Why PFIsgo wrong-
P
F
I
/
P
P
P
andhowtomakethemwork
Millionsofpoundsofpublicmoneyarewastedbecausecontractorsarecharging
unjustifiablyhighfeestoamendactivePFIs(PrivateFinanceInitiatives),according
totheNationalAuditOffice. Publicauthoritiesoftenget‘poorvalueformoney’
whentheyrequestadditionstoongoingPFIprojectsfromprivatesectorconsortia,
suchastobuildandoperateschoolsandhospitals,theNAOreportconcluded.
The problem is attributable to a failure in payments across all PFI projects up until are so often written defensively into the
leadership, says DavidArcherof Socia, 2031-32 amounts to £91 billion in today’s contract by legal teams can be excised at
(pictured above) who trains boardroom money, according to the NAO: and this is the start, rather than when they finally
decision-makers in setting up and running before any amendments. collapse.
partnerships – public-private, joint venture More than £180m of taxpayers’ money
and supply chain. In his experience, was spent on changes to many of the 500 Collaboration makes PFIs work
partners at the most senior level in PFIs fail PFI deals in 2006. The audit office report Commenting on the recent NAO report,
to understand the special requirements for found that most private sector PFI Edward Leigh, the chairman of the
operating these ventures on a collaborative, operators charged ‘unjustified’ extra Commons’ public accounts committee, said
rather than the combative basis to which management fees, often as high as 10 per that public sector managers should be more
they default so often. cent, in addition to the charges made by the ‘street-wise’ when dealing with savvy
A recent Ipsos MORI survey, service providers for changes that were private sector contractors:
commissioned by Socia, found that senior requested. “The public sector has allowed itself to
decision-makers with partnering experience A further problem was that public be taken for a ride. It is depressing that, for
in both the public and private sectors authorities were frequently not equipped to one in five PFI projects, the public
believe that these relationships can manage PFI projects and had little idea how authorities trim the projects at the initial
transform the UK’s ability to meet much changes should cost. For example, plan stage to save money, only to risk being
commercial and social goals, but they say the cost of adding a single electrical socket stung later by the private sector contractors
that the relevant leadership capabilities are varied from around £30 to more than £302 when things are put back into the project.”
lacking. in projects, with an average that was higher David Archer says the interests of public
Almost nine out of ten of the directors than the benchmark prices published by the authorities and contractors are reconcilable:
questioned acknowledge that more careful Royal Institution of Chartered Surveyors. “No relationship can work when it is
set-up and planning would have helped “Under the media spotlight, problems in predicated on ignorance and suspicion. You
them avoid later operational problems for PFIs escalate to a crisis point where the have to understand and acknowledge the
partnerships. The traditional focus on contract breaks down. A management points of difference on key operational and
contracts and governance issues is not consultancy is brought in, which reacts by performance issues at the start and
where the major gains are to be made, they rewriting the terms for an even tighter, throughout the life of the project – then you
say. Partners confirm the need to focus on more inflexible contract. The project fails can reconcile these variances when and
‘partnering skills’ and particularly on training again and the result is more delays and where it really matters. These things are
in relationship management and massive expense overrun.” Says not instinctive to most leaders, but with the
collaborative leadership. David Archer. right training and support PFIs can not only
Socia identified the opportunity for a build new public infrastructure, but
Contracting for PFI failure different approach to public-private collaborative partnerships between the
David Archer says that many PFIs are partnerships in the 1990s during its work in public and private sector can produce long
doomed from the start because the advising oil and gas companies on how to term operational cost savings as well.”
objectives and methods of working of deal with risk and uncertainty when Here are some of the steps PFI partners
public authorities and contractors are partnering with national governments, can take to assist a collaborative approach,
incompatible at the most senior level, and contractors and the range of other parties according to David Archer:
the issue is ignored or assumed to be that are engaged in big exploration projects. 1. Be open about your objectives.
simply irreconcilable. This new approach pre-empts problems, 2. Ensure the contract incentivises all
To reduce the perceived uncertainties in according to David Archer, by ensuring parties to invest in solving joint
the relationship, public authorities often try transparency in the relationship and performance problems.
to define it within a highly prescriptive and alignment of ‘purpose and processes’ at the 3. Be clear about where the boundaries
inflexible contract. This means that the outset of the project, at the most senior of responsibility lie.
agreement, which can run for up to 25 or level. 4. Agree a dispute resolution process.
30 years, cannot accommodate the Socia works with public and private 5. Maximise communications.
unforeseen changes that inevitably impact sector leaders using a range of analytical 6. Be challenging about your own
on projects – whether from variations in tools to determine and disclose what each business processes.
user demand, cost inflation or the positive party really wants and will need from the 7. Staff needs a role model of
opportunities arising from new technology, partnership, and how future problems will collaborative leadership – from
for example. be resolved and changes accommodated, the top.
The private sector exacts a high price to and by whom. It is the foundation for a For further information:
discount the costs arising from future risks more collaborative relationship: it also www.socia.co.uk
associated with PFI contracts. Future ensures that the unworkable clauses that
14 special feature :: PFI/PPP Building&FacilitiesManagement – February2008
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