Building firms offer a cautious welcome to the revamped PFI

Marion Dakers
COMPANIES yesterday gave a lukewarm reaction to a new plan to privately fund infrastructure projects, replacing the controversial Private Finance Initiative (PFI).

In a widely-trailed move, George Osborne said the new PF2 scheme will try to attract more money from long-term investors such as pension funds, to ensure PF2 has a more stable funding structure than its predecessor.

Under the new version, the government will seek to take an equity stake in new projects to get a seat on the board and a profit share.

Facilities management contracts will be stripped out of PF2 deals, in a bid to open up competition and stem the vast cost overruns that plagued the original PFI model.

Osborne also claimed he has saved £1.5bn in existing PFI projects over the last 18 months, with a further £1bn in the pipeline – though this is a small fraction of the £144.6bn of outstanding PFI liabilities.

Andrew McNaughton, deputy chief executive of Balfour Beatty, said it was “an evolution of the current model rather than something that’s a radical change”.

URS, a contractor on Crossrail and the London cable car, said the push for transparency was welcome, but that the coalition needs to be bolder in its reforms.

“I’d like to see the formation of a single independent authority to assist government officials, ensure levels of expertise and charged with providing proper governance over all applications of the PF2 process,” said regional executive chairman Tom Bishop.


The Private Finance Initiative was introduced by Norman Lamont, chancellor in John Major’s government, in 1992.
The initiative brings in a private company to do the hard work, such as building a hospital, using private finance backstopped by the public purse.
The company is paid for the work over decades, when it leases back the finished product to the state, often through lucrative facilities management contracts.
PFI was used to pay for schools, hospitals, large infrastructure and transport schemes, such as expanding the M25.
It was a particularly popular method of funding under Tony Blair’s Labour government.
PFI has the advantage of keeping expensive projects off the government’s balance sheet, but this accounting wheeze also hid spiralling costs from the public gaze.
A string of disasters, including a PFI contract that sent an entire NHS Trust into administration this year after it failed to keep up with repayments, have prompted a rethink.
The National Audit Office said last year that many PFI projects have not delivered value for money, and that governments have failed to negotiate hard enough to get a good deal for the taxpayer.
PF2, by contrast, will be a “new, faster and more transparent approach to securing investment in public infrastructure”, the chancellor George Osborne said yesterday.
PF2 will have its debut in a £1.75bn school-building project.