Launched in 1992, the
Private Finance Initiative has evolved to become a major source of
funding for capital sector schemes, currently accounting for
between 10-15% of total capital investment in public services.
According to the Treasury Signed Projects List, to date a total of
some 666 projects have achieved financial close with a total
capital value of £55.1 billion.
Despite expenditure
revisions which have involved the Government bringing forward £3bn
from 2010-11 to 2009-11 to stimulate the economy,
the PFI market has
been significantly affected by the global financial crisis in late
2008 and into 2009. This has reflected in particular the
difficulty experienced in raising the necessary finance.
Between 2005 and 2009
project values have more than doubled to a current average of
around £156m. One contributory factor has been the development of
‘batched’ schemes following the introduction of the £20m threshold
for PFI projects, as well as more recently the impact of the
extensive Building Schools for the Future (BSF) programme.
The Private Finance
Initiative has been the subject of controversy since its
inception, with key areas under the spotlight including the
affordability of repayments on long term concessions and lack of
flexibility in the face of changing requirements. Despite this the
present Government has remained committed to PFI as a means of
procurement.
Use of PFI within
Scotland, Northern Ireland and Wales is significantly affected by
the political stance taken by the leading parties in the devolved
governments. The current majority parties in Scotland and Wales
are at present largely opposed to the use of PFI.
The majority of PFI
projects are Design, Build, Finance and Operate (DBFO),
encouraging market dominance by consortia and large conglomerates
with divisions providing construction and support services.
Furthermore, the high bid costs involved tend to favour larger
companies or consortia able to absorb the costs in the event of a
failed bid.
The last few years
have seen considerable consolidation among PFI providers,
resulting from mergers & acquisitions within the construction and
FM sectors, market withdrawals and business failures. In addition,
high bid costs and the risks involved have led an increasing
number of contractors to limit their exposure to PFI.
It should be noted
that the extent of the projected Government cutbacks and the
impact at a departmental level may be significantly affected by
the outcome of the next election, due by June 2010 at the latest.
However, while there is expected to be a downturn in the level of
project signings over the next few years, the long FM term
contracts associated with the majority of schemes will continue to
support a significant and growing level of repayments to
participating contractors over much of the next decade.
