Task force on a mission to liberate PFI
3 February 1998
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Jonathan Ball examines the role of the Treasury Project Task Force, and looks at the perception of its performance. Jonathan Ball is a freelance journalist.
Despite the recent debacle over the lack of funding for the Channel Tunnel Rail Link, there is evidence that the Private Finance Initiative (PFI) or Public Private Partnership, to employ the New Labour terminology is beginning to bear fruit.
This appears, in no small measure, to be due to the pioneering work of the Treasury Project Task Force, set up in the wake of the Bates' review of PFI last June.
The task force has three principal functions, as defined by Bates: to sign off the commercial viability of all significant projects before the procure-ment process commences; to be responsible for regular monitoring of priority projects in procurement to ensure progress in accordance with agreed timetables; and to attempt to make projects more cost-effective by minimising costs to the private sector of bidding for PFI projects.
The eight-strong task force is headed by Adrian Montague, a former Linklaters lawyer and Dresdner Kleinwort Benson banker.
The only other person with a legal background to be appointed as one of Montague's 'young Turks' is David Lee, formerly a project finance senior assistant.
He took up the task force appointment in mid-October last year, after spending eight years with Allen & Overy.
'The task force is designed to give the Treasury the skill set that a private bidder for a PFI contract would have,' says Lee.
Lee has adapted to a new office culture and he says he is pleased with how the task force has developed.
He explains: 'My role with the Treasury is not purely legal. On a day-to-day basis I'm dealing with a larger number of projects than I did with Allen & Overy, but admittedly in less depth. Of course, the atmosphere is different from that of a law firm, but no less challenging for that.'
He adds: 'I feel we have made substantial progress. Our announcement in February of the significant projects where we will be focusing our efforts is evidence of that.'
On 10 February, Geoffrey Robinson, the Paymaster General, announced a significant projects list, consisting of about 50 private finance ventures deemed as important and chosen to benefit from task force input to help ensure their commercial viability.
The statement coincided with two other publications: a list of nearly 30 projects signed since 1 May 1997 and details of the working methods the task force will employ to help deliver more viable projects.
'It is simply hoping that a steady stream of good PFI projects will evolve as if by magic,' said Robinson.
'Our approach is to concentrate top-notch task force expertise on developing, together with departments, a representative batch of quality model contracts. These can then become templates that provide the soundest possible basis for future business.'
The task force is also playing a role in developing and quality assuring projects (in areas such as education and the NHS) before procurement gets under-way. Projects will be added to the list as they approach the start of procurement.
Montague reiterates that the task force should road test the commercial viability of significant transactions. He says: 'We hope this open approach will help all PFI practitioners do the sort of project planning that maximises their chances of successful procurement to a disciplined timetable.'
Lee says: 'As a method of procurement, PFI compares very favourably with the traditional route. The recent National Audit Office reports on the prisons and roads programmes clearly spell this out.'
In the case of the new prisons at Bridgend and Fazakerley, for example, procurement time was halved and substantial cost savings achieved.
'Increasingly, we are finding real similarities between projects beginning to emerge,' explains Lee. 'For example, much of our negotiations centre round the allocation of risk.'
For their part, lawyers are applauding the changes but say that PFI projects do not provide a cash cow for firms.
'I wouldn't describe the initiative in that fashion,' says Barry Francis, head of PFI at Beachcroft Stanleys. 'Certainly, PFI has generated significant fees, but it has also required investment of a lot of time and effort and has encouraged us to look at new ways of doing things. The hours we put in, particularly as a deal nears conclusion, are considerable.'
Francis says the initiative is now becoming a reality, in light of the Bates review.
He explains: 'The key element of the Bates recommendations is the emphasis upon prioritisation of projects, and I feel the task force has played an important role in this area. The replacement of the panel and panel executive by the task force means there is one less layer of bureaucracy to deal with.'
But he is concerned about the task force's plans to develop standard form contracts. 'They will work for smaller projects but there is a danger than standardisation will slow the development of better contracts and therefore better deals,' he says.
Tim Steadman, a partner in Clifford Chance's private finance group, comments: 'When it replaced the old PFI panel and executive, the task force looked like a distinct improvement, with a clear place in the political firmament and a charismatic, seasoned leader.
'It has proved adept at publicising its broad objectives, but any beneficial effect on individual deals or sectors has been slower to appear.'
Steadman says the interplay between the task force and other co-ordinating bodies, such as the NHS or the 4Ps, (a government quango) can also be opaque in practice, although the need for central support and guidance in the local authority sector has never been more pressing.
'All in all, it is hard to believe that such a talented bunch can ultimately be less than successful, but the trickle down of real help has been slower than the press releases might suggest,' says Steadman.
Andrew Rolfe, also a partner in Clifford Chance's private finance group, says PFI is still at a relatively early stage in its evolution, so many of the ground rules have yet to be firmly established.
The degree of sophistication in the market also varies significantly, he says.
'Deals in the health sector, for example, have been notoriously difficult and uncertain, due to a mixture of affordability problems, solvency and capacity issues relating to the individual trusts and the lack of any standardisation in the market.'
Giles Frost, a partner with Wilde Sapte, echoes this view. 'It will be fascinating to see how quickly the task force brings forward the next generation of health service projects,' he says.
'There are many waiting in the wings with projects developed under the former administration, but it remains to be seen whether the current Government will wish to make changes in policy with respect to those projects or bring them forward in the same manner.'
Lawyers generally agree the task force is beginning to make a significant impact on the progress of PFI, particularly in terms of prioritising projects.
But the profession is so far only giving a cautious welcome to the Treasury body. As Andrew Rolfe puts it: 'Overall, the jury is still out.'