Chakrabortty doesn’t understand PFI, does he?

Almost two decades later, we can see the results. PFIs have produced more fleecing than Millets. A PFI primary school in Middlesbrough, only opened in 2006, was demolished in 2015 because its foundations had been built on “defective fill material” – literally, dodgy ground. Children and staff moved to another site – nevertheless, payments on the contract had to be made. In Liverpool, a PFI school has been shut since 2014 – because there aren’t enough pupils to keep it open – yet taxpayers still pay £12,000 a day under the contract. These aren’t one-offs: they are inherent in the structure of PFIs, which dump all the risks on the public and hand the private sector all the rewards.

So, let us consider other contractual arrangements and payment methods.

Say, the government borrowed the money and went out and built these schools. The government would still be paying the interest on those loans, wouldn’t it?

Perhaps the government taxed the rich bastards and paid for the schools that way? The money would still have been spent, and gone, on a school that doesn’t have enough pupils.

That is, changing the method of payment doesn’t change the fact that the money was wasted, does it? And the problem is that the money, those real resources, were wasted by incompetent state planning, however it was paid for.

26 thoughts on “Chakrabortty doesn’t understand PFI, does he?”

  1. To be fair, it’s not clear that Aditya Chakrabortty understands anything at all in his brief as ‘the Guardian’s senior economics commentator’.

    He was, for example, unable to understand why a not-for-profit scheme providing work units couldn’t attract investment. The clue is in the ‘not-for-profit’ bit, Aditya.

    To be even fairer, the ignorance on show in the comments is even greater than in the article, if that is possible.

    One, surreal example:

    My blood boils at the ridiculous consequences of separating current and capital accounts – cheers, Thatcher. Look where we’ve ended up – exactly where you wanted us: using public resources to expand private gain.

    Blame it all on accountancy – and Thatcher, of course.

    These people vote!

  2. Thatcher? I think rockinghorsescotty came up with this particular scheme for this school didn’t he?

    But, of course, he was a socialist and thus incapable of error.

  3. The basic failure of PFI is that if public sector employees aren’t smart enough to build and own schools, they aren’t smart enough to negotiate a PFI contract. Invariably, they bring in a form of advisers to negotiate a crap deal on their behalf.

  4. A school in Liverpool shut in 2014 for lack of pupils, despite a rising population and minor baby boom? Let’s investigate….

    http://www.liverpoolecho.co.uk/news/liverpool-news/scandal-abandoned-speke-school-costing-10998396

    Parklands had just 172 pupils out of a possible 900 when it closed, while only 32% of children there achieved five GCSEs.

    The council-run school achieved terrible results, no parents wanted to send their children there, and it’s somehow PFI’s fault?

  5. As I recall, PFI was a Brown scam to keep his spending off the books. A scam that keeps on giving, politically.

  6. The basic failure of PFI is that if public sector employees aren’t smart enough to build and own schools, they aren’t smart enough to negotiate a PFI contract. Invariably, they bring in a form of advisers to negotiate a crap deal on their behalf.

    I’ve been saying telling managers much the same things about IT outsourcing for the last couple of decades. There are valid reasons for choosing to outsource activities, and it can be done successfully. But four times out of five, it’s done because internal IT is (or is seen to be) “out of control”. To which my response is:

    “If you can’t manage your own staff – who ought to have some incentive to improve the profitability (or, at least, reduce the likelihood of bankruptcy) of your own operations – how do you expect to manage the staff of a third party, with incentives in the opposite direction?”

    The answer, of course, is always (though generally unexpressed) that there are short term gains to be made (often the beancounters can present it as ‘sale and leaseback’, but of staff rather than capital equipment or buildings) and by the time the problems become apparent (frequently the first renewal of the contract) I’ll have cashed in my bonus and be long gone.

  7. Exactly. The government writing these contracts were limiting public exposure by getting a fixed price, i.e. reducing their downside risk. Bad idea maybe, but the risk and reward were on the same side.

  8. “A PFI primary school in Middlesbrough, only opened in 2006, was demolished in 2015 because its foundations had been built on “defective fill material” – literally, dodgy ground. Children and staff moved to another site – nevertheless, payments on the contract had to be made.”

    And what does this look like if the state paid a load of builders to do the job? The state would have to pay for another school to be built. That’s the side of PFI no-one sees. The people on the other side take every part of the risk. I’m still not sure the costs are right, but this is always ignored by commentators.

    The thing most schools should do is take over old buildings. There’s plenty of old factory, office and retail space that can be easily adapted to a school. You’d have some work putting in some internal walls maybe. That’s what the private sector in education does.

  9. The usual answer from that lot is “well the state wouldn’t have done it wrong in the first place because they’re not trying to cut corners to make a profit”. Which is laughable of course.

  10. Chris Miller,

    “If you can’t manage your own staff – who ought to have some incentive to improve the profitability (or, at least, reduce the likelihood of bankruptcy) of your own operations – how do you expect to manage the staff of a third party, with incentives in the opposite direction?”

    This stuff makes sense if you’re tapping into something that’s already developed. I mean, no-one builds a word processor, you just buy copies of Word.

    I’ve never seen a bespoke development where outsourcing worked better than in-house. Why would it? You’re not reducing bodies. You’re adding an extra layer of management. And the incentives become all about money to those companies. I’ve not met any consultancy that cares about the medium to long-term system architecture. So they deliver short-term shit. On top of that, they are always hiring cheap kids who will take the job, but want to leave, so you’re constantly losing continuity.

  11. “As I recall, PFI was a Brown scam to keep his spending off the books. A scam that keeps on giving, politically.”

    It was a Tory scheme before that with the best of intentions to transfer risk and assets/liabilities to the private sector. Brown made this into more of a scam – the detailed risk apportionment didn’t matter as much as the accounting. I don’t remember the precise details but many of the schemes ended up on the government’s balance sheet after review by the NAO or some other body (it might have been an international body looking at UK government finances). Nonplussed, even when the liabilities were brought on to the books of UK plc, Brown let many individual departments treat the arrangements as off-balance sheet.

  12. Henry Crun,

    I’ve worked for them and with them. Small consultancies with a specialism can be really good. Often created by someone who cares about doing the thing and doing it well. Still want to make money, expand the thing, but have some pride in it.

    The big guys are total sharks, though. I’ve worked with a number of them multiple times. They’re just dishonest. They’ll lie to customers. They’ll claim they have capacity for something and experienced guys, and what they really mean is that they’ll throw a book at a guy and he’ll muddle his way through the thing. If you ever see someone hiring them for a project, sell your stock in the company because their judgement is shit.

  13. BiS,
    It’s a naming problem. Specialist consultancies are completely different beasts from the large outsourcing operators. The latter shouldn’t really be called consultants at all.

  14. “And what does this look like if the state paid a load of builders to do the job? The state would have to pay for another school to be built”

    Not necessarily, if the defects were down to the construction methods/quality control then the builder would have to rectify, as is indeed happening here. Carillion are building a new school, so they will be out of pocket. Or more likely their insurance company will be out of pocket because they’ve had to pay out on the product liability insurance. Either way, the State would have paid exactly the same and got a new school.

    The interesting comparison would be if the State had used its own State owned building contractors, ie built the school itself. Then it really would be paying twice.

  15. What BiS said.

    I’ve worked for a big System Integrator. At least they had almost adequate staff to do the work although everybody I respected had learnt their trade somewhere else. Now I’m at my second MSP and neither have the staff to do what they have committed to. This just pisses off customers and staff alike.

    On the other hand I’ve got 2 interviews coming up. One at a security consultancy which is rapidly expanding and staffing up to cope, the other with the civil service managing third parties.

  16. Whilst I believe BluLabour came up with the PFI concept under Major Dickhead, beyond all question it was ZaNu’s Bottle-Fed Boy who raised this particular form of state bungling to a high–as in stench–art.

  17. I agree that consultancies can be sharks. But look at it from the other side. If you’re a company which specialises in one industry, but need to develop software for a particular project. What are you going to do. Build a team from scratch in an area you have no expertise in. That’s guaranteed to fail.

    The key with hiring a consultancy is to nail the partners bollocks to the floor, and not let them bribe you with their unlimited expense accounts.

  18. “The big guys are total sharks” That gives sharks a bad name. The telling feature is that they sell their ideas through the most convoluted presentations, I assume on the basis that if the customer is taken in by the presentation they will be fair game to be fleeced. Any client who calls out their presentation as bullshit is to be hounded out of their job.

    I worked for the Tax and Legal Services practice of one of the Big 6/5/4 putting together financial deals. Whereas our presentations were clearly laid out and gave the customer a clear idea of what he was getting for his money, the PFI deals from the Corporate Finance practice and the outsourcing deals from the Management Consultancy practice were pure cockwaffle.

    Hardly surprising that one of the biggest PFI deals to maintain the London Underground took years to negotiate and fell apart after two years of operation.

    Similarly the PFI scheme to provide tanker transport aircraft for the RAF took several £100 million Airbus A330 aircraft, stuck A340 wings on them to take the extra fuel tanks, added some military avionics and leased the for about $1,000 million each to the RAF.

  19. “Specialist consultancies are completely different beasts from the large outsourcing operators.”

    Is that so? There are certainly technical consultancies and outsourcing firms that do nothing else. But there are quite a few firms that do both (and more besides). Big Blue comes to mind.

  20. it’s done because internal IT is (or is seen to be) “out of control”.

    They burned down the server room last week. Just burned it down, just like that, for a laugh.

  21. They burned down the server room last week. Just burned it down, just like that, for a laugh

    I have been caught muttering about the fact that the air conditioners create these luvverly holes in the wall of the “data centre” just right to take the spout of a 5 litre can of unleaded.

  22. Ian Reid,

    “I agree that consultancies can be sharks. But look at it from the other side. If you’re a company which specialises in one industry, but need to develop software for a particular project. What are you going to do. Build a team from scratch in an area you have no expertise in. That’s guaranteed to fail.

    The key with hiring a consultancy is to nail the partners bollocks to the floor, and not let them bribe you with their unlimited expense accounts.”

    Actually, I’d go with “build a team from scratch”. Find a CTO that knows what he’s doing and let him run it.

    This isn’t a “do it because it’s cheap” option. Big consultancies aren’t just expensive. They also build crap.

  23. The Laughing Cavalier

    As I recall, Brown fiddled the PFI terms, making them much more expensive in the long run as an incentive to the Contractors. He didn’t care that future governments would be burdened with ludicrously expensive contracts just so long as he kept the enormous capital costs off the balance sheet. Just one more toxic legacy of the NuLabour years.

  24. Bloke in North Dorset

    The big guys have some very good people. They are generally in the sales support roles with a few others floating around doing the odd fire fight. These are the CVs clients see during the bidding process.

    Once a deal has been done they go out and start looking for contractors to do the grunt work. The quality of those contractors depends on who’s available and how much the client negotiated down the fees, because the Consultancy won’t be reducing how much they make.

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