WHERE NEXT FOR PFIs?

A deal has been struck to enable one of the private sector joint venture partners to exit the Greater Manchester Waste @ManCityCouncil PFI http://bit.ly/2xxSiCt early, once again bringing controversy about PFI funding models into the news.

The £400m legacy waste facility contract was awarded a decade ago and covered the provision of 46 facilities across 23 locations. While the contractor has negotiated an exit due to £multi-million losses incurred over the contract period, the Greater Manchester Waste Disposal Authority (GWDA) is also concerned about costs. Frustrated about value delivery and the slow pace of repair and maintenance works, the GMWDA has also called into question the pricing of waste services in relation to current waste volumes. A consultant’s report commissioned by the Authority highlighted that volumes of waste are lower now than anticipated back in 2006-07, as a result, the Greater Manchester contract appears expensive compared to current market rates.

While most of the headlines about PFIs relate to private sector profits at the expense of the public purse – particularly in the NHS where the public purse is already drastically over-stretched – this story highlights an ongoing issue with PPP funding models of all kinds: they require decision making at build that will have financial implications for all partners for decades.

Although the same principles apply to domestic mortgages, borrowing money to pay for your home allows flexibility to switch provider, trade in the asset or renegotiate your deal relatively easily. With a PFI, the public sector client (@p2gllp ) is locked into the private sector funder/contractor, and its partner is answerable to very different stakeholders and commercial/financial agendas.

Lessons are being learned from the old style of PFIs with new financial models being developed to increase the level of public sector involvement and funding contribution. The aim is to enhance the quality of the built asset and ensure that it is fit for purpose over the long term while ensuring that maintenance and legacy management costs do not escalate to an onerous degree.

BIM may be the game changer in this regard, both from an early engagement and collaborative culture perspective and from the opportunities it offers to embed maintenance and replacement interval data across all objects in the BIM model.

It will be interesting to see which of the major players retain their enthusiasm for PFI as the funding mechanism enters the next phase of maturity and which will prefer instead to edit the risk of such long-term returns out of their business strategy.