PFI Report

The Leeds School of Architecture, Leeds Beckett University MArch Years 1 & 2 / Level 7 / 2015-16 Professional Studies / Student-Led Research And Presentation-Workshops & Reports

[PFI] Summary This report is the concluding element of the Masters of Architecture Professional Studies presentation workshops following the group presentation previously completed on the 2nd December 2015 on the subject of PFI & Politics.

Group members: Ben Lillywhite Dominic Kennedy Mark Osten Rufina Mukhametzayanova Oluchi Onwuchekwa

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Document Word Count: Submission Date:

3,217 25th January 2016

Contents

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Contents Abstract

2

Introduction

3

Contract types

4

Case Studies

6

Healthcare

6

Education

7

Impacts of PFI on the Architect

8

Impacts of PFI on the Taxpayer

10

RIBA’s Position

11

Conclusion

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References

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Appendices

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Appendix A

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Appendix B

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Appendix C

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Appendix D

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Abstract Public Finance Initiatives (PFI) are a complex agreement between public bodies and private companies, over the construction and maintenance of public buildings. Hospitals and schools are prime examples of buildings constructed under the PFI umbrella, with varying degrees of success.

This report will look into a number of case studies across a variety of sectors, commenting on the key findings.

For the taxpayer, PFI contracts allowed a huge amount of public schools, hospitals, roads, housing and much more infrastructure, to be built initially using the contractors’ money. These buildings were urgently required by the public, and therefore was a huge positive for the British public, the tax payer. With hindsight however, the taxpayer has reason to be disappointed with PFI agreements.

Total repayment costs are staggering and almost incomprehensible, all funded by the taxpayer.

Arguments can be found that the profits of contractors are being increased exponentially by PFI contracts.

PFI has both positive and negative effects on the architect. As mentioned previously, a lot of PFI projects took place in a seemingly short amount of time; meaning that architects were extremely busy with a significant amount of large scale projects. This also led to good working relationships being developed between architect and contractor. However, some of the design aspects were taken away from the architect, essentially having to design a building for the contractor as opposed to the client; leading to accusations that an architect’s role is being diminished by PFI. Finally, the Royal Institute of British Architect’s (RIBA) produced a paper in 2005 giving their stance on PFI. Within this report, they outline their views and suggest a variety of models of how PFI can be updated. The RIBA suggest that Smart PFI should be the way forward.

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Introduction Private Finance Initiative (PFI) is a method of providing funds for major public capital investment.

Under the PFI arrangement, private sector groups serve as a Special Purpose Vehicle (SVP), a collection of contractors, which invest the upfront capital in public infrastructure projects, manage the design, build, finance and operation of public infrastructure (HCTC, 2011). The initial capital investment is provided by a combination of share capital and loan stock from the owners of the SPV, together with senior debt from banks or bondholders. In return, public authority pays from the point at which the contracted facility is available for use.

Although the unitary charge may be reduced (to a limited degree) in certain circumstances. The structure of PFI is designed to transfer project risks from the public to the private sector. For example if there is a delay in construction, if the contracted facility is not fully operational, or if services fail to meet contracted standards, then payment is held by the public bodies.

PFI has been successfully introduced in the building and operating of prisons and roads; for the most part successfully in the building and maintenance of schools and hospitals. This report will look in to the comparisons of PFI against more typical procurement routes, single stage tender and design and build. Following this, research will be provided into a number of case studies, as well as the effects on both the architect and taxpayer. Finally, the future of PFI is discussed and the RIBA’s stance on PFI.

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Contract types PFI is a procurement method suitable for public buildings, initially funded by the private sector, before being effectively rented by the public taxes. Although there are several other procurement routes available to the government or local councils, PFI is the preferred route as it keeps the initial construction costs off the public balance books 1. In order to better describe PFI, comparisons have been drawn between two of the main contract types -- ‘‘Single Stage Tender’’ and ‘‘Design and Build.’’

Single Stage Tender: Is also called traditional method. A client appoints an architect to produce a design, who may also be eventually novated over to the contractor during construction. A tender process then takes place before a contractor is appointed often based on price and reputation. The contractor is then responsible for the works before handing over the project once completed.

Design & Build: Design and build contracts are procured in a similar fashion to that of the traditional method described above. One of the main differences however is that the scheme is tendered on information that is not as fully developed; allowing the contractor and rest of the design team to have a greater say in the way the design is progressed and ultimately constructed.

PFI Method: The client approaches only the contractors. The role of the architect is diminished and the architect does not give any emotional time or commitment to any given project. Main Contractor may provide architect with a list of approved materials to select from. The Prime Contractor may provide architect with a list of approved materials to select from.

1

A popular topic during political conversations.

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PFI contracts are complex and often long, drawn out processes. As well as initial construction costs, ongoing maintenance and refurbishment outlays are also included. Further commitments often provided by the PFI contractor, but not restricted to, are car parking management, grounds maintenance and catering. This allows for the buildings’ occupants to focus solely on their services and responsibilities.

Contracts typically last between 25 -- 30 years, although shorter or longer contracts are possible, but less common. Payment begins once the project has been completed and the client have moved in, for the duration of the contract length. These repayments are often multi million, monthly payments and are funded from the public purse; however are on a ‘‘no service, no fee’’ type of agreement. By referring to Appendix D, an example contract is given and the type of agreements that take place. Over the course of this report, evidence will be given as to the implications and effects on both the architect and taxpayer of PFI contracts, before looking into the RIBA stance.

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Case Studies

Figure 1 Norfolk & Norwich Hospital

Healthcare The first of over 100 hospitals to complete under the PFI arrangement was the Norwich & Norfolk hospital (Figure 1). Under the terms of the contract, the PFI contractor are responsible for much of the preservation of the scheme including: building and grounds maintenance, catering, car park management, laundry as well as many other services, allowing the trust to solely focus on healthcare (Telegraph, 2010). This type of arrangement is common across many hospitals and was seen as one of the long term benefits of PFI. However, in practice, the terms of the contract have allowed for the contractor to raise greater profits; for example, car park ticket prices have risen considerably to the detriment of patients and their families, as well as the Trust themselves2.

The project was considered an initial success, with it being used as a prime example as to why PFI would be successful. Placing the design and construction management onto the contractor, the hospital was delivered on budget and five months ahead of schedule. It was reported to the taxpayer that this was the future of Public construction, with future projects to have similar advantages.

However, how much these schemes would prove to cost was conveniently left out.

The Trust are required to pay £41 million a year in PFI repayment, going towards the above mentioned bills; a considerable amount of money (Telegraph, 2010). However, two years after completion, evidence was found that the contractor refinanced the project, raising the profit from 2 The Trust don’t benefit from any of the increased profits; so by raising prices is of no effect to them, although can damage their reputation.

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£47 million to £117 million. This is commonplace amongst PFI contractors, with it being found that between four different contractors, profits of over £300 million, with Balfour Beatty alone making £188.9 million (Independent, 2014). Please see Appendices A&B for further healthcare case studies.

Figure 2 Halewood Academy

Education The Halewood Academy PFI was one of eight schools to be built by one of Britain’s biggest contractors, Balfour Beatty, in Merseyside (Independent, 2015). All eight schools however, have had fire safety issues relating to fireproofing and inaccessible fire dampers, which need to be checked annually. This is an example of where a contractor has cut corners in terms of regulations and design standards in order to make a higher profit.

The survey uncovered a number of serious problems with fire dampers, alleging that it would be difficult to maintain their condition, testing and access. The report undertaken contained images of a damper sealed with tape, one simply left open which would prevent it working in a fire, and others built into the wall so they couldn't be accessed for testing. Under health and safety law, fire dampers have to be tested every 12 months (Chartered Institue of Building, 2015).

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Impacts of PFI on the Architect PFI can affect the architect in different ways. On one hand, the types of projects involving PFI are typically large scale. This therefore entails larger bodies of work, which was especially crucial when the credit crunch hit in 2008 and many architecture practices were struggling to stay afloat. As the economy begins to grow stronger again, having a client which has a clear vision of what their requirements are can help streamline the hours/resources spent on the job, meaning that the architect can put time to other projects and maximise profits (Commission for Archtitecture and the Built Environment, 2005).

PFI can also be considered to create strong relationships between architects and contractors for future work on other projects (Tutors2U, 2013). Therefore, as an architect and contractor begin to build bonds in PFI construction, this association can bridge into other types of construction projects allowing the architect to gain an even greater scope of work. However, this could cause problems for the smaller architectural practices. As contractors and larger architectural firms build strong affiliations, schemes and projects which could have been offered to the smaller practices, may go to the architects that other contractors have ties with (RIBA, No Date).

On the other hand PFI can affect architectural practices in a negative way for different reasons. From a design stance, the architect has less influence on the design of the project as the contractor and client rule tight budgets above all else. The contractors may also have their own in-house team 3, meaning that as relations between clients and contractors strengthen, architectural practices lose out as the same contractor companies continue to be selected.

Looking at some of the case studies, it is Figure 3 Norwich & Norfolk Hospital clear to see that the contractors are aiming to create developments that last the lifetime of the contract, rather than designing for maximum longevity. This could affect the architects’ reputation and there are moral implications as to whether what they are designing is to the best of their ability.

Due to the unpopular nature of the PFI contracts in the healthcare industry, alternative framework contracts have developed, such as P21 & P21+ frameworks. These types of contracts have compounded the effects of the already confusing PFI contract. The negotiations around PFI contracts are notoriously complex and confusing as agreements need to be sought for the level of maintenance, services to be provided and any future works. The new framework agreements (P21 & P21+) however, have caused further confusion in the construction industry. The PFI contractors now effectively become an additional client or client’s agent. Any future work effectively has to be agreed to by the PFI stakeholder, as they will seek additional costs for the increased maintenance issues. This causes not only issues for the Trust, but also for the Architect as there are further people to consider in the design process.

3

Although this isn’t too common.

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As seen in appendix B, financial risks are reducing the effectiveness of PFI schemes and putting many potential clients off (Figure 4 & Appendix B). This has a knock on effect to the architect, as a project that they have designed could potentially take years to actually get on site. This disturbs not only the cash flow of the practice, but also the practices resourcing. Some people may be assigned to design and manage the on-site construction of a project, but then if the scheme is put on hold, these resources will need to be reassigned at short notice, a possible distraction to the company and an untenable reserve.

Overall, PFI contracts have had both positive and negative implications for the architect. On the following page, we investigate the effects of PFI on the taxpayer.

Figure 4 Royal National Orthopedic Hospital

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Impacts of PFI on the Taxpayer

Figure 5 George Osbourne

PFI relies heavily upon the taxpayer and effects them in many different ways. There are a few reasons that can be beneficial, but the majority, in our opinion, are negative. Firstly, a positive effect of PFI for the taxpayer, is that the contractor pays the initial building cost outlay and this is not paid until the initial asset has been delivered; this motivates the contractor to finish the job as they are liable for it and are losing money whilst the building is not inhabited (Commission for Archtitecture and the Built Environment, 2005). This incentive could be considered one of the main reasons as to why PFI projects are completed on time.

Furthermore, competitive initial prices due to tender process keep the initial fee estimates low. Once the fee has been accepted, the contractor pays for any future maintenance for the duration of the agreed contract. By having initial costs off public books, a greater number of public sector developments were built quicker than with public spending (Telegraph, 2012).

Negative impacts to the taxpayer are that there is no guarantee that prices set by the contractor will be more than public sector estimates. In other words, the total cost for the project, could have been less that what they have ultimately paid in repayments. The ultimate risk lies with the taxpayer.

One of the initial arguments for PFI, advertised by the government, was that although large repayment costs were being paid to the private companies; the private sector are taxed on all profits.

This would have meant that some of the repayments would have been recouped and so it could be considered that the price of the schemes were in real terms, less than advertised. However, in reality what actually happens is that the PFI contractors take their profit off shore (Independent, 2014), meaning that their taxes are not paid to the British Government.

There have been other notable examples of wasteful spending on PFI projects that are to the detriment of taxpayers. For instance, Prison Services renting computers for ÂŁ120 a month; Rising car parking charges at hospitals; Over budget road and bridge projects (e.g. M25); Kennels at Defence Animal Centre in Melton Mowbray cost more per night than rooms at the Hilton in London (Independent, 2014).

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RIBA’s Position The RIBA’s stance on PFI was addressed through a seminar it held in June 2005. The seminar sought to explore the PFI model, which was peaking in popularity under Labour governance, in the mid2000s, prior to the recession hitting. The points from the meeting were condensed to a paper released in the following October, this titled: Smart PFI: RIBA Position Paper, a short, easy-to-read 6 page document. (RIBA, 2005) Within this document, the criticism of the PFI model is tabled, as well as an alternative model put forward for consideration.

The main point established, was that however much the government may be committed to running PFI programs as well the achievement of good design in public buildings; the two are separate entities, isolated.

The RIBA highlighted the failure of the two policies’ alignment. Through the introduction of ‘Smart PFI’, outlining the room for improvement within PFI, with fresh approach innovative thinking. The concerns of the PFI procurement process raised by the RIBA were not solely on the grounds of design quality, but also of wasted money, time and effort.

From the discussion, two proposed models were outlined, one of which, the ‘Client Concept Design Model’, making its way for inclusion within the Smart PFI platform as a preferred model. The proposals were not limited to single PFI projects, and included those such as the BSF, Building Schools for the Future batch.

Figure 6 RIBA’s position on PFI most recently outlined in 2005

The RIBA received a generally encouraging response from the broad range of participants in the PFI process; with the government welcoming the proposals set out with Smart PFI -- although seeking reassurance from the finance sector that they would find Smart PFI acceptable, and an analysis of the implications for the transfer of risk. This further consultation was carried out with positive results and led the RIBA to identify the first of the above two models as the best option. This is now called the ‘Client Concept Design Model’ of Smart PFI. The principles of Smart PFI aims for greater preparation at the beginning of the procurement process. It seeks more time to be spent between the client and the design team. This is all detailed in 3 stages, from the pre-dialogue: involving a public sector client appointing design team, through interview and fee proposal, before both parties collaborate, through to the preferred bidder to financial close: which is run as present. The Client Design Advisor or the design team may be retained to ensure that the design, as Figure 7 The controversial HS2, would carry the developed and subsequently executed by the successful PFI model bidder, maintains the quality standards required by the client. Hence, aiming to create a closer relationship between the user-client and the design team.

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Conclusion The PFI process has over the years become skewed towards an over legalised approach, as increasingly complex procurement procedures and mechanisms for the transfer of risks been developed. Despite the recent Conservative / Liberal Democrat coalition government announcing in 2011 to review the PFI, with consideration of other delivery models, there has yet to be anything transparent to be released for public scrutiny, which remains an important part of a review in order to strike a better balance of cost, time management, and a good design quality, whilst meeting a wider range of private sector financing sources and for a better balance of risk between the private and the public sectors.

First-time or occasional clients have always needed advice and assistance in the early stages of projects to help to define and set up projects; and also to ensure that quality and value is achieved.

And this is where the newly arrived role of RIBA client advisors -- seeking to be the middle man in a translation process -- comes in to play. They can provide independent advice on issues of design, procurement and the means of achieving high quality delivery. In public sector procurement, bidding and contract procedures, the government strongly recommends the use of an RIBA Client Advisor, due to the excluded relationships between clients and users.

With the ‘Smart PFI: RIBA Position Paper’ being the most recent official release on the subject of PFI, perhaps it is now time to question its current position, given that it has now been 10 years since it’s publication. A new review would be very useful to assess the changes, if any, and to analyse the effects the dip, and since recovery from recession has had on the processes.

The National Audit Officer reported that any future Government should have the ability to terminate or significantly renegotiate PFI contract when evidence is provided that taxpayers were not receiving value for money. It continued stating that civil servants should use the public purse’s huge buying power to win better deals, and increase their skills to avoid being outwitted by private sector competitors.

PFI has become a preferred method of providing for new infrastructure in Britain since the 1990s.

Over the time, many public projects were built under PFI helping to provide the work for the building construction industry and helped to utilize and incorporate private sector experience. One of the greatest benefits of PFI is transferring risks from those most able to manage them, achieving overall cost efficiencies and greater certainty of success.

Despite the clear positive achievement of PFI system, however PFI has not been a total success and a number of criticisms has been made over the time. There are disparity problems between the private and public sector, in terms of differing modes of operations, decision-making and accountability. One of the big worry is that the cost of finance is quite high, given that governments can borrow money more cheaply than private firms can.

In conclusion, we feel that PFI projects were established with positive intentions, looking to create a large number of public buildings that were urgently required. However, over the years, loopholes have been found and a number of contractors are now using them in order to create staggering profits. We believe another review is required in order to determine the future of PFI.

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References

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References Care Quality Commission, 2014. Royal National Orthopedic Hospital - Report, s.l.: Care Quality Commission.

Chartered Institue of Building, 2015. Council Finds Fire Proofing Failings. [Online] Available at: http://www.construction-manager.co.uk/news/council-finds-fi2re-pro3ofingfail4ings-eight-bsf/ [Accessed 17 10 2015].

Commission for Archtitecture and the Built Environment, 2005. Design quality and the private finance initiative, London: Commission for Architecture and the Built Environment.

Independent, 2014. Exclusive: How private firms make quick killing from PFI. [Online] Available at: http://www.independent.co.uk/news/uk/politics/exclusive-how-private-firms-makequick-killing-from-pfi-9488351.html [Accessed 29 10 2015].

Independent, 2014. Northumbria Trust Saves ÂŁ67m by Freeing Itself from PFI Deal. [Online] Available at: http://www.independent.co.uk/life-style/health-and-families/healthnews/northumbria-nhs-trust-saves-67m-by-freeing-itself-from-pfi-deal-9517844.html [Accessed 18 10 2015].

Independent, 2015. Eight PFI Schools Have Fire Safety Issues. [Online] Available at: http://www.independent.co.uk/news/uk/home-news/eight-pfi-schools-built-by-oneof-uks-biggest-private-contractors-have-fire-safety-issues-10303595.html [Accessed 17 10 2015].

RIBA, 2005. RIBA: Smart PFI. [Online] Available at: https://www.architecture.com%2FFiles%2FRIBAHoldings%2FPolicyandInternationalRelations%2F Policy%2FSmartPFI%2FSmartPFIPos [Accessed 20 10 2015].

RIBA, No Date. The Expanding Role of Contractors. [Online] Available at: http://www.riba-insight.com/monthlyBriefing/10-11/the-expanding-role-ofcontractors.asp [Accessed 29 10 2015].

Royal National Ortopedic Hospital Trust, 2015. Stanmore Redevelopment. [Online] Available at: https://www.rnoh.nhs.uk/about-the-rnoh/stanmore-redevelopment/gallery_gallery [Accessed 16 10 2015].

Telegraph, 2010. The Pro's and Con's of PFI Hospitals. [Online] Available at: http://www.telegraph.co.uk/news/health/7407484/The-pros-and-cons-of-PFIhospitals.html [Accessed 12 10 2015].

Telegraph, 2012. PFI Projects Set to Cost Tax Payers over 300 Billion. [Online] Available at: http://www.telegraph.co.uk/news/politics/9380539/PFI-projects-set-to-cost-taxpayers-over-300-billion.html [Accessed 15 10 2015].

Tutors2U, 2013. Private Finance Initiative. [Online] Available at: http://www.tutor2u.net/economics/reference/private-finance-initiative [Accessed 27 10 2015].

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Appendices

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Appendices Appendix A Hexham General Hospital was first opened in 2014 and cost £28 million to construct. However, early 2015, the hospital became the first to be bought out of its PFI contract. Northumbria Healthcare Foundation Trust borrowed £117 million from Northumberland County Council via the Public Works Loan Board in order to save themselves around £3.5 million a year for the next 19 years (Independent, 2014).

This is a prime example as to how the PFI system is greatly affecting the public purse. Although initially positive for the construction costs, the long term repayments of the PFI system are Figure 6 Hexham General Hospital beginning to financially hit public departments, such as the NHS. It could be argued that these repayments are why a significant number of redundancies are being made within the NHS, in order that the hospitals can continue to run. However, this is possibly having a negative effect on the patients, ultimately the tax payers.

Appendix B

Figure 7 Royal National Orthopedic Hospital

The National Orthopedic Hospital board have taken the bold decision not to use a PFI contract to fund their new hospital. Originally constructed to treat injured soldiers during the Second World War, as is often the case with the older hospitals, the buildings still remain and function from first built (Royal National Ortopedic Hospital Trust, 2015). As can be seen in the images in the presentation, the hospital has fallen into despair, externally at least. The appearance and hospital plan as a whole are ineffective, and not coherent for positive hospital life. However, the hospital is a world renowned facility and it cannot be argued against a negative quality of care. The buildings have recently been described as ‘‘not fit for purpose.’’ (Care Quality Commission, 2014)

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The hospital highlight their plight prior to general elections hoping to generate publicity. They have made the decision not to go down the PFI route, and instead save for the £90 million required to construct a new hospital. They have recognised the financial risks of PFI and have decided against it.

Appendix C Leeds City Council has sought to procure a Housing Private Finance Initiative (PFI) project serving the Little London, Beeston Hill and Holbeck areas of Leeds. The wider scheme will result in the refurbishment of 1245 existing council properties, the creation of 388 new council homes and delivery of comprehensive environmental improvements.

The Little London, Beeston Hill and Holbeck Housing PFI Project represents a major opportunity for Leeds to address housing and regeneration needs in two of its most disadvantaged communities. It is currently being built, is on schedule and to budget. However, this scheme took a long time to reach ‘financial close’. This was due to the client, Leeds City Council, paying close attention to how the project would be funded. The contractor, Keepmoat, acting under the umbrella of SC4L (Sustainable Communities for Figure 8 Leeds) had to look for a cheaper alternative to expensive commercial bank loans 4 . This is an example of a project that, whilst taking a relatively long time to go ahead, was delayed with good reason.

Appendix D

4

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Taken from the presentation, the above example helps to highlight the costs associated with the PFI contract and how it is possible for the contractor to generate huge profits.

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Presentation

GROUP F TOPIC 14: PROCUREMENT, FINANCE AND POLITICS (PFI) GROUP F BEN LILLYWHITE DOMINIC KENNEDY MARK OSTEN RUFINA MUKHAMETZYANOVA OLUCHI ONWUCHEKWA

CONTENT INTRODUCTION PROCUREMENT ROUTES ROLES EXAMPLE CASE STUDIES FUTURE OF PFI SUMMARY

WHAT IS PFI? PFI is a way for the public sector to build and subsequently operate an asset in an arrangement that requires the private sector to invest the upfront capital and results in the public sector annual payment.

Typically a PFI contract is repaid by the government over a 30 year period.

Under PFI, major projects including new infrastructure are built by the private sector, the government uses the resource over the long term for example between 25-30 years

AIM OF PFI The Private Finance Initiative (PFI) is an important and controversial policy designed to change the model of funding for large-scale investment projects.

Private finance initiatives were originally started as part of Great Britain’s strategy for providing high quality services.

PFI encourages private investors to manage the design, build, finance and operation of public infrastructure such as new schools, hospitals, social housing, defence contracts, prisons and road improvements.

Simply, the aim of PFI is to achieve a closer partnership between the public and private sectors at both central government and local authority levels.

P - private F - finance I - initiative

TRADITIONAL METHOD Client Appoints an architect.

Architect Fully designs the scheme including construction details. Sends drawings out for tender to contractors.

Contractor

Contractor Costs the schemes for tender. Once chosen, delivers the scheme.

Service and Building Management

Client

Design Team

DESIGN & BUILD METHOD Client Approaches an architect and outlines Employers Requirements.

Architect Prepares preliminary drawings - sent to several contractors to tender.

Following submission of tenders, the architect recommends a contractor to the client.

Contractor Works with the architect to fully design and deliver the scheme.

Client

Service and Building Management

Contractor

Design Team

PFI METHOD Client Approaches contractors.

Contractor

Design Team

Appoint design team to prepare tender submission.

Client chooses a contractor often based on price.

Architect

Client

Contractor

Produces the scheme to the Contractors requirements.

Service and Building Management

ROLE OF THE ARCHITECT

Sir Terry Farrell: “PFI process diminishes the role of architecture and doesn’t allow the time or emotional commitment.”

Main Contractor may provide architect with a list of approved materials to select from.

Neglected from the Brief writing process.

ROLE OF THE TAXPAYER

British taxpayers face a total bill of more than £300 billion for projects funded using PFI

There are 717 PFI schemes currently under way to build new hospitals, schools, roads with a combined capital value of £54.7 billion.

Final cost of paying off all these projects will reach £301.3 billion

PFI COST EXAMPLE

Initial Construction Cost: £32.5M

Yearly Servicing Cost: £1.75M

Yearly Maintenance Costs: £1M

Estimated Cost to Contractor over 30 year period = £32.5m + (£2.75m x 30) = (£32.5m + £82.5m) = £115m Contractor bid to Government in tender process = £120m (giving estimated £5m profit) PFI Repayments from Government to Contractor = £120m / 30 = £4m per year repayment Average Yearly Servicing costs are £0.75m & Maintenance Costs are £0.5m = £37.5m One off Charge of £750, 000 gives total lifetime costs = £38.25m Total Contractor Profit = £120m - (£32.5m + £38.25m) = £49.25m profit

NORFOLK & NORWICH UNIVERSITY HOSPITAL First large PFI hospital, completed in August 2001, costing £229 million.

Won the Building Better Healthcare Award for Best Designed Hospital.

Trust pays around £41 million a year in PFI repayments.

When contract was awarded, the projected cash flow to investors was £501m with a net value of £47m.

Later refinancing in 2003 gave projected cash flow of £335m with a net value of £117m.

HEXHAM GENERAL HOSPITAL Opened in 2004 costing £54 million.

Replaced a “temporary” hospital, built during the Second World War. Northumbria Healthcare Foundation Trust borrowed £114 million from Northumberland County Council to pay off the PFI bill.

Believed to save £3.5 million a year.

ROYAL NATIONAL ORTHOPAEDIC HOSPITAL Described as a “not fit for purpose” environment by the Care Quality Commission.

Long term decision made not to construct new buildings under PFI as not financially viable.

Trust highlighted their financial plight during general elections to raise awareness of PFI situation.

New design to cost £90 million.

LITTLE LONDON, BEESTON HILL AND HOLBECK PFI Social Housing project in Little London, Beeston Hill and Holbeck Refurbishment of 1245 council houses 388 new build council properties Landscaping / environmental enhancements Creation of jobs, apprenticeships Budget £198M 20 year property maintenance plan

Client

Contractor

Architect

HALEWOOD ACADEMY PFI SCHEME One of eight PFI schools built by one of Britain’s biggest private contractors, Balfour Beatty, in Merseyside All eight have had fire safety issues relating to fireproofing and inaccessible fire dampers which need to be checked annually.

Responsibility of the contractor to rectify issues.

Contractor

EXAMPLES OF WASTEFUL SPENDING ON PFI

Prison Services renting computers for ÂŁ120 a month

Rising car parking charges at hospitals

Over budget road and bridge projects (e.g. M25)

Kennels at Defence Animal Centre in Melton Mowbray cost more per night than rooms at the Hilton in London

IMPACTS OF PFI ON THE ARCHITECT

Positives

Negatives

Large bodies of work to be involved in

Designing to tight contract budgets

Working alongside clients who had a clear vision of their requirements

Less influence on the design

Potential to create strong relationships with contractors for future work in different sectors, procurements, etc

Contractors have own in-house team / only certain architects are chosen Designing to last the lifetime of the contract rather than maximum longevity - morality issue?

IMPACTS OF PFI ON THE TAXPAYER

Positives

Negatives

Competitive initial prices due to tender process

No guarantee that prices set by contractor will be more economical than public sector estimates

The contractor pays initial building cost and is not paid until the initial asset has been delivered The contractor pays for any future maintenance for the duration of the agreed contract Greater number of public sector developments built quicker than with public spending

Ultimate risk lies with government (taxpayer) Some contractors’ profits made on PFI schemes are going offshore to tax havens

RIBA’S POSITION ON PFI June 2005, RIBA seminar to explore issues of PFI and to begin to develop possible solutions Government / PFI / Good design PFI & good design - “not aligned” October 2005: Smart PFI: RIBA Position Paper [2005 / 6 pages] Outlines scope for improvement Voices RIBA’s concerns of the PFI procurement process Design quality / wasted money / wasted time / wasted effort

RIBA’S POSITION ON PFI Two proposed models were outlined Proposals not limited to single PFI projects Extended to selection processes in Public Private Partnerships, such as Building Schools for the Future The RIBA received a generally encouraging response from a broad range of participants in the PFI process. Both the Treasury and the Office of Government welcomed the proposals ‘Client Concept Design Model’ as the preferred option.

THE SMART PFI MODEL ‘Client Concept Design Model‘ Greater preparation at the beginning of the procurement process More time spent between client and design team Outlined in 3 steps: 1- ‘Pre-dialogue’ 2- ‘Competitive Dialogue’ – from Invitation to Participate through to Preferred Bidder 3- ‘Preferred Bidder to Financial Close’

FUTURE PROCUREMENT / FUTURE PFI PFI skewed towards an over legalised approach Increasingly complex procurement procedures and mechanisms for the transfer of risks been developed The Government review of the private finance initiative (PFI) and consideration of other delivery models; Cost Wider range of private sector financing sources Better balance of risk between the private and the public sectors

BENEFITS AND CRITICISM

BENEFITS

CRITICISM

Government outlay

Ongoing maintenance

Public/ Private sector relationship

Overpaying compared to Public sector managed

Public service quality

Discourage a challenging approach

Deliver to budget & schedule

SUMMARY PFI started out with good intentions Many more public buildings were built under the PFI model than traditional method Over time contractors developed ways to maximise profits Schemes became less efficient PFI model needs to be revised to provide better protection to the Government and Tax Payer.

REFERENCES http://www.designingbuildings.co.uk/ wiki/Public_project:_PFI_tender http://www.thenbs.com/topics/ContractsLaw/articles/whichProcurementMethod.asp

http://www.newstatesman.com/staggers/2014/07/save-nhs-labour-mustface-ugly-truth-pfi https://www.rnoh.nhs.uk/

https://www.architecture.com/Files/ RIBAProfessionalServices/Practice/ General/Procurementpolicy.pdf

http://www.publications.parliament. uk/pa/cm200506/cmselect/cmpubacc/694/694.pdf

http://www.designingbuildings.co.uk/ wiki/Procurement_route#Design_and_ build

http://www.telegraph.co.uk/culture/ art/3636603/An-artistic-bargain-at311-million.html

http://webcache.googleusercontent. com/

http://www.cadvantage.co.uk/understanding-the-different-players-in-the-industry-main-contractor/

http://www.independent.co.uk/news/ uk/politics/exclusive-how-privatefirms-make-quick-killing-frompfi-9488351.html https://www.gov.uk/government/ uploads/system/uploads/attachment_data/file/205112/pf2_infrastructure_new_approach_to_public_private_ parnerships_051212.pdf