Interesting question here, anyone know the answer?

The Acronym Soup can get confusing. PPP, PFI, NPD – they are all hurled about, but there will certainly be no alphabet learning for more than 7,000 pupils across Edinburgh locked out of school since the Easter break as building safety standards are assessed and repairs undertaken. The schools were built under the controversial private finance initiative – PFI – by the Labour/Liberal Democrat administration at Holyrood, and there’s now even talk that some of them may need to be knocked down and rebuilt.

As a tangible symbol of rip-off Britain and the failed privatisation of the public sector, it is exemplary. In a week where the reality gap between rich and poor and the fetid reality of our tax-dodging governing class has been laid bare, it feels like the end of a really bad experiment. The system is discredited. The model is broken. It is crumbling before our eyes.

What have the Panama Papers got to do with schools in Edinburgh? It’s a perpetual circle. Tax avoidance drains money from society, forcing solutions that suit private contractors and let politicians off the hook.

These building problems raise significant wider issues about how we finance big public building programmes, and it’s not just about schools.

OK, so, some schools built with PFI don’t seem to be structurally sound. That’s the allegation at least.

OK, so who pays for this? My assumption would be that the contract is for the provider to provide an asset and a service in return for a fixed payment annually (say). So, if the building falls over such provider has to go fix it at their own expense. Is that what actually happens? Or did Gordo fuck up these contracts even more than I thought?

Ahh, and here is the answer:

Kerr confirmed at the weekend the council is likely to pursue damages and costs with ESP, which has acknowledged it “will accept full financial responsibility for investigating and resolving these issues”.

The builders fucked up, the builders pay. Rather the point of the contracts, wasn’t it?

27 thoughts on “Interesting question here, anyone know the answer?”

  1. funny, the whole point of PFI – or at least why economists think they are preferable to conventional procurement – is the problem of unobserved quality. If you are just hired to build a school you will skimp on unobservable quality when you can, but if you are contracted to supply school facilities and responsible for maintenance you have an incentive to build good quality to reduce your own future costs. So PFI schools were built badly that’s a blow for theory!

    [here unobservable doesn’t mean an expert couldn’t observe it, it means in practice the client isn’t going to be able to reliably identify shoddy building at time of building]

  2. Of course, there are lots of lefties jumping up and down about this, and blaming PFI. But even if the schools had been built without PFI, they would still have used private contractors. So it really has nothing to do with PFI, does it? So, as Tim says, it is down to the contracts, which may or may not have been drawn up correctly.

  3. The danger of course is that the PFI company goes bust, leaving the taxpayer with the bill. The shareholders and bondholders would be wiped out too; but the managers and executives all got their bonuses and have since moved on.

    So, no different to the public sector.

  4. …and now every parent in Edinburgh thinks they are experts on building standards and wall ties, as well as PFI structuring and tax planning.

  5. My brother in law’s roof just collapsed because it was shoddily built in a way that wasn’t obvious in an inspection. The house is six years old and was built by (*gasp*) THE PRIVATE SECTOR. Clearly we need a National House-building Service so that the government supplies all roofs and other such essential components.

    (happy ending – after the media got involved, the builder has agreed to replace it for free)

  6. The answer is quite simple (for right-wing loonies) .The PFI contractors have to be bailed out the way we bailed out the banks who found the business of creating money too , too hard for their poor brains.

  7. Luis

    If the contractor is going to foot the bill then it wouldn’t seem to be a blow for theory. It doesn’t necessarily support the theory either, but certainly doesn’t seem to be a blow to it.

  8. Ironman – don’t agree. theory predicts initial build quality will be higher under PFI contracting arrangement – who is liable for what *is* the contracting arrangement, not the prediction.

    I suspect the contractor would probably foot the bill if a school they built falls down (soon after construction) under most forms of procurement, PFI or otherwise. But regardless, the fact that contractor foots the bill for repairing schools is not a prediction of the theory.

  9. DBC Reed

    The answer is quite simple (for right-wing loonies) .The PFI contractors have to be bailed out the way we bailed out the banks who found the business of creating money too , too hard for their poor brains.

    Wins the thread …

  10. Luis,

    Well, some schools.

    My father worked in local government and had an observation about two connected buildings – one private, one public. The private one had low-maintenance built in. Sometimes that even meant spending a little more. You fit a harder wearing floor, because you then spend less money on replacements.

    The problem with government assets is that none of the people in charge own it. They personally don’t take the loss when the paint has to be redone in the Thermae Bath Spa, or when the Olympic Stadium turns out to be worthless.

  11. LE>

    The theory predicts that _on average_, _over time_, we’ll see higher quality _if the contracts are correctly structured_. Three fairly major caveats when looking at a single instance.

  12. Luis

    Public sector property contracts are notoriously sloppy. The sell – off of HMRC’S portfolio to a Bahamas company is a classic of the genre.
    And I’m not sure which theory predicts a happy outcome in each case; more like bad outcomes have consequences, improvements flow from that.

  13. Ugh, that graph is really misleading; it took me a while to notice the “revenue as share of GDP” scale started at 25%.

  14. @Ironman:

    “… bad outcomes have consequences, improvements flow from that”

    Exactly, which is why government/council centralisation and control is so bad. Bad outcomes affect everybody, whether it’s crap building of schools or disasters in healthcare.

    Let individual entities make mistakes and the damage is limited but everyone can learn from them.

  15. ENLB: Reed wins the thread –that will be the fucking day.

    PFI–although devised by BluLab tossers was brought to its full “flower” by socialist sponger Bottler Brown. So that he could spunk away huge amounts of cash without it appearing on the books with a large upfront cost.

    As I understand it, when— after decades of taxpayer shelling out to –effectively–rent these buildings and some assoc services–the PFI contract runs out the PFI contractor owns the buildings not the state. So it is hardly in their interests to leave themselves a collapsed mess. In the case of some buildings they might reckon to tear them down and re-sell/use the land. But hardly in all cases.

    As for the Banks Reedy-(what a short and self-serving memory you have, must be some new form of Alzheimers)-your boy Bottler should have let them go. But that would have lost him the votes of shit-loads of ZaNu supporters in Geordieland. So he took our tax money–that we are supposed to be SO keen to fork over–and pissed it up against the wall yet again to serve his own self-interest.

    Socialism in Action.

  16. Thank you Tim. Previously I’d believed that schools were built by teachers during their lunch breaks.

  17. Ecks – I thought he deserved some encouragement. He got a full house this time, all in one thread.

    quite simple (for right-wing loonies) – tick
    bailed out the banks – tick
    creating money – double tick
    for their poor brains – tick

  18. On another forum it was pointed out that the Edinburgh City Director of Education is probably heaving a huge sigh of relief as they (the city council) don’t have to find the funds to rebuild these schools which they would if they had been council-built.

  19. ‘As a tangible symbol of rip-off Britain and the failed privatisation of the public sector, it is exemplary.’

    They don’t like privatisation. Facts not needed.

  20. As a school governor, I see how building work is done. It is overpriced and no one has a clue whether it’s done properly or not, all relying on some consultant.

    And to blame anyone other than brown, the asswipe, takes some doing. The left in all its glory.

  21. “it was pointed out that the Edinburgh City Director of Education is probably heaving a huge sigh of relief as they (the city council) don’t have to find the funds to rebuild these schools which they would if they had been council-built.”

    But wouldn’t that be just the sort of Courageous thing that a Progressive administration like the Scottish Parliament should be encouraging? All that rebuilding cost would be an ‘investment’ in the youth of Scotland, wouldn’t it? In fact knocking down all the schools and rebuilding them from scratch would provide a massive boost to the Scottish economy would it not?

  22. Wouldn’t the firm renting out the school have subcontracted out the actual construction, or is that ruled out in the contract/bidding process?

  23. The Laughing Cavalier

    My recollection is that Brown re-wrote the PFI rules to make them more profitable to the builders while simultaneously complicating the rules to such an extent that few could understand them or see where the money went. He had no concern for the future, all he wanted was masses of off-balance sheet finance.

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