Financing of public sector construction projects – developments in UK’s Private Finance Initiative

True, there wasn’t much money around when the coalition took power five years ago. But canning Labour’s Building Schools for the Future programme, and then messing around with a lengthy repair job on the private finance initiative saw construction projects grind to a halt, just when Britain needed the jobs.

Five years on, a smaller schools programme is belatedly underway with Carillion yesterday landing a £200 million contract to rebuild eight in the West Midlands… The 25-year deal is under the new PF2 model, which at least looks better designed than PFI.

There are two key changes with PF2. First, the government takes an equity stake, with its 12.5 per cent holding making sure the taxpayer gets a share of any extras from the contract. [And presumably also improving influence/access to information?]… Second, the “softer” facilities management, such as catering and cleaning, goes to a different contractor to improve transparency and reduce the scope for rip-offs. That means the cleaners have no incentive to look after the building. But that’s another story. – Alistair Osborne, The Times 18 August 2015.

It will be interesting to see how the government equity holding works out in practice. As for the second point, I would argue that many people who clean buildings care about their job and do it well for reasons other than the financial incentives to which their employers are exposed.

Published by

Paul Hodson

Head of Unit "EnergyEfficiency" at European Commission, Directorate-General for Energy

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