Top construction companies not accepting fixed-price PFI deals

The new NHS Accountable Care Organisations are relying on fixed-price PFI contracts for their savings.

“Bosses of top construction and outsourcing companies have warned ministers they will no longer accept fixed-price PFI deals after the collapse of Carillion.

The threat is a blow to the government’s £600bn infrastructure programme, which is already struggling to attract bidders. Last week the National Audit Office said there was little evidence that private finance initiative deals offered value for money for taxpayers.

Carillion plunged into insolvency last week with just £29m cash in the bank. Its threadbare finances were undone by failings on a string of PFI contracts, which left it unable to access hundreds of millions of pounds.

Balfour Beatty, Britain’s biggest construction company, has been moving away from fixed-price PFI contracts, which leave the winning bidders vulnerable to big losses if the projects encounter unexpected problems. The £2bn company is emerging from a disastrous spell of contract problems, which led to seven profit warnings.

Galliford Try — Carillion and Balfour Beatty’s partner on the Aberdeen bypass PFI contract — is also refusing to consider new fixed-price deals.

Rupert Soames, chief executive of the outsourcing giant Serco, said contractors would refuse to bid if too much risk were piled on them.

“Government would say, ‘You signed the bloody contract.’ But it’s not in anyone’s interest if you consistently get suppliers making huge losses. That’s no way to encourage a vibrant market. Both sides need to learn lessons from this,” said Soames, whose company’s government contracts include running prisons.

Balfour Beatty said in a report: “We need to move away from the position where fixed-price contracts, risk transfer, lowest-cost tendering and adversarial relationships are the norm.”

Carillion’s crisis was exposed in July when it admitted that contracts to build the bypass, Birmingham’s Midland Metropolitan Hospital and the Royal Liverpool Hospital were to blame for a large chunk of an £845m writedown. All three deals were public-private contracts, which left Carillion to foot the bill for cost overruns. There were unexpected problems in Aberdeen and Liverpool.

Despite this, the government wants contractors to bear all the risk on two huge PFI projects: a £1.6bn tunnel to bypass Stonehenge in Wiltshire and the £1bn Silvertown tunnel in east London.

Stephen Rawlinson of the analyst Applied Value, said: “The government has become more and more of a bully and transferred risk that the private sector cannot cope with.”

● Richard Adam, Carillion’s former finance chief, has quit the board of the warship designer BMT. Adam, 60, oversaw a huge expansion in debt at Carillion before his departure at the end of 2016. He joined BMT only eight months ago. He has recently left the boards of the developer Countryside, estate agent Countrywide and transport company First Group.”

Source: Sunday Times (pay wall)

One thought on “Top construction companies not accepting fixed-price PFI deals

  1. The golden rule of outsourcing is to ensure that you always make a profit – which some outsourcers do by creaming off a % of the deal up front and then delivering the best service they can with what’s left over.

    We should not forget that Carillion was an exception to the rule. If ACO’s have a fixed budget, then why shouldn’t we expect them to cream off their profit and deliver a restricted service with what’s left over?

    Come on everyone – let’s all stand up, and give a great big cheery hand-waving huzzah goodbye to the NHS as it departs.


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