Reinventing a faulty wheel

Linked on our blogs with the Scottish Left Review SLR.

Scottish Left Review, page 12/28, by Margaret and Jim Cuthbert, Issue 56, online, January-February 2010.

… page 12: In an extensive piece of research, Margaret and Jim Cuthbert discover not only that many of the criticisms of PFI have turned out to be correct but that the mistakes are being repeated by the current Scottish Government.

This paper reports on a study we have carried out analysing the bidding process for schools PFI projects in Scotland. This tells us a good deal about PFI, and about some important things which have gone wrong. Unfortunately, even though the current Scottish government is attempting to correct some of the worst features of PFI, we will see that it has failed to learn key lessons.

In Scotland, there have been 37 schools PFI projects to date: the first project, Falkirk, was advertised in 1998, and the last contract was signed in 2009. Overall, the 37 contracts involved around 245 new schools and 45 refurbishments and/or extensions. The capital value of these projects was £3.3 billion – although, of course the total that local authorities will pay over the lifetime of the projects in unitary charges, (covering not only the capital financing costs, but payment for the provision of services), will be much larger. For example, the total in unitary charges paid by local authorities in 2009-10 is estimated at £390 million: rising to £465 million in 2010-12 when all existing PFI schools projects are in operation.

Our study looked at the bidding process for each of these 37 projects … //

… The present Scottish government dislikes PFI, quite rightly, and has attempted to move on. But in doing so, it has made the disastrous mistake of not taking on board key lessons to be learned from past experience with PFI. One of these key lessons is that many of the adverse features of PFI stem from the sheer size of the contracts. Sheer size itself restricts competition, freezes out Scottish firms, and complicates and lengthens the bid process. And yet, in putting forward its proposals for the arrangements to replace PFI, the Scottish government did not take adequate steps to reduce the size of projects. For example, in its consultation for its proposed PFI replacement, the Scottish Futures Trust, the Scottish government included the requirement that projects involved should be ‘off the books’ in terms of the previous requirements of government accounting. However, by the time the consultation document was issued, it was already known that changes in government accounting standards were going to bring almost all PFI projects on the books anyway – so the ‘off the books’ requirement in the consultation document was pointless. But it was precisely the requirements of the old ‘off the books’ test which led to complex, bundled, and almost inevitably large PFI contracts. In other words, the Scottish Government was quite needlessly ensuring that some of the worst features of the old PFI would be carried on under the Futures Trust … //

… But there are other lessons too which have not been learned. Another important point about PFI and public procurement generally is that there are social and macro economic implications which go far beyond the question of value for money on individual contracts. We have already seen some of these effects above, in relation to the adverse impact of PFI on Scottish firms. But there are much broader ramifications, for example in relation to employment, training, the pool of skills in the economy, research and development, business creation and business growth. In total, the way in which the £3.3 billion of schools capital was let under old fashioned PFI by the previous Labour/LibDem administration had an adverse impact on all of these aspects. There is no evidence that the present SNP administration is taking any wider perspective in its approach to procurement – despite having plenty of opportunity to do so if it wished. For example, if it had been less interested in financial engineering and more interested in real engineering, it could have designed the Futures Trust to provide central expertise in project design, procurement and management, in order to assist public bodies to split down complex requirements into manageable individual contracts. This would have enabled Scottish firms to compete on a level playing field. And this would not be just Scottish construction companies, but companies involved in design, architecture, cleaning, catering, and other services.

Overall, the conclusion we draw is a depressing one. It is not just that we will have to suffer the consequences of old PFI in Scotland for years to come: but, as we attempt to move forward, the lessons that ought to have drawn from that experience have not been learnt. (full text /page 12).

Links:

Uncovering the true costs of PFI, The Guardian, 23 September 2009.

School’s Private Finance Initiative PFI;

PPP Scottish Schools: Information /News Updates, on e-architect, Oct. 2007.

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