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Industry proposes alternative to PFI following strong criticism from MPs

An alternative to the much maligned private finance initiative has been put forward, in which construction and procurement experts could become “middle men” in the contracting process.

The new model would create independent companies to raise the finance, as well as owning and managing the assets, Ian Reeves CBE, chairman of Constructing Excellence and executive chairman of the McGee Group, told H&V News.

Mr Reeves is also chairman of consultancy Synaps, whose managing director Madoc Batcup has been developing the model in discussions with the government.

It comes after a damning report on PFI by MPs on the Treasury Select Committee.

Under Mr Batcup’s model, new entities - infrastructure investment and management vehicles (IIMs) - would create not-for-distributable-profit private companies limited by guarantee, enabling cash to be pumped back into customers or projects, rather than go to shareholders.

Mr Batcup said there was a clear need for a new approach to create “competent clients” acting on behalf of the public sector and dealing with large, private sector companies, which would “become centres of expertise and excellence in the delivery of public sector infrastructure.”

Constructing Excellence chief executive Don Ward welcomed the new model. “We have been arguing for a long time that the industry needs to partner with the finance sector and start coming up with models that work and that address the government’s problems.”

UK Contractors Group director Stephen Ratcliffe said: “These are interesting ideas which are certainly worth pursuing.”

Matthew Custance, PFI expert at accountancy firm KPMG, questioned whether there would be enough of an incentive for investors.

New entities could find themselves having similar negotiations with government clients as existing PFI entities, he said.

Carillion group chief executive-in-waiting Richard Howson argued there had been some unfair criticism of PFI.

“I think it is political, personally. I think the will is there in the long term, and you have to think about the long term. The government has run down facilities because they have not been maintained over the years.

“With PPP or PFI contracts, there is an obligation to maintain a consistent standard over the term and I think the value of that has been overlooked.”