PFI fails to deliver big savings

29th May 1998 at 01:00
THE FIRST education project to be delivered under the Private Finance Initiative will save the public purse just pound;400,000 over 30 years.

Work is progressing on replacement buildings for Colfox School in Bridport, Dorset, under a pound;22.1 million deal between the county council and developers Jarvis Construction. At today's prices the project would have cost pound;22.5 million if publicly funded over the 30 years of the contract.

"It's not a big margin - but they have got the risks and we haven't," said Paul Turner, Dorset's assistant county treasurer.

"I think the margins (on PFI projects) will always be reasonably small because the private sector has the problem of having to borrow probably at slightly higher interest rates than we can. They take a view of the risks involved and try to construct a building which is low maintenance and costs less to run."

The company has taken on many of the risks associated with the development, such as any rises in capital costs between tender and completion, as well as the continuing maintenance, grounds, repairs and equipment replacement costs.

Mr Turner added: "The reasons we went for a PFI (deal) were the particular conditions of the school and that we couldn't afford to do it any other way."

PFI was a conservative initiative, introduced in 1992, to bring private money into the public sector. Private partners build a new school or run maintenance and repair contracts in return for annual payments.

Westminster City Council - which expects to select a preferred bidder by the end of July for a multi-million-pound PFI replacement of Pimlico School - is also more concerned with getting the money to start the project than with the public-private trade-off.

A 1995 bid to rebuild the glass-and-concrete central London school resulted in only a pound;2.5 million allocation - compared to estimated costs in excess of pound;18.5 million.

But PFI proposals for a new school and a maintenance contract for secondary schools in Haringey, London, have run into opposition from the public-service union Unison. Branch secretary Roy Irwin said PFI was "a con", involving the transfer of public money into private profit.

Companies have to pay higher rates of interest on borrowings than local authorities and ensure shareholders get a return on their investment, he said, meaning a significant proportion of the money involved in PFI deals never gets spent on the schools.

* Dorset officers and others involved in the Colfox PFI will share their experiences at a seminar in London on July 9. Call 01323 644644 for more details.

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