design and Build contract attached.

Second, the government hedged its bets on getting consistent high-quality buildings by introducing affordability caps, which continued the obsession with initial capital cost rather than whole-life costs, which had plagued the public sector for decades.

Third, a convoluted and expensive bidding processes meant architects began to do huge amounts of work that was either at risk or showed little return. And guess what happened with schools programmes where PFI consortiums consistently bid against each other – they started pricing the risk, so prices went up rather than down. We ended up with huge discrepancies between the per square metre cost of the cheapest as against the most expensive schools.

Big government and big business conspired to shut out small firms who just wanted to do a good job

As if that were not enough, contractor-led consortiums were allowed to take on catering and even cleaning contracts for 25-year periods. Madness. Giving contractors the responsibility for maintaining schools made sense, but clever lawyers (the chief beneficiaries of PFI) always seemed to negotiate things so that it cost a fortune to change a light bulb. We have been taken to the cleaners literally and metaphorically.

Big government and big business conspired to shut out small firms who just wanted to do a good job rather than winning big packages of school work by hiring very average designers and dumbing down on specifications. CABE was so shocked by the first wave of PFI schools in England that we set up a special design review cadre of good education architects, who began reviewing samples of every bidding team’s designs.

We used a marking system to demonstrate equal treatment for all, and the upshot was a demonstrable improvement in design standards. The evidence is there on the scoring sheets in the National Archive if someone would like to produce a thesis or PhD. In a sense the Stirling Prize-winning Burntwood School marked the apotheosis of what could be possible if the PFI process worked properly.

The Treasury is full of clever people with little or no experience of the world of contracting, but this didn’t stop them from transforming how we build for the future. So the story of the Scottish schools is not really about missing header ties (this sort of thing happened before PFI too), or about building things that will fail after 25 years (difficult to achieve).

Really it is about the way we managed to distort a potentially useful procurement system, so that finance directors in construction companies started determining the quality of what would be built, rather than architects, public authorities or users.

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