In the 2010 Comprehensive Spending Review the Government committed to invest expenditure in infrastructure projects which promote economic growth in the UK. These projects are funded through various mechanisms and due to the increasing pressure on the public purse and previous criticism of government procurement of infrastructure projects, the private sector has played a key role in providing funding and management to enable projects to progress. Some projects have attracted much media attention such as the recent contract awarded to G4S to build and run a police station in Lincolnshire.
One of the ways in which the private sector has participated in infrastructure projects is through the Private Finance Initiative (PFI). PFI is a procurement method where the private sector finances, builds and operates infrastructure and provides long term facilities management through long term concession agreements. Projects have been funded through PFI since 1992 however due to the global economic climate the number of projects has significantly decreased.
In the new year, HM Treasury called for evidence in respect of suggested reforms to the PFI process, to which BDO has submitted a response. The call for evidence was timely in respect of both the on-going debate regarding the value for money obtained from existing PFI projects and also the recent disruption to the financial markets which has reduced the availability and increased the cost of providing finance to such projects.
BDO has an active team providing advice to both the public and private sector on the development of PFI projects together with wider Public Private Partnership Projects. Collectively we have been involved in advising on over 150 PFI projects, undertaking a range of advisory roles including public sector advisor, private sector advisor, bank due diligence provider, corporate finance advisor in respect of refinancing and equity sales as well as acting as the administrator of two failed PFI providers.
In developing our response, we undertook a number of workshops involving both our PFI advisory team as well as a range of clients and individuals active in the PFI market. This has included consulting with project investors, lead contractors and active members of the banking and legal community.
PFI has historically covered a range of sectors and types of assets ranging from transport infrastructure, defence equipment, specialist and non-specialist accommodation, public housing and waste infrastructure. Such assets have historically been delivered using a largely standardised procurement and financing approach.
The involvement of the private sector in PFI has delivered significant benefits to the public sector in respect of higher quality procurement, genuine risk transfer, enhanced value for money and certainty of cost on delivering projects. In this environment, we believe that it is valuable to restate the role of PFI in the on-going delivery of public infrastructure.
The overarching theme of our submission is that PFI reform should be focussed on maximising value for money to the taxpayer for the delivery of public assets. Value for money must not of course take the narrow definition of lowest cost: service quality, risk, creativity and flexibility to adapt to the changing nature of requirements must all form part of such assessment.
16 February 2012