Vetting may deny small firms role in PFI system

Small law firms are likely to be ousted from Private Finance Initiative (PFI) work following the Government's announcement that advisers will have to be vetted by a new Treasury taskforce to be established this week.

Paymaster General Geoffrey Robinson is setting up the taskforce today, to replace the semi-independent PFI panel and to approve the financial viability and suitability of PFI projects before they are put to tender. The taskforce will also have to find a way of accrediting advisers to PFI projects.

The review of PFI by Malcolm Bates, chair of Pearl Assurance, which Robinson has fully accepted, comments: “With the proliferation of PFI projects, a large number of advisers have surfaced of varying ability. The taskforce should quickly develop a means of improving the quality of advisers by checking credentials and testing their knowledge, commitment and depth of resource.”

Nick Tott, PFI partner at Herbert Smith who was seconded to the PFI executive for 15 months, said many small firms already advising on projects were likely to find they would not win accreditation.

He said local public sector bodies, such as NHS trusts, colleges and local authorities, “have their existing 'relationship' lawyers who carry out their conveyancing and employment-related work, but they may not be right for a PFI project. These firms may well have undertaken PFI projects, but they don't necessarily have the resources to deliver them.”

But director of PFI at Garretts, Michael Langden, warned that moves to restrict which law firms could act may be seen as being against European competition law and could prevent firms that wanted to acquire expertise from ever gaining it.

Details of how law firms are to be accredited and whether vetting applies to advisers to both public and private sector bodies are unclear. Robinson would only say: “Some advisers are rather better than others. The taskforce should give a seal of approval to those who want to undertake PFI work. How they do it is a matter for the chief executive of the Treasury taskforce.”

Bates also wants consideration to be given to paying public sector advisers, at least in part, success fees.

Although the PFI executive, which includes Simmons & Simmons partner Edwin Godfrey, who was appointed joint deputy chief executive this spring, will be disbanded in September, lawyers in private practice will be able to apply for secondments to private finance units in each government department. Godfrey said the dismantling of the executive was “not entirely unexpected”, since its promotional role was largely over.

Bates wants each departmental unit to strengthen itself by appointing private sector experts, such as PFI lawyers, by the end of the year. Lists of names will have to get Robinson's approval by the end of September. Each department will also have to produce proposed standard contract forms ready for publishing in October, which Bates said would “sharply reduce” legal fees and the time spent negotiating with preferred bidders.

The removal of the panel and its supporting executive was welcomed by Tott, who agreed with Bates' that the executive's support of individual projects had been “patchy”.

He added that, in the early days of PFI, publicity and encouragement was needed for the whole idea, but now schemes were being driven by individual departments, the PFI executive and panel had little influence over individual projects. By contrast, the Treasury taskforce would have real power to sign off each project.

But Garretts' Langden said that by scrapping the panel and having stronger internal departmental units, “you risk fragmenting the sector”. Rather than appointing lawyers to departments, he believed the Government should hire law firms and financial experts to advise as external consultants to help it make strategic decisions about prioritising need – particularly for local authorities and the health sector.

“The moment that a department hires a lawyer, he will see himself as acting for the Government rather than having a duty to independently advise,” explained Langden. “The nuance is important because the public sector desperately needs independent advisers to help it distinguish good from bad.”

Nabarro Nathanson PFI partner David Anderson, once a secondee to the private finance unit at the NHS executive, also had criticisms. He said that producing standard form contracts may not be the answer. “What would be more welcome is clear guidance, based on experience, as to appropriate mechanisms for dealing with key aspects of risk allocation, rather than prescriptive precedents, which may stifle the development of the product,” he commented.

Anderson also called for a resolution of how accountants treat PFI contracts. Many lawyers take the view that accountants, who have to sign off contracts on a numerical basis, inhibit the transfer of risk in a deal.