Second, PFI was vastly more expensive than public borrowing. Contractors and financiers charged interest rates and demanded returns far higher than those the government itself would ever have faced. Over the life of many contracts, the government has ended up repaying two or three times the original construction cost.
….
Investors would win long-term contracts to design, build and manage local NHS centres
Note “manage”. That includes the running costs of the buildings and the maintenance of them over the 30 year period. Which often does cost more than the original construction cost.
Now, me, I’m pretty agnostic about PFI. I like the idea of fixed price contracts including maintenance. I dislike the manner in which those future costs are not counted as part of the national debt. But there we are.
But to compare prices without including what is included in a PFI contract – maintenance! – is, well, what is it, children? Spuddism?
Because PFI bundled together construction, maintenance and services,
See, he does know this….
The big benefit of PFI is that this leads to simpler, cheaper (in the long-term) buildings. Because the buildings are designed with maintenance in mind.
This is a known thing between private and public sector buildings. Someone building a shopping centre is thinking about the next 20 years when they build it. If a thing wears out or breaks, how much will it cost to repair. It’s why architecture awards nearly always go to public sector buildings. Funky shaped stuff costs a fortune to replace.
It can sometimes mean the building costs more at day 1. Like you put in better carpet and flooring because it lasts longer. It’s a good investment.
Correct me if I’m wrong, but my memory is that PFI was introduced on an experimental scale under the Major govt. Then Brown hugely expanded it, awarding contracts that at the time were criticised as being expensive, in fact downright extravagant.
It’s perhaps time someone sued the Office of Gordon and Sarah Brown for compo. It would be fun to see a Labour politician paying compo rather than claiming it.
@Western Bloke
This is something that much of the third world fails to understand. Africans and Middle Easterners often completely fail to maintain things – I am led to understand by a Namibian mate of mine that many African languages lack even an equivalent word for ‘maintain’ – and just fix them, or try to, when they break down.
so true – I can recall in a prior industry, the organisation I was a member of had its annual appeal for professionals in transport to go over to Malawi to initiate a maintenance program for the country’s buses. They simply did not understand that equipment needed maintenance. Obviously you aren’t permitted to make that observation in polite discussions but it, and realities like it, are the ‘elephant in the room’. As Steve says, it’s probably not a good idea to import such people in such vast quantities, or even at all.
50 years ago, my dad was a Captain (MN) on the West Africa run. He used to tell tales of dozens of Russian lorries crated up at Lagos docks – when one broke down (which, being a USSR product they frequently did), it would be pushed out of the way and a new one ‘unboxed’. Little changes.
I’ve posted this before. It confirms what both what you, V_P and CM say.
Empire of Dust:
https://www.youtube.com/watch?v=Q-YL7iythk8
That’s one of the greatest videos I’ve ever seen. Apologies I missed it first time round. Not sure it would resonate in my firm because it’s American the Chinese and Japanese are considered ‘White’ for the purpose of affirmative action. Albeit as with Blacks they ‘can’t be racist’. I have a hard time writing this crap. Particularly after the shooting of Charlie Kirk can’t we just ban all left wingers. Anywhere.
There is never an apples-to-apples comparison of the PFI costs versus non-PFI.
Lots of mention of changing a light bulb costing £250 or blood tests costing £500 under private provision, which look very high on the face of it so they get a reaction from Joe “Hard of Thinking” Public.
What is never mentioned (if indeed it was even calculated) was the cost when publicly run. It’s possible you had a Union convener, an apprentice, two sparkies and an Elf’N’Safety manager changing light bulbs in the past. They’ll have started in the morning, had a tea break, lunch, sleep and then run into overtime after 4PM.
You forgot the diversity manager and the bird in charge of sourcing environmentally sustainable lightbulbs
You don’t charge £250 for changing a lightbulb under PFI. You don’t pay for maintenance. That’s part of the contract. So, PFI company will get paid £x million and that includes fixing floors and changing lightbulbs.
What costs money under PFI is changes to the contract. Like, adding a new thing. And the stories were “just to get a new clock for the hall cost us £200”. Except it’s not only, as you say, paying for a bloke to come out and fit a clock, all his costs, but also, maintaining that clock for the remaining term of the contract. The clock packs up, a new free clock is fitted.
It’s the same arrangement that most businesses have with the likes of Regus. Pay £x per year and you get an office with lighting, carpet, coffee machine, toilets etc.
And the big question is, why would you do it any other way with a school? These are common, repeated things. PFI companies should largely be able to cut-and-paste the plans and contracts from another school in the same way that McDonalds and David Lloyd gyms can just tell a bloke to build another branch like the last and pay them a maintenance contract.
Change is where the money is. My brother runs large building projects, many for government. Their bid will bring them in just over cost, but they charge a fortune for changes once the contract is signed. Government, of course, is always changing its mind.
Some Joe ‘Hard of Thinking’ Public may indeed begin and end at ‘it costs £250′, but the more insightful will ask: why the fuck does it cost £250?
You partly explain why (it’s not the only reason – preferred suppliers are another, a general not giving a fuck about taxpayers’ money because it’s an unturnoffable spigot is another), without asking the next question: Yes, yes, yes we get all that but why is it allowed?.
Yours isn’t an argument for PFI, it’s an argument for a public sector which is forced by the threat of the sack, or incentivised by pay, to treat the public purse like it is extremely precious.
PFI appears to just be what in Hong Kong is called Build,Operate and Transfer, which has been the standard process of building public infrstrtucture for decades.
I have real experience of an MOD PFI, there are a number of features glossed over by critics
Firstly the normally poor state of existing infrastructure
Public sector maintenance is usually do nothing until a building is about to fall down, then do the minimum, using the cheapest contractor, to stop it falling down this was definitely MOD practice spurred on by virtually zero capital/maintenance funding (peace dividend)
The project I was involved with, the PFI contractors first task was to survey everything and verify it’s actual state rather than what MOD said it was, needless to say rectification to the required standard was at MOD expense
Then they took all of the services maps and verified those, most of them were wrong to the point of fanciful. We had power supply ducts that simply did not exist, telecomm that entered and left areas with no knowledge of routes between, collapsing sewers etc
Then they lifted all of the car parks to see what was actually underneath, not what MOD said was there, load bearing, drainage etc. they were all then relaid properly and to correct load bearing, and then we enforced parking limits. No need to revisit for a decade (huge savings on maintenance and ad hoc patch repairs)
The chap I was dealing with in the contractor was a proper civil engineer, in previous roles he had built real bridges, roads and buildings, he knew is stuff. The MOD people were generalist civil servants
Secondly, contractors have the strange view that a 25 year contract doesn’t mean nothing changes. They refinanced the project a couple of times, I deed making a great deal of money…but they maintained the required standard throughout
Thirdly, the contractor was amenable to contract change. Usually at MOD expense but not always. We had a gain share arrangement so if they thought of ways (or we did) to change the requirements we shared the cost/benefits, on balance this meant MOD didn’t need to pay for some of them as they were look d at in the round over a year
Fourthly, contractors properly budget and manage cash flow. MOD did not, budgets were changed at no notice, cuts imposed and then under spends emerged to late to spend them. We both kept a list of quick and easy tasks we could undertake for j depends
Fifthly contractors manage their subcontractors far better
Finally, MOD had no idea how much maintenance pre PFI had actually cost as it was spread all over the place and across budgets some held locally, some remotely. PFI imposed discipline here and revealed the true cost
I won’t say all PFIs are like that, but in my experience the one I was involved in was hugely successful
Anything with a future cost that isn’t counted as part of the debt should be by valued at the price needed for someone like the insurance industry take on that liability. But if you did it for PFI you would also need to do it for unfunded public sector pensions and the “reported” national debt would be doubled.
All PFI did was create a private version of the State organisation that would have been in charge of maintaining the building if it had been build under State control. A private monopoly with every incentive and opportunity to make as much money out of its client as possible. And given the client is not spending its own money, rather the taxpayers, who is surprised it worked out far more expensive than when a private business builds and maintains its own infrastructure?
All it did was allow Blair and Brown to buy now pay later. Which was the whole idea. And buying on the never never is always far more expensive than paying cash up front.
In traditional procurement all suppliers are in an oppositional relationship with the owner. They may cooperate and work well together – but they are all in a zero-sum game with the owner. Say youi are a regional government building a sewage plant – you have contracts with one supplier for pumps, another for treatment vessels, and so on. Say your pump supplier’s factory is hit by a tsunami (I speak from experience) – if that holds up your piping guy – you are going to pay for it, similarly if that prevents vessel installation, or if the piping spec and the pump spec don’t quite work together, and you need to perform field mods. All of your contractors and subs have a duty to cooperate, but none have a duty to mitigate (except at your cost).
In addition, none of these guys has an incentive to get together before the fact and exchange information – like the information that would’ve identified the mis-match between the piping and pump specs – none of them know who the other suppliers are going to be, and they all want to protect information that might work for (or against) them down the road. All of these interfaces are managed by contract, with the owner as the common denominator – and contracts are a crummy way to manage relationships.
Compare a PFI (or P3) arrangement – all of those suppliers have gotten together and discussed their specs, and found a way to conform them, or to adapt to any differences. They have discussed what they do to address schedule interruptions – how do they work around, do they have alternate supply routes, or do they all just suck it up and accept that when the kink is worked out they will all have to assign overtime to their crews to make up the schedule. Because the contract (and bonus / penalty) depends on complete plant performance / cost / schedule, they have an incentive to cooperate with each other and make the best possible (or at leasdt, acceptable) trade-offs, based on their knowledge of their own situations – which will invariably be better than the owners or the other contractors. The result is that P3s can perform much better under stress than a traditional DBB, at the cost of (typically) being more expensive in the base-case. The difference in cost represents an insurance policy against that tail risk.
I’ve worked on a few BOOT projects. Maybe it works for buildings, but for big construction, tunnels and the like, the head contractor just sets up a figurehead organisation to carry the maintenance can down the track.