Headlines: December 19th, 2002

Managers are moving up the learning curve in negotiating deals with private sector contractors under the public finance initiative. Over 500 PFI deals have been signed so far, but when the earlier deals were negotiated the public sector managers, unlike the contractors, did not understand the complexities of raising finance for the projects. The terms of the contracts were agreed on the basis of the rates of interest charged by the financial backers. Contractors did not reveal their intention to re-finance projects when they reached implementation, because at this point the risk of something going wrong was reduced substantially. Consequently money could be borrowed at a much lower rate.Auditors from the Nation Audit Office discovered what was happening and set up discussions with industry representative to agree a code of conduct that would give the taxpayer a better deal. The Office for Government Commerce launched a voluntary Code in October and it has been widely accepted by PFI contractors. The Code specifies that gains from any re-financing will be split on a 50-50 basis between both parties.

The Code also provides for public bodies to share in re-financing gains for projects that are already signed and sealed. The share in these cases is 70 – 30 with the contractor retaining the majority. Re-negotiation of two contracts under the Code have already recouped 4 million pounds. Calderdale Hospital in Halifax was a newbuild and refurbishment project completed in April 2001 and The Ministry of Defence’s Joint Services Command and Staff College opened to service personnel in August 2000.