PPP CONFERENCE HONG KONG 2005 The Exclusion of Scottish Firms in - - PowerPoint PPT Presentation

PPP CONFERENCE HONG KONG 2005

The Exclusion of Scottish Firms in Scotland’s PFI Projects

Kirsty Hunter and Professor John Kelly

Glasgow Caledonian University School of the Built and Natural Environment E-mail: khu@gcal.ac.uk

Structure of Presentation

A Background to the PFI PFI Projects in Scotland The Research Project Research Methodology Issues Identified in Interviews Barriers to Entry The Questionnaire The PFI Players PFI Supply Chain Information Results Problems Encountered Conclusions & Further Work

A Background to the PFI

• Introduced in 1992 by Conservative Gov.
• Extended by Labour Gov. – PPP’s
• To increase involvement of private sector in the

delivery of public services

• A vehicle for large scale public sector investment
• ffering fastest rate of construction for public

buildings

• Public sector uses an off balance sheet asset
• Achieve vfm & transfer risk
• Controversial scheme

PFI Projects in Scotland

£2.7b investment in PFI 1998-2003 (Audit Scotland, 2002)

School Building Programme

• 2700 primary & secondary schools
• 1/3 of total investment

Healthcare

• 7/11 new hospital developments since May 1999

Infrastructure

• Skye Bridge, southern M74, M77, Glasgow Southern Orbital

Water

• 1500 projects from April 2002-2006, £1.8b

Glasgow Housing Stock Transfer

• Spending plans for £4b in next 30years

The Research Project

• Funded by the RICS
• April 2004 – ongoing
• Assisted by the RICS
• Investigate PFI players in Scotland’s projects

Quantity Surveyors Architects Contractors Other members of the core construction team

• “How many architectural practices, contractors, project

management firms and other members of the typical core construction project team are based in Scotland?”

• Large national contractors south of border???

“The Treasury have a record of excluding smaller firms through restrictive PFI, prime contracting and Procure 21.”

Scottish Parliament Example

Core Project Team Organisation Location

Architect EMBT RMJM Barcelona, Spain Scotland Construction Manager Bovis Lend Lease London (Scottish Office) Quantity Surveyor DL&E London (Scottish Office) Consulting Engineer Arup London (Scottish Office) Planning Supervisor Turner & Townsend London (Scottish Office)

Research Methodology

Strand A – Analysis of SE Database Strand B – Investigation of the PFI Journal Strand C – Structured Interviews of Case

Study Research

Strand D – Questionnaire Survey of

Construction Faculty Board Members

Strand E – Study of Single Project

Strand C: Issues Identified in Interviews

Specialist Skills

Small number of lawyers & project managers Involvement of council employees with non technical

background

Use of local supply chain dependent on availability of

skills

Fragmentation

Formation of strategic alliance / consortium

Bureaucracy & Size

Number of regulatory bodies Large size of projects or bundled projects Same contenders – PFI a specialised market Provision of different PFI packages

Strand C: Issues Identified in Interviews

High Costs & Demands on Resources

High bidding / participation costs High project values High financial risks Lack of credibility and contacts prevents involvement Demands on management time Commitment to more than one PFI - pressure on resources Acquiring capital investment / cash flow to engage in PFI Acquiring expensive consultancy expertise Acquiring sub-contractors - committed to other projects

Barriers to Entry

88% contractors felt there were real barriers to the PFI (Dick & Akintoye, 1996; IPFA 2002)

Lack of appropriate skills High participation costs High project values High risk Lack of credibility and contracts Demands on management time

Strand D: Questionnaire

Respondents were asked:

Council area they were from PFI projects they have worked on & nature of

input to projects identified

Procuring agencies / concession companies

they have been involved with

To identify any other members of the supply

chain

The PFI Players

Dwindling UK interest… Treasury Review (complete – Nov 2004) Increasing overseas interest…

Bilfinger Berger (German) Hochtief (German) Bouygues (French)

Overseas interest is positive because UK

interest is deteriorating???

PFI Supply Chain Information

Sector i.e. education, health Project Sponsor / Client Special Purpose Company (SPC) / Consortium Contractor Facilties Management Provider Engineer(s) Lenders / Debt Financing Design Advisors to the Consortium i.e. financial & legal Advisors to the Client i.e. financial, legal & technical

Sources of Information

RICS questionnaire Interviews with technical advisors Scottish Executive PFI project fact files National Health Service (NHS) database on

projects (for health projects only)

Sector

• No. of

Projects I dentified

• No. of

Projects with I nformation Percentage

• f Projects

with I nformation

Health 118 82 69% Local Authority 32 16 50% Water and Sewerage 9 1 11% Scottish Executive and its Agencies 5 2 40% Further Education 4 3 75% Public Sector 3 2 67% Police 1 1 100%

Total 172 107 62%

Supply Chain Member Origins

Scotland, England, Overseas

Head / Main office in Scotland Office in Scotland, Head / Main office in

England or overseas

Based in England or overseas only Global company – no particular head office

(has office in Scotland)

Contractor Facilities Manager Architect Legal Advisor to Client Financial Advisor to Client Technical Advisor

Balfour Beatty (7) Gardner Merchant / Sodhexo (5) Keppie (4) Central Legal Office (25) PWC (23) Faithful & Gould / Atkins (8) Roberston Group (5) Roberston FM (2) HMA/3D Holmes Partnership(3) Dundas & Wilson (10) Deloitte Touche (14) Mackenzie Partnership (7) Sir Robert McAlpine (4) ISS Mediclean (2) Aedas (3) Shephard & Wedderburn (8) Ernst Young (6) Currie & Brown (7) Morrison (4) Initial Healthcare (2) Young & Gault (2) McGrigor Donald (8) Quayle Munro (5) Canmore Partnership (7) James Walker (4) HBG FM (2) HLM Design (2) McClure Naismith (7) Newchurch & Co (5) Mott MacDonald (4) HBG (4) Dumfries Facilities (2) Fife Council (2) MacRoberts (7) Amey (2) BLB (2) Burness (7)

Results

With exception of the legal entity, the majority of

profit from Scotland’s PFI is being absorbed south

• f the border

Based in Scotland…

20% financial advisors 29% facilities management providers 33% contractors 40% technical advisors 43% architects

17/37 organisations publish their profits in

Scotland compared to 20 in England

Problems Encountered…

Information on Scotland’s PFI projects

being readily available

Databases incomplete Response rate in questionnaire

Few practices participating in Scottish PFI

projects

Knowledge of supply chain

Conclusions & Further Work

Bidding costs & other PFI costs Huge challenges for Scottish firms PFI is a maturing market ‘Two-tier’ market With exception of the legal entity, the majority of

profit from Scotland’s PFI is being absorbed south of the border

Initial premise that PFI in Scotland is undertaken

mainly by organisations south of the border is disproved…

Very small constituency of firms operating in the PFI

market in Scotland (Glasgow / Edinburgh based)

Current PFI system creates a ‘vicious circle’

Recommendations on Amendments to the PFI???

Requires significant changes…

PFI and non-PFI routes Bespoke project contracts Different approach to risk allocation Reserve all smaller public sector

contracts for smaller companies