[A-List] UK corporate state: PPPs in disarray

["Keaney Michael" <Michael.Keaney@xxxxxx>]

Private Eye

No. 1060, 9-22 August 2002

In the Back

PFI? PAC it in

Anyone who still has faith in the government's stampede to sign private
finance initiative (PFI) contracts with big business should read the
report from the Commons public accounts committee (PAC) delicately
entitled Managing the Relationship to Secure a Successful Partnership in
PFI Projects.

It exposes a fantastic record of incompetence and carelessness in PFI;
and discloses that there are 400 PFI projects in progress committing the
government (ie taxpayers) to a total expenditure of £100bn.

Despite these massive figures the evidence -- most of it culled from a
not very thorough investigation by the national audit office (NAO) --
suggests that one in five authorities considers that the "value for
money" of its PFI contract has already diminished; and most PFI
contracts have been running less than for five years.

The committee regards it as "essential" that proper checks be made to
keep track of value for money. But only half the contracts surveyed by
the NAO had any mechanism in place for ensuring value for money over the
lifetime of the contract. Worse, 58 percent of the authorities had made
deductions from payments due to PFI contractors, which suggests, as the
report concludes, that "many authorities are not getting the service
they require".

Yet in some PFI scandals, notably the case of the Royal Armouries Museum
in Leeds, and the Channel tunnel link, the private contractor had to be
bailed out by taxpayers in the most expensive and extravagant fashion.
"We have seen," the report observes, "no rigorous assessment of value
for money on PFI contracts in force or empirical evidence as to whether
they are good value for money or not".

Naturally the MPs were anxious to improve this situation and made a
number of recommendations, most of them about toughening up procedures.
The government body responsible for these improvements is the Office for
Government Commerce (OGC), whose chairman Peter Gershon and head of PFI
policy Peter Ryan gave evidence to the committee last December. They
were flanked by Colin Busby of the Major Contractors Group.

Mr Busby told the committee that his company, Kier, has at least £50m
tied up in PFI projects and most of the answers from him and the OGC
executives sounded as if they were concerned above all else to exculpate
the contractors of any blame.

For instance, Alan Williams MP asked Mr Gershon: "We have £100bn
already committed and you do not even have any meaningful information to
give to this committee on rates of return for contractors." Mr Williams
cited Fazakerley prison where the contractors asked for a "somewhat
obscene" 50 percent premium "on top of what they would normally expect
with a conventional building contract". Mr Gershon explained that
Fazakerley was "a very early prison in a very novel market where for the
private sector there would have been a very significant risk. As the
market matures, the risk declines".

Explaining the problem more subtly, Gershon told the MPs: "Partnership
is a bit like marriage. You enter into it with the view of having a
long-term relationship, and sometimes, regretfully, you discover after
the marriage ceremony that the person you thought you had married does
not quite turn out to be as you expected. They have bad habits that only
come to light after the wedding ceremony."

Mr Gershon became chief executive of the Office of Government Commerce
in April 2000. His appointment crowned a 30-year career in industry,
chiefly the arms industry. He was managing director of GEC's defence
business until it was transferred to British Aerospace in 1999, when he
joined the BAe board. As he moved across to government to supervise the
billions of pounds of taxpayers' money pitched into PFI projects, Mr
Gershon was awarded the CBE.