PFI is dead, long live PF2

Lawyers have a moral imperative to reinvigorate infrastructure, something that the new public-private partnership scheme could allow, says Christopher Jarman

Christopher Jarman
Christopher Jarman

Last week saw the publication of ‘A New Approach to Public Private Partnerships’, the Government’s long-awaited reform of the widely criticised project finance initiative (PFI). This new approach is called PF2 and included a draft ‘Standardisation of PF2 Contracts’.

PF2 places greater emphasis on enhancing transparency of arrangements between the public and private sectors and driving value for money through adjustments to risk allocation. But most experienced projects lawyers will note that the PF2 techniques are not necessarily new but may have been re-assembled and packaged.

Above all PF2 is about money – more of it and cheaper by making it better value for money and more attractive to sources of long-term financing.

With many major law firms and other professional advisers having built a significant practice area on the PFI programme, many if not all are looking to the chancellor and Treasury to reinvigorate the model and kick-start a reinvestment in infrastructure – and in turn their own practices.

But what does PF2 mean for the legal industry? The report gives rise to several areas for consideration.

If we take a step back it seems that PFI has failed. People hated it and the money ran out. Part of the problem was that trust was not always high on the agenda and clearly some players over-played their hands; the golden goose got killed. Will PPPs get a second chance? For our part, how are we lawyers going to exercise restraint to enable partnership and give-and-take to work? Do we know yet how to protect our clients and our PI policies without scoring points?

On the face of it, one of the more striking changes in PF2 is the investment of equity by Government. Actually this is not new, but lawyers must consider how they and their clients will manage the conflict between government as investor, via a new centralised vehicle, and government – central and local – as procurer. It is after all central to PF2 policy that what it pays for a greater proportion of equity it will claw back via the returns it makes as investor by taking some risk. It cannot therefore be too benign.

Speed is of the essence; a scheme that drags on costs money. Our challenge is to help understand, streamline and scope. Lawyers can take a lead here – and if that sounds self-serving it is not. The more we can help to scope at the front-end the less we will be paid at the expensive back-end.

Where does the in-house lawyer sit with all this? Take for example a local authority legal team facing unprecedented team cuts and budget restraints – where can the head of legal find time to manage their ever-diminishing resources and manage the new PF2 or control external lawyers? Does centralised procurement, as proposed for the Priority Schools Building Programme (PSBP), reduce the role long-term?

Procurement – the biggest single challenge for everyone. Whatever funding has been promised will be withdrawn if a preferred bidder is not announced within 18 months. This is achievable – and should be done – but procurers must scope it right and bidders must not change (much – with a nod to procurement lawyers) their situation or consortium. Will the Government ensure the departmental and centralised oversight units are resourced so they are not the cause of delay, not bureaucratic and can truly asses value for money solutions? And what happens when there is political pressure to, for example, extend the timescales for a politically important project when the end is in sight but not that near?

Finally – turning to our role as business developers. What will PF2 be used for? To what extent do the reforms apply beyond social infrastructure? There is currently only one Government programme – PSBP – and only one hospital – Sandwell. When and how will we get to understand what Government departments have in mind?

The call is to do all this better, cheaper and quicker. This is a moral imperative for lawyers. We can play our part in reinvigorating infrastructure – a good in itself – and the creation of new jobs and inward investment.

Good luck.

Christopher Jarman is a partner at Bevan Brittan