[Closed] Corbyn vs PFI

Typical Guardian article misleading and selective use of data + only presenting the part of the picture that suits their dogma

Really? You aren''t seriously suggesting is anything other than a bad idea?

It is [b]a very good idea[/b] if you want to go on a huge spending binge but keep the associated debt off the official books.

It has always seemed to me that I can see the logic in PFI - get more investment in the public sector through the enticing prospect of making a profit.

However, it has also always seemed to me that it is patently obvious that locking the contracts in, allowing unlimited profit to be extracted and allowing the co's to ditch non-profitable contracts was a very stupid idea and seemed to go against the grain of the idea that "competition will deliver the best value and allows the market to find the point of most efficiency".

Maybe it's just me...?

Cranberry has it, why would the profit driven private sector of been so keen on PFI? helping out the NHS out of the goodness of their hearts? oh purleaze it was all about mahoosive profits, eye wateringly huge wads of cash coming their way.

I'll lend the NHS a fiver.

Cranberry has it, why would the profit driven private sector of been so keen on PFI? helping out the NHS out of the goodness of their hearts? oh purleaze it was all about mahoosive profits, eye wateringly huge wads of cash coming their way.

In general the private sector likes PPP because it's long term, secure work. The margins are not normally high, but because the income stream is guaranteed for decades, it's something that shareholders love.

Sometimes PPP is more profitable than a similar non PPP deal, sometimes you lose money. You have absolutely no insight into the levels of profit made by contractors - you can't just look at the payments being made by the authority and assume it's a huge profit for the contractor, the cost of PPP borrowing alone is not cheap for the private sector.

I'm not denying that there are a number of PPPs out there which are not good value for money and some are undoubtedly terrible, but you're seeing the worst, the anomalies, which suit a particular political/media agenda.

allowing unlimited profit to be extracted and allowing the co's to ditch non-profitable contracts was a very stupid idea

This is just nonsense.

Coventry and Warwickshire (hospital)
£379m (building cost)
£3,900m (pfi cost)
£86m (this years payment)

Do you know how much it costs to build and run a hospital? I do. Yet I still have no idea whether the figures you posted represent incredible value for money or a terrible deal.

Oh OK - how come I keep reading about it then?

Oh OK - how come I keep reading about it then?

Like murders innit.

PFI was poorly executed. That is to say the gov overcommitted financially, didn't use talented teams to deliver projects and put together a pretty costly process for getting projects off the ground. That doesn't mean the private sector made a fortune across the board in PFI, we didn't. We made lots of money on some projects yes, but on others we made a market or below market rate. If you knew the daily struggle we have trying to get construction and FM contractors to want to bid for a project, you'd understand that it's not the cash cow that everyone thinks it is. Most would prefer to do a regular build.

Also, across the board authorities are trying to make savings on existing PFIs, this is cutting profits further (which is fine if you're making money on the project, not so much if you're already struggling with delivery!).

I'm not denying that some companies have made serious cash on some pretty big PFI deals, but that's the exception rather than the rule.

Incidentally, the most recent PPP models are much better for all involved. Under PFI, clients just transferred all risk to contractors and asked us to price for it, meaning we were having to build in costs to manage a risk that we shouldn't or couldn't manage. This led to projects being far more expensive than they needed to be.

Gov has learned from its mistakes and now clients will sit with the risks they can better manage, making projects more economical and better value for money.

Peterfile - thanks for writing that, saved me from doing so. Would say that a key problem stems from the public sector's inability to "do" contracts.

Ha, OK well you're seeming well informed there. I didn't say it's a universal cash-cow, but I am pretty sure I have read several items explaining how non-profitable contracts have been dropped. [I don't seem to have found the articles I remember reading with a quick google - maybe I'll be able to dig it up later, maybe it was an isolated case]

None of these look good though do they?

http://www.independent.co.uk/news/uk/politics/exclusive-how-private-firms-make-quick-killing-from-pfi-9488351.html

http://www.telegraph.co.uk/news/politics/9239282/PFI-firms-should-be-forced-to-share-excessive-profits-with-councils-and-health-trusts.html

http://www.theguardian.com/commentisfree/2007/sep/04/comment.politics

http://www.ft.com/cms/s/0/cc4f10b2-4951-11e4-8d68-00144feab7de.html#axzz3jzqMwePC

http://www.newstatesman.com/staggers/2014/07/save-nhs-labour-must-face-ugly-truth-pfi

I need more coffee though, feeling fuzzy still 😉

Would say that a key problem stems from the public sector's inability to "do" contracts.

Fair enough, and that seems to be what comes up when researching, but at the same time it's just so damn shitty to play hard-ball with public money.

I have to admit, I just don't have the killer instinct though, can't get my head around this stuff.

Would say that a key problem stems from the public sector's inability to "do" contracts.

Definitely. If you've got something coming out of a big gov agency, it's not so bad, they tend to have experience and expertise. You can do a motorway with a transport agency anywhere in the world and they generally know what they are doing, they've done it a hundred times before.

But...you could quite easily be building a £300m bridge in some provincial local authority where the biggest project their team has worked on was a school in 1998. Some of the time they'll draw in expertise from elsewhere in gov, but quite a lot of the time they wouldn't, whether as a result of ego or resourcing. This is a disaster for all involved.

PFI is this biggest money making scam ever and those private companies that do it should be ashamed of themselves.

Show me one PFI Trust that isn't in major debt, or have major issues with the running of the hospital ?

Having worked in procurement in public sector I would agree that they dont do contracts well but that is more to do with people upstairs interfering and not really having a clear idea about what they want.

Also suppliers do just rinse the public sector, get on the prefered suppliers list and you can write your own cheque.

Show me one PFI Trust that isn't in major debt, or have major issues with the running of the hospital ?

That's the trust's problem, not the private sector's.

[b]gofasterstripes[/b] - it's not the projects themselves that are sold/flipped/dropped...it's the debt finance which underlies the project. Basically, a PPP normally has two phases, the build phase and the services phase. The build lasts 2-3 years and the services will be provided for another 25.

The build phase, in investment terms, is high risk, since there is so much that could go wrong. The services phase however is very low risk.

What happens is banks with a bigger risk appetite will stump up the cash at the outset and then sell the debt on to a pension fund, for example, once the risky build phase has been completed. This doesn't actually affect the delivery of the project at all.

The reason people don't like this is because under PFI the client (and the taxpayer) would generally not see any of the gains made by selling the debt. It was banks making even more profit and people don't like that. This is not the case any more and refinancing gains are shared, so the public sector actually benefits from the sale of the debt.

Ta duck, I like to provoke a discussion and hear from those in the know.

The REAL problem with PFI was poorly negotiated contracts which meant that the private sector was not sufficiently incentivised to perform well, ie they get paid despite poor performance. This was down to authority teams who negotiated the contracts being out of their depth and also because the market was treating fairly new ground at the time. This has been picked up gradually, but early PFIs suffered from this and these are most likely the ones you see being mentioned in the media.

It's those projects which are a disaster since the public don't get the service they were promised but they're paying for it anyway.

On more modern contracts, if you underperform the financial penalties are eyewatering and lead swiftly to termination. This incentivises the contractor to deliver what they agreed to deliver.

Peterfile sums it up nicely

I've worked in and around PFI's for the last 15 years and his posts reflect my experience

It's those projects which are a disaster since the public don't get the service they were promised but they're paying for it anyway.

Yeah that's also come up a lot.

That's the trust's problem, not the private sector's.

Some up what is wrong with PPI [ and profit over people in general]that is the attitude of the private sector to the inability of the Trust to deliver the NHS whihc i s what most people really care about.

I also like the rationale that if the private sector underperformed it was the public sectors fault for the way the drew up the contract and being crap at contracts. Did business not perchance exploit this and take the piss?
Bit like me robbing a van and saying well he did leave the doors open - ok its not but you get the point

Some up what is wrong with PPI [ and profit over people in general]that is the attitude of the private sector to the inability of the Trust to deliver the NHS whihc i s what most people really care about.

I also like the rationale that if the private sector underperformed it was the public sectors fault for the way the drew up the contract and being crap at contracts. Did business not perchance exploit this and take the piss?
Bit like me robbing a van and saying well he did leave the doors open - ok its not but you get the point

No.

We're not talking about a couple of back office idiots from a local authority sitting round a table with a team of slick private sector negotiators.

They have a room full of technical, legal and financial advisers.

It takes YEARS of work by them just to get a project to the stage of putting it out to tender. Years of technical, legal and financial work.

When we sit down with them to build a project, it's not our responsibility to say "Guys, are you really really really sure you can afford this?" Jesus, that's just ridiculous. How the heck are we supposed to know what their financial state and outlook is?

It's definitely NOT the public sector's fault if the private sector underperforms...but it definitely is the public sector's fault if they agreed that in the event of underperformance there would be no real cost implications for the contractor. Again, we're not talking about pulling the wool over the eyes of an idiot, these are senior contracts managers with a team of advisers.

Do you know how much it costs to build and run a hospital? I do. Yet I still have no idea whether the figures you posted represent incredible value for money or a terrible deal.

You're assuming that a hospital needs to be built. There are well documented cases of relatively modest refurbs/ extensions being scrapped in favour of complete new hospitals because the PFI wasn't sufficiently expensive enough to entice the private sector.

In my own dealings, I'm aware of PFI secondary schools who pay a fixed fee for their energy, so have absolutely no incentive to reduce gas or electricity consumption. Madness.

but it definitely is the public sector's fault if they agreed that in the event of underperformance there would be no real cost implications for the contractor.

Often hands are tied by the political angle and also contractors walking away if that kind of clause was put into the contract. The procurement team is over a barrel, you have Government saying get it done or else, the private finance knows this so can play very hard ball and more often than not come out winners.

You're assuming that a hospital needs to be built. There are well documented cases of relatively modest refurbs/ extensions being scrapped in favour of complete new hospitals because the PFI wasn't sufficiently expensive enough to entice the private sector.

Not really. A huge contractor isn't going to look at a modest refurb and a small contractor can't touch a new hospital, so everything is already in its place. Also, the industry has been on its backside since 2008...no one is turning down anything.

People chose new hospitals over refurbs because they had a hardon for PFI. Blame your trust/MP 🙂

In my own dealings, I'm aware of PFI secondary schools who pay a fixed fee for their energy, so have absolutely no incentive to reduce gas or electricity consumption. Madness.

Normally energy is a "pass through" cost...whatever is spent on energy is passed straight through the the client and they pay the bill.

But...energy efficiency targets are crazy tight. Either you have to meet ongoing efficiency targets, which will in turn ensure that energy costs are kept low, or in newer projects the building had to be designed to meet a particular standard of efficiency, again ensuring consumption will be low.

I'm sure there are old contracts out there where the contractor is making money on consumption risk, but it's probably pre 2000

Not really. A huge contractor isn't going to look at a modest refurb and a small contractor can't touch a new hospital, so everything is already in its place.

People chose new hospitals over refurbs because they had a hardon for PFI. Blame your trust/MP

The point is that only PFI money was available. Refurbing existing infrastructure would've required traditional public spending.

I'm sure there are old contracts out there which the contractor is making money on consumption risk, but it's probably pre 2000

The point is that only PFI money was available. Refurbing existing infrastructure would've required traditional public spending.

Ah right I see what you mean. Yeah, that's always been a problem. Ideally it would have been nice for everything to have been capital funded and on balance sheet, but as I said earlier, they overcommitted to PFI and had no idea they were doing so.

Was the contract signed in 2005-2008? If so, that's SOPC3 sort of time (SOPC4 came around in 08 from memory). If its a fixed fee it effectively means that the contractor has taken consumption risk. This can either make the contractor money or lose it money. If utilities costs go up it will bear the brunt, if they go down it makes additional profit. As I was saying earlier, authorities used PFI to push any risk they could on to the private sector. But obviously they have to build costs in for that risk.

T1000 - Member

Typical Guardian article misleading and selective use of data + only presenting the part of the picture that suits their dogma

That's an interesting comment.

Presumably the "typical Guardian" reference means that other newspapers such as the Sun, the Daily Mail, or the Telegraph, don't in your opinion publish misleading articles to suit their dogma.

It's not an opinion which I've heard before, and I have to say quite frankly not very believable.

In fact it probably says far more about your own bias than the bias of the Guardian.

PFI was a good idea but in many cases the contracts are VERY poorly executed. IMO classic case of devolving power and authority to people (hospital administrators) without the right (financial) experience. The contracts should have been centrally negotiated or at least standard templates drawn up with input from professional advisors.

One other aside historically facilities like hospitals and equipment where just built and paid for by government and the people running them had no real understanding of the costs. When you suddenly put those people in charge of financing the investments not surprisingly they mess up.

Was the contract signed in 2005-2008? If so, that's SOPC3 sort of time (SOPC4 came around in 08 from memory). If its a fixed fee it effectively means that the contractor has taken consumption risk. This can either make the contractor money or lose it money. If utilities costs go up it will bear the brunt, if they go down it makes additional profit. As I was saying earlier, authorities used PFI to push any risk they could on to the private sector. But obviously they have to build costs in for that risk.

The effect of the contract (couldn't tell you when it was signed - schools were built in the period I gave) is that we have modern, notionally efficient buildings with appalling energy consumption. And the schools (understandably) are not motivated to do anything about it. One of the PFI contractors offered recently to build a solar pv panel on the school (showing off their oh so green credentials). In return they would keep the fee-in tariff and charge the school for use of the electricity generated. Wow, thanks!

I remember when I completed my training as a lawyer over a decade ago. I was given a choice of job (and therefore career path): join the PFI team or work in M&A.

I had always wanted to work in MA&, so the choice was easy. But one of the things that assisted in that decision was the experience at the time of a boom of PFI projects (and so a guaranteed career path for me) being so poorly handled by so many public sector people without the skills to negotiate a decent deal.

No doubt many of the private sector people subsequently turned poacher to gamekeeper and evened things up, but the damage was already done and public perception tainted.

we're not talking about pulling the wool over the eyes of an idiot, these are senior contracts managers with a team of advisers.

the gov overcommitted financially, didn't use talented teams to deliver projects

you could quite easily be building a £300m bridge in some provincial local authority where the biggest project their team has worked on was a school in 1998. Some of the time they'll draw in expertise from elsewhere in gov, but quite a lot of the time they wouldn't, whether as a result of ego or resourcing. This is a disaster for all involved.

This was down to authority teams who negotiated the contracts being out of their depth

being so poorly handled by so many public sector people without the skills to negotiate a decent deal.

It's largely a UK problem and more evident at the lower end of the scale.

On big, centrally procured jobs (with a few notable exceptions) they put in place a highly skilled team. But the further down the chain you go in terms of complexity and value, the more likely you are to encounter a client that needs their hand held. Granted, they've still got their advisers at the table, but as you know you can't tell clients what to do, so it's of little use if they just don't get it. Which makes things tediously slow and difficult.

A £2bn infrastructure project of mind boggling complexity can actually be a breath of fresh air after grinding out a £25m deal with an unsophisticated local authority team.

It's very different elsewhere in the world. Other states seem to centralise things a lot more and are not scared to spend a bit of cash early on bringing in a "commercial client" from the private sector to act as agent.

Some of the toughest deals I've done are the easy ones that have been handed to an inexperienced team. That's no good for anyone. Despite what people think, we don't see that weakness as an opportunity to increase our profits, it's not that simple. Instead we usually regret having won the job and wonder how difficult the next 25 years will be.

Ah forgive my confusion as you described them as

They are not idiots, they're just not set up to deliver major infrastructure projects. It's not that they are making decisions that makes the private sector rich, it's that they lack the ability to deliver what their department ultimately wants.

My point was that it is almost impossible to pull the wool over their eyes, ie trick them into certain positions. I think that's what many see the private sector as doing and that's how it made windfalls. It's extremely difficult to bully/trick a client when they've got a magic/silver circle experienced legal team sat beside them.

It's not like that at all, it's just that their lack of PPP expertise means they are inefficient and often struggle to get it all to hang together...which can have cost implications for both sides in both directions.

To give you an idea...I've probably done about a dozen major light/heavy rail projects globally. If I sit down in a room with a local authority team who have never worked on a rail project before and tell them that something on their project won't work because I've seen it time and time again, do you think they will listen to me, the big bag private sector lawyer with the contractor's interests in mind...or do you think they will carry on regardless? The nature of our relationship means that most authorities will never be able to truly draw on the experience of the private sector, which means they'll never truly get good value.

Also, if you were about to design and procure a £500m project...don't do it and then tell the private sector what you want...ASK them what they can deliver first! It's illogical. I've lost count of the number of times we;ve got to bid the thing and thought "what the hell are they doing it like this for? We could do it so much better/cheaper if we did it like this" But by that point they are married to their original idea/design.

It's also getting across the concept to clients that risk isn't 'bad' necessarily. Risk you can manage may provide opportunity, but senior managers very often want to de-risk completely and push the costs of that across to the private sector. They then act all confused and put out when the private sector a) prices for something they can't control meaning the costs go up and b) doesn't want to share the upside.

And I worked mainly public sector side.

The other thing to consider is that the public sector is very averse to variable costs due to how they're funded. Therefore a key principal behind how these contracts were to be set up was to provide long term budget certainty. Therefore the negotiating team quite often are constrained in their ability to accept positions that they know very well would lead to better positions because they 'could' also lead to much worse ones too.

This is then further exacerbated by politicians both local and national getting involved as they have a 5 year lifespan and everything they do is focused on short term reward cycles whereas PFI/PPP is done over much longer periods. Some of what you're seeing now imay be partly down to short term gains being loaded on to contracts at the expense of later impact. I've seen proposals from Councils for low priced starts with above rpi indexation for the whole of a 25 year contract.

If I sit down in a room with a local authority team who have never worked on a rail project before and tell them that something on their project won't work because I've seen it time and time again, do you think they will listen to me

So... hang on a minute..

****less public sector people seem to crop up a lot here, but why is that? Perhaps if they kept more skills in house this would not be so much of an issue?

Certainly would bloody well help in IT, and help stop companies like the ones I've worked for in the past fleecing the public.

Perhaps if they kept more skills in house this would not be so much of an issue?

On top of that what would the team of rail experts do when you are not building rail projects? Not exactly keeping up with current stuff unless reading stuff on the internet counts.
Central government control of some of these things would be preferable. It's always nice to read some well reasoned responses from those involved in the process.

As I'm currently dealing with 2 new hospitals and some other stuff it makes lots of sense as to how things have ended up where they are.

Some of what you're seeing now imay be partly down to short term gains being loaded on to contracts at the expense of later impact. I've seen proposals from Councils for low priced starts with above rpi indexation for the whole of a 25 year contract.

mrhoppy - dead on.

I've got an issue at the moment where the client is trying to pay for us to manage a risk that is absolutely impossible for us to manage. Granted, it's not much easier for them, but where is the sense in just throwing public money at every risk you have so that you can sleep a bit more easily at night? It's using the private sector as an insurance policy, but we are surely the least cost effective insurer imaginable! 🙂

****less public sector people seem to crop up a lot here, but why is that? Perhaps if they kept more skills in house this would not be so much of an issue?

I honestly don't think the public sector people I've dealt with are ****less and apologies if it's come across that way. It's just that simply designing, building and maintaining a huge building/road/railway is complex enough...adding in the finance layer makes it even more so and it's very specialised. Most of these teams just aren't set up to deliver that kind of thing. We have an entire floor here of specialist lawyers, bankers, technical guys etc who try to bridge the gap between a regular D&B and a PPP project. It's the finance that makes it unique and it's that aspect where the local authority teams fall down IME

But in general those that have the skills and aptitude tend to leave

But why is that?

I think something could be far better organised. If I were in charge of government IT, I'd have my own publicly owned (or at least partly) consultancy business that would do all the govt projects, sub-contracting out where it couldn't do stuff.

But why is that?

Generally the culture, or get too specific and they just don't need your skills everyday so you become less of the expert.

In a central government agency in the UK they move project directors around every new project that comes up.

say Mr Smith has just finished a road deal and now has the most contemporary knowledge in the department, they will put him on a rail deal next and then a bridge. So what tends to happen is these guys just feel like they are starting from scratch on every deal. The projects are so long that by the time they come back round to another road deal, their knowledge is either forgotten our outdated.

IMO it would be better keeping these guys doing one sector and becoming as expert in it as the people on the other side of the table. I understand that they do it to manage the risk that you build up a great team and then they bugger off and suddenly you have no one who can deliver that type of project.

Whilst I understand the difficulties for the private sector dealing with PFI etc., and the government accounting nonsense that makes it politically attractive...

Why would the government, who has access to credit under better terms than any company, want to put the risk & investment onto the private sector? Particularly when the ultimate result if something does fail would be that the private firm goes bust and the government will have to ultimately pick up the pieces? I just can't see how this would make financial sense - I've not had any extensive knowledge of PPP, so perhaps this is better managed now, but if someone could explain how this supposedly works (or is it just a debt vanishing act by the government?)

Whilst Peterfile sees ****less public sector (not his words BTW) I see bidders who dont understand the financial and political juggling act that the public sector face. That's not a criticism of either side why should they know because the problem is they're really ****ing complicated solutions let alone contracts. That's why competitive dialogue procurement was conceived because no-one really knows the answer at the start of the process and it's only through the combination of the ****less public sector and the rapacious private contractors that you get to a mutually acceptable position. And they are mutually acceptable no-one shouldn't know what is coming and no-one held a gun to anyone's head to sign things. But it makes good soundbites to blame people for something that would/should have been entirely obvious from the start.

I've advised clients to terminate procurements because the bidders couldn't produce a viable solution, both sides lost vast quantities of invested input but it's better than signing a duff contract. Wasn't popular with either side for a bit, some senior staff at the client saw it as trying to earn more income from me and just wanted a signed contract and the bidders couldn't see why their solutions didn't work for the client.

There is an issue that the public sector see this as a technical thing and put a technical person in to lead when it really needs an overall view of a commercial project manager. Too often the procuring body goes great that's what we want when the what is determined and the how that follows after with the legal and financial teams is viewed with less interest because they don't fully understand. I'm technical side and I make no claims to understand the full implications of the legal drafting outside my crossover elements but I've seen the frustration of my legal colleagues.

Why would the government, who has access to credit under better terms than any company, want to put the risk & investment onto the private sector? Particularly when the ultimate result if something does fail would be that the private firm goes bust and the government will have to ultimately pick up the pieces?

Because it doesn't at the scale of money and timescales that you're talking about and it doesn't/shouldn't pick up the bill if it goes wrong necessarily. There is specific comp on term drafting allocating who picks up what in SOPC contracts. In some situations (Norfolk waste PFI being a good example) it's the public sector (and rightly so that was a travesty) in others the bidder carries the can.

I see bidders who dont understand the financial and political juggling act that the public sector face.

This is true.

A project needs to be technically deliverable, meet a myriad of political objectives and be fundable. These objectives do not generally sit well together!

Rather like this article from 2008..

http://www.theweek.co.uk/25955/nobody-can-handle-truth-about-pfi

Generally the culture, or get too specific and they just don't need your skills everyday so you become less of the expert.

Yep - it's badly managed. I don't see a fundamental reason why it needs to be though.

Makes no sense to be to be giving loads of public money away to private companies, many of whom are overseas based. And many of whom don't really have the expertise either they just have a layer of opacity that allows them to bullshit their way through and trouser the profits.

Yep - it's badly managed. I don't see a fundamental reason why it needs to be though.

giving loads of public money away

Makes no sense to be to be giving loads of public money away to private companies,

Why not? Money changes hands between private and public all the time, it all circulates in the economy.

That's the trust's problem, not the private sector's.

Yup… and why so many of us think that PFI is flawed from the outset… the “buyer” needs so much expertise to get the initial contracts right, and to manage the ongoing supplier relationships, that they might as cut out the middle man and contract direct with the construction industry and sort out the ongoing maintenance and services themselves. They could raise the money at a cheaper rate as well. Yes, the debt is on the public sector books, but it would be cheaper debt.

Why not? Money changes hands between private and public all the time, it all circulates in the economy.

Cos it goes into the pockets of the rich execs and private shareholders of those companies perhaps? And people in other countries.

Doing something like IT in-house would seem to me to be a good way of distributing goverment money. And it *should* save public money that'd then go to other things.

Because if you don't have enough work to keep those people up to speed then they are not experts any more.

You saying there's not enough government IT work? Nothing to stop this publicly owned IT company bidding for other work is there?

You saying there's not enough government IT work?

This tread articulately identifies the issues with this type of deal, the issues the public sector has doing good deals etc.

But on top of this is a reality. Are the actual PFI deals done value for money for the tax payer vs capital investment from government as a whole (not cherry picking the spectaulalry bad ones that make the press)? I.e given all of the issues we have in implimenting them, issues that seem structral and unlikely to be removed are we still better off or not.

This may be a compicated question but it's one that has the potential for a yes/no answer.

And if the answer is no then there is a place for a ideological stance from government to say "no more PFI, no buts, it's off the menu".

All public capital investment comes from the goverment coffers, end of.

It may be great to say PFI is great if... and even give lots of options to resolve the ifs but it doesn't seem the public sector will ever be able to compete with the private on deal doing when things involve more than just actual cost.

Nothing to stop this publicly owned IT company bidding for other work is there?

Depending on how it's been set up then yes there are. In some cases quite restrictive.

And if it's an independent company then you're into having to have competitive procurement to obtain work same as every other company.

Interesting thread and cheers for the info peterfile

Tend to agree with molly though that all we did was add profit to the cost of the project and help multinational corporations and their already wealthy shareholders#

Private gives the public flexibility and allows the right people to be in the right places without the public side paying them relocation/secondment etc.

What you have outlined their is the classical debate of public waste vs private profit.

You may not be paying to re-locate your own people but you are paying cost + margin for the people that you do get to do the work.

There is obviously an optimium solution somewhere on the spectrum from everyone being employed directly by the state through to the state outsourcing everything.

The question Molgrips seems to be asking is why you can't have a state owned service provider who goverment agencies effectively outsource to? I.e. the state is the sole shareholder and take the dividens/loses incured in providing the service.

There is a good case study of this in the Met office...

There are a lot of questions this raises.
Is your new public owned service provider a profit centre or a cost centre.
If it's a profit centre then does it try to maximise profits by negotiating comerically with it's customers, other goverment agencies? And if it acts comercially then what happens when a private company has a cheaper bid for a piece of work?
If it's a cost centre then who pays the costs? Central goverment or do the costs get allocated back out to the users?
How do you ensure the costs are reasonable for the work being done without any comercial presure?

Just saying the government should run things isn't really that simple!

I've yet to see a single NHS PFI scheme that has benefited the Trust or the General Public.

In NHS land the Trusts did not decide to go PFI route, it was forced upon them higher up the food chain parts of the NHS, where to some degree I agree the contracting skills must have been woeful. But for £35,000 salary what do you expect?

As recently as 6 years ago I was involved in trying to block the go ahead for a PFI Health Centre. It just didnt stack up financially, and to some degree operationally. We knew we didnt have the cash to pay for it before it got off the drawing board.

These schemes cost £10's thousands in legal bills, come with the most ridiculous clauses etc etc.

Peterfile may well be right that people made a mess of contract negosiations, and they did, but now we are all paying for the next 25 years.... and to whos benefit ?

Couple of stupid examples of PFI - Building specced to be energy efficient and cool. Like a bloody over. So have to install more air con units. £1'000's spent on legal fees, Penalty paid to PFI co to install new units on their property. Annual Maintenance way above market rate. Annual Management fee for air con unit. So ends up that an air con unit costs well over £10k in first year. Is that best use of public money?

2nd example - Big hospital, over capacity but some rooms unused.Why, because the PFI company own the space and want to charge an extortionate rate to lease the space, plus management fee etc etc.

2nd example - Big hospital, over capacity but some rooms unused.Why, because the PFI company own the space and want to charge an extortionate rate to lease the space, plus management fee etc etc.

Is your new public owned service provider a profit centre or a cost centre.

Doesn't matter, imo. If its main business area is government contracts then it's always going to be a cost of course. It would not be run for profit. For that matter, it could use spare capacity working for charities or helping developing countries at cost - or even for free.

How do you ensure the costs are reasonable for the work being done without any comercial presure?

It'd be pretty easy to audit that - in fact, FAR easier than it is now because you'd have transparency. Commercial pressure doens't give good value AT ALL currently.

What happens is that companies bid for these projects (if they are fixed price), win them with low bids, then attempt to cut corners to make profit. Then they fail, because too many corners have been cut.

The big issue with government IT contracts is the communication between client and supplier. The client have no idea how to deal with an IT project and the supplier have no idea how to help them through it. But what the supplier is very good at is convincing them they need to spend tons of money, because the supplier's main aim is to make as much money as they can. They really do see governments as cash cows. They employ very slick managers and lawyers to convince everyone they've done nothing wrong.

Which one was it recently where the supplier bollocksed it up, the project failed, and then the supplier successfully sued for millions for breach of contract? Madness.

Private sector efficiency is absolutely a myth in IT.

Mikew - I am not disagreeing that the some one made stupid decisions at some point.

However, there is now a situation where a hospital as no physical capacity to see patients, yet there is unused space within the building.

I'm not arguing over the content of a contract, my point is that what kind of a screwed up country are we in, where companies chase profits, to the detriment of the nations Health.

What happens is that companies bid for these projects (if they are fixed price), win them with low bids, then attempt to cut corners to make profit. Then they fail, because too many corners have been cut.

I'm not arguing over the content of a contract, my point is that what kind of a screwed up country are we in, where companies chase profits, to the detriment of the nations Health.

It is easier to blame evil cooperation though

There is another issue at play and that's the bad pubilicity of making people redundant from government or local government. Once your local area has built its schools and/or hospitals those people effectively aren't needed, but its hard to get rid of them.

Also one major point of PFI deals was to de-risk construction. So its all very well saying bad PFI deals have been bad vale for taxpayers, but so can more traditionally funded projects, the Scottish Parliament overspend being a huge waste. It's not like traditional funded projects are without their problems either if poor contracts, management and budget control occur.

Or just the government one has become bloated, over capacity and not very lean.

No, it's not a case of too many people, it's that they don't know how to run an IT project. The benefit of in-sourcing it is that you retain and develop the skills on YOUR side.

It would not be run for profit. For that matter, it could use spare capacity working for charities or helping developing countries at cost - or even for free.

So you'll start losing money then and have no cash for investment.

my point is that what kind of a screwed up country are we in, where companies chase profits

Well they need to make a profit to develop new drugs, technology, etc. But why shouldn't people make profit if they put in a lot of hard work to help people?

Well they need to make a profit to develop new drugs, technology, etc. But why shouldn't people make profit if they put in a lot of hard work to help people?

No one is suggesting the company shouldn't make a profit. In my examples above though it can be quite easily seen that companies are making extraordinary profits off NHS PFI.

Fine make big profits, but to me my health is more important than having lots of money in the bank.

There are costs associated with running parts of a building, things don't get done for free.

I disagree. The contracts are that water tight that anything that is outside of them gets added in after, £1,000's have been spent on legal fees, and certainly is not done at cost + maintenance etc.

So you'll start losing money then and have no cash for investment.

Fine, we won't then. It's not hard to figure out.

I disagree. The contracts are that water tight that anything that is outside of them gets added in after, £1,000's have been spent on legal fees, and certainly is not done at cost + maintenance etc.

This is 100% true...but it has to be.

Our PPP portfolio is worth £billions. A big project will see 10 change notices PER DAY. If cost isn't built in to ensure we're not out of pocket for each and every change (including our legal costs and the banks legal costs), we'd be unprofitable within 3 months. Why should we suffer because either the client forgot to put something in their original scope/design or you've decided you'd just like something extra?

It's worth pointing out though that profit is pre agreed and capped for all changes - and it's a fair market rate which is reviewed every few years. Small changes come with no labour charge and no mark up on materials.

On top of that what would the team of rail experts do when you are not building rail projects?

I think this is a big problem. Not necessarily with central government where people can maybe be moved around a bit more, but with smaller organisations.

Say you're a local council and you're tendering for a contract to get a new bridge built, that's loads bigger than anything you've had built before. Do you employ a permanent team of bridge construction experts to check all the bids? But then why not just pay them to do the design and build themselves? And what do you do when the project is finished? Have them sat around twiddling their thumbs or having a crack at litter picking?

Or do you pay a team of consultants/contractors to manage/oversee the bids and subsequent project for you? If so, you'll inevitably find yourself in the Daily Mail for wasting cash on overpaid consultants when someone puts an FOI request in. And there's still no reason that they'd do a better job than anyone else, unless you withhold their pay until 25 years after the project, only releasing it when you're happy that the bridge has lasted as long as it should have done/everything else was ok.

Or do you get the bloke in the highways department who buys road building supplies from Lafarge to have a look at the bids because he knows the most about building stuff?

Or do you have a contracting team who look at it? But then they'll never be experts in everything so can decipher a contract but not understand the risks within it. e.g. "In the event of Type A, B, C or D subsidence a penalty of X will be payable". But how does someone who was working on a school dinner contract last month, a bridge this month and mental health services next month know that there are subsidence types E and F as well?

Why not try the 'poacher turned gamekeeper' thing mentioned above? Well, it;s possible, but try luring a lawyer in a lucrative private sector position with regular travel, expense accounts, bonus, company car etc into a job on a fifth of the money in a leaky portakabin working for Piddleshire county council.....

Compare that to the bridge building company. All they do is build bridges. They can have bridge construction experts, and lawyers who are experts in bridge building contracts, and finance people who are experts in bridge public-financing contracts, because they're building bridges for 10 different public bodies at any one time.

Also one major point of PFI deals was to de-risk construction

Why should we suffer because either the client forgot to put something in their original scope/design or you've decided you'd just like something extra?

This is a problem with any project. It's impossible to list every single requirement up front without spending huge amounts of money. And you can't force a supplier to take the risk that you forgot something because how do you know what they forgot.

This is why insourcing is sometimes better. Just pay a load of people to finish the job. Rather than pay a load of people to agree a job spec, then another load of people to argue with the supplier whether something is in the spec of not and another load of people to agree the price for the change.

In my experience fixed price contracts are a scam. Nothing is ever the suppliers fault and they would rather walk away than make a loss. Time and materials is a much better route.

So which idiot signed that contract?

Saying that the public sector does not have the expertise to not get screwed by the PFI partners only emphasises why PFI was a bad idea.

[Saying that the public sector does not have the expertise to not get screwed by the PFI partners only emphasises why PFI was a bad idea]

Not really just that the Public sector in the UK fails to recognise how bad it is or to do anything about it.

As an alternative to the usual public sector mess lots of the provinces in Canada set up organisations to handle the procurements

anyhow quite frequently the Public sector attempt to screw over their PFI partners

anyhow quite frequently the Public sector attempt to screw over their PFI partners

I wanted to say this, but people generally don't want to hear it.

Nobody cares because we're a big bad contractor, but we get decimated on some of our projects.

What tends to happen is the authority will hire some self proclaimed contractor-slayer who will keep us in line and get better value on a project. These guys are invariably people on the service [i]user[/i] side of the transaction and have made a bit of a name for themselves within the public sector for being "ruthless".

They come in to an operational project, with no real expertise, often as the authority's representative and attempt to "pull us into line" for no reason other than they have assumed we are screwing them over, they are often incredibly obstructive and misinterpret contracts to try to save money.

This destroys any relationship that we had with the authority and eventually we start getting hit with financial problems...at which point my company sends me in (I never get involved in an operational project unless we have a serious problem, we've got lots of highly skilled people and I'm rarely needed). Once you send me in the authority gets pissed off that we've lawyered up and everyone digs in and it becomes acrimonious. It's a vicious circle. I'm no relationship manager, I'm there to make sure you don't get whatever it is you think you're getting. Once we hit that point it can take YEARS to get back to a good working relationship.

All because everyone assumes WE are the ones trying to screw everyone over. 🙄

They come in to an operation project, often as the authority's representative and attempt to "pull us into line" for no reason other than they have assumed we are screwing them over, they are often incredibly obstructive and misinterpret contracts to try to save money.

Viewing this from the other side.

Often on these sorts of contracts the users have been sold the idea of "fixed price" and what they will get. When something comes up that is outside the scope of the project the users suddenly can't have what they want for the price they were willing to pay. But they have been sold the idea of fixed price, their budgets have been signed off on the basis of fixed price, so they try to get what they want without having to stump up more cash.

The issue isn't people being obstructive but the impossibility of knowing everything up front.

Managers assume fixed price means the supplier has taken every risk of change, the supplier knows they will only work within very toght boundaries. The poor shmuck in the middle is stuck between a rock and a hard place, either fight the supplier or their own budget.

But they have been sold the idea of fixed price, their budgets have been signed off on the basis of fixed price, so they try to get what they want without having to stump up more cash.

It's nonsensical though.

All contracts for the last 20 years have had some form of change protocol in it. Usually, you don't pay for small stuff because there are already staff available on site to carry out the work, but if you want to make a higher value change then you all sit down and agree it and then its implemented. This is fairly basic stuff and what will constitute each type of change is clearly set out. The problem is that the guys on the ground have never seen the contract and just try their luck to see what they can get.

The thing that pisses most people off is the fact that you need funder consent (and the associated technical and due diligence costs that go with it) for higher value changes because it could affect the risk profile of the project. So all of a sudden, your little £100k cap ex remodel looks like a £300k variation. It's the nature of the beast. If you don't want to have to funders crawling all over your project, don't make us borrow money from them.

If you are in M&S and have just scanned your weeks worth of food and the cashier says "That will be £102 please", you don't hand over £102 and then run off and grab another half a dozen items that you forgot and stick them in your bag!

kelvin - Member

Saying that the public sector does not have the expertise to not get screwed by the PFI partners only emphasises why PFI was a bad idea.

Exactly. Or maybe a different slant, much of the blame for local PFI ****ups lies higher up, with those who pushed it without ensuring that systems were in place to make it work. It's easy to blame the poor schmuck left running a project he's not fit for, rather than the guy up the ladder who decided that was how it had to be done.

[i]But I think everyone now knows that it doesn't, because just shovelling risk into the private sector actually means that you pretty much continue to retain that risk, but then pay for someone else to manage it for you, whilst you still retain it.[/i]

Agree, all too often I hear how companies/Public-sector want 3rd parties to 'take the risk'. Kidding themselves, the risk still exists and can come back to the Procurer. Whether it is a £5 purchase or a £50m contract.

And PFI, it wasn't the Private Sector that said you must adopt PFI or we won't bid for work; it was the Public Sector that said if you want the work you have to use PFI.

No different to the Govt going on about tax avoidance; they make the rules and we follow them - not our fault if they are badly thought-out and/or drafted Laws.