UK government minister condemns ‘ghastly’ PFI

Cabinet Office minister Francis Maude says that private parties benefitting from existing Private Finance Initiative contracts must have been ‘laughing all the way to the bank’. The comments will raise fears that the model will effectively be scrapped - amid a lack of clarity over what might replace it.

The Private Finance Initiative (PFI) – the UK’s standardised procurement process for tendering public works to the private sector – has come under further fire from the coalition government. 

Francis Maude, Cabinet Office minister, has claimed in an interview with the Daily Telegraph that many PFI deals were “ghastly” and imposed a “penalty” on schools, hospitals and other public services. He said that “some people on the other side” of projects [meaning the private sector] “must have been laughing all the way to the bank”.

In what appears an ominous statement for PFI/PPP investors in the UK, Maude called for a “new world” of radically reformed public services that would make some of the PFI contracts that have been struck in the past look “outdated”. This comment will lead many to ponder whether PFI in its present form is effectively finished – and, if so, whether anything similar will replace it.

The remarks follow the launching of a campaign by Conservative backbencher Jesse Norman, who has called for a £500 million (€585 million; $805 million) rebate to be paid voluntarily to the Exchequer by those who have profited from PFI deals.

Maude’s comments appears to go further than Norman in promising to “see what can be done” about contracts believed to be harming public services. This raises the spectre of the possible retroactive renegotiation of existing agreements.

This comes after a UK Parliamentary committee last month called for procuring authorities to “negotiate with major PFI contractors to secure a share of efficiency gains for the taxpayer”. MPs concluded that there was “no clear evidence of whether PFI is any better or worse value for money than other procurement routes”.

In response to the findings of the committee, Elizabeth Fells, head of public service reform at the Confederation of British Industry, warned that “with the public finances constrained, the role of the private sector in supporting new infrastructure will become ever more important. Any moves to challenge existing contracts will undermine private sector confidence, jeopardising future investment in crucial infrastructure projects”.

The coalition’s toughening stance against PFI will lead observers to wonder whether the model will be tinkered with, replaced by something similar or effectively scrapped in favour of public procurement. Although there is no hard data – a shortfall identified by the Parliamentary committee – it has always been widely assumed that public procurement is more costly by a significant margin.