The “Private Finance Initiative” (PFI) policy was a curate’s egg – sometimes it worked, but in many (most) cases it was probably mistakenly conceived and implemented.
But what irritates me most about PFI is not the mistakes that were made around it, but the complete (wilful?) ignorance of many of its critics in understanding what most PFI deals were.
They are frequently critiqued as PFI project X – e.g. build a hospital – will cost 10 zillion times what the cost of the hospital through direct state spending.
The misunderstanding, or “wilful blindness”, is quite simple – the PFI contract was not to “build a hospital” but to “build a hospital, do all the maintenance on it and provide all sorts of building and back-office services for (usually) its lifetime.”
The main bit of the “massive costs” of PFI therefore come from maintenance and service contracts for the life-time of the building.
Were these often over-priced – yes. Were they often badly designed – yes. Were the interest charges on the original capital build over-priced – often.
But what many comparisons of PFI and non-PFI costs do is ignore the fact that maintenance and services would have had to be paid for anyway. They compare apples and oranges by ignoring this. Certainly this is the case for many of the ‘politically motivated’ attacks on PFI.
There were serious errors in setting up many PFI contracts that led to over-priced build, maintenance and services elements. But they are massively exaggerated if you pretend these were ‘build only’ contracts.
The biggest problem with PFI, in my opinion, was the lack of flexibility they built in. Public service needs are changing rapidly and being tied into 30-year contracts down to micro-detail levels is insane.
But if you are really interested in understanding the negatives, and positives, of PFIs rather than just scoring political points then a good place to start is the many National Audit Office reports on the subject. They take a more balanced view. See this for example, but there are lots more.
And a “PS”
One interesting little positive ‘unintended consequence’ of PFI ought to be mentioned. I had an accidental discussion with a couple of commercial building industry execs (on the same train). They said PFI had changed the way they approached private sector commercial builds.
The standard model was always build it and hand it over and forget it. What PFI had made them think about was the ‘life-cycle’ of a building, including how it was maintained. This changed thinking about original design – if you were going to have to maintain a building it paid to design it so it was low-maintance, or at least lower-cost maintenance.
They told me they were now offering this as part of their commercial packages for new builds – slightly more expensive initial build but cheaper life-cycle maintenance.
In public sector PFI deals they’d been doing this to maximise their own profits, but in the private sector the same approach gave them a “USP” over rivals.
This is of course just an anecdote and I have done no research to see if its true. But it certainly sounds plausible.