It is hard to believe five months have passed since the government made great pronouncements about PF2, the son of PF1, but they have.
In fact, not only is it almost half a year ago, more importantly it is nearly 10% of a parliament session ago that we were led to believe that the next generation of PF1 was going to hit the streets. If the latest words from the Education Funding Agency (EFA) are to be believed, not only has PF2 already hit the tracks, it might also be lurching to a juddering halt on the buffers.
According to the EFA, some £700m worth of priority schools will now require direct funding from the government rather than PF2. Apparently, and somewhat ironically, the financial markets have got worse, thereby making the case for the private finance option rather shaky. Did this position really come as a surprise to the EFA? Surely not? After all, it doesn’t take a rocket scientist to read the press and conclude that while there is lots of money around, the terms for borrowing are probably worse than they have ever been. Paying for projects on “the drip” as the PF1 approach requires has never been a cheap option. It is just a simple way (actually it’s a very complicated way) of putting off the inevitable and paying a huge premium for the privilege.
Read Martin’s January comment
PF2 – 4 out of 10, must try harder
In fact, the most ironic thing of all is that local authorities can borrow from the Public Works Loan Board (PWLB) at fantastically attractive interest rates and terms. Yet the government still continues to look to the private sector to finance PF2 projects. Certainly it wouldn’t take much adjustment of the borrowing rules to allow the local authorities and health trusts to access funds more freely from the PWLB.
Surely as taxpayers, never mind as constructors, we should be starting to question this sort of government policy. If I weren’t so polite I might even ponder as to why the government is so wedded to PF2 being funded at higher-than-necessary interest rates from banks, the majority of which it has a large stake in!
Almost in parallel with the EFA’s announcement came the really disappointing news that the £206m New Papworth Hospital PF1 contract is slithering down a slippery slope, away from the point where it should be awarded. The business case for the scheme has still not been approved by the Department of Health, and the Papworth Hospital Trust does not anticipate gaining approval anytime soon. Not to put too fine a point on matters, the bidders on this project have been spending their money, at risk, for almost three years. Couple this news with the government’s threat that any PF2 scheme which fails to reach contract award within 18 months will be pulled. This must have sent a real chill down the spine of the two remaining consortia bidders at Papworth.
In late 2012, I had the temerity to suggest that what the government has sadly done is introduce a potential new risk for contractors – the loss of bid costs due to poor stewardship of the process by the client. The proposal that the procurement period will be limited to 18 months should on the face of it have been seen as good news. However, news like the Papworth announcement will do nothing to quell fears that bidders will not be reimbursed their costs if the client misses the 18-month deadline.
I will say it once again, not that I expect government want to hear it: where a PF2 client fails to meet the 18-month deadline, the Treasury should have the decency to commit to underwriting the costs of each shortlisted bidder.
Sadly the bottom line appears to be one of let’s make it up as we go along… or you hum it and I’ll sing it.
