the true cost of pfis

nick mercedes

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A combination of incompetent politicians and theiving bankers....

"In April a scathing report by National Audit Office found that each household will pay nearly £400 to pay for hospitals, schools and motorways.

The price tag for repaying PFI firms will reach £8.6 billion next year alone, with the taxpayer owing a total of £121.4 billion on public projects which are worth only £52.9 billion.

Many PFI deals tie local authorities into expensive catering, cleaning and maintenance contracts, meaning the total bill to the taxpayer is £229 billion. In one case, a school was charged £320 for a plug socket"

"Private contractors who agreed PFI deals with the Government are set to make billions of pounds in profit, with some due to see returns of up to 71 per cent.

An almost unknown City company, Innisfree, with only 14 staff, is the largest single player in the PFI market, owning or co-owning 269 PFI schools and 28 hospitals.

According to accounts filed at Companies House, Innisfree’s profit margin was 53 per cent last year. A successful FTSE 100 company makes margins of around 6 per cent. David Metter, the founder and chief executive of Innisfree, owns almost three-quarters of the company and collected pay and dividends of £8.6 million last year.

The PFI deals include:

A hospital which charged £52,000 for a job that cost £750. Demolishing a shelter for smokers resulted in the PFI contractor charging £2,600 a year for the “extra cleaning”.

A hospital in Bromley, south London, which will cost the NHS £1.2billion, more than 10 times what it is worth.

An empty school which will cost taxpayers £370,000 a year until 2027. Another school had to pay £302 for a socket, five times the cost of the equipment it wanted to plug in.

Military dog kennels which would have ended up costing more per night than a room in the Park Lane Hilton, London. The deal to replace facilities at the Defence Animal Centre in Melton Mowbray resulted in the sacking of the contractor and the scrapping of the contract.

In Belfast, a school closed after seven years but the PFI contractor must be paid £370,000 a year for the next 16 years."

Private Finance Initiative: where did all go wrong? - Telegraph
 

SPX

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They are the golden egg of contracting and 'sweeteners' are rife in the bidding processes.

When I was 'on the tools', we got a bit of sub-contracting work on a school and the prices we were offered to do the work were just astronomical.
 

Scott_F

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Lends a lie to all the nonsense about bringing "private sector efficiency" to provision of essential public services.
 
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nick mercedes

nick mercedes

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They are the golden egg of contracting and 'sweeteners' are rife in the bidding processes.

When I was 'on the tools', we got a bit of sub-contracting work on a school and the prices we were offered to do the work were just astronomical.
A friend of mine had to knock down a collage, the company the LEA used for facilities managment wanted 6 grand to turn the water off...
 

davidjpowell

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Can't say I am surprised, although I am wary of believing any press report - the journalist virtually always writes to their own support.

I'd hope that in the larger scheme of things it's not that bad, but ultimately the finances are not doing it for the love, so it was obviously going to cost more money.
 

markjay

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PFI's are essentially a very expensive way for government to borrow money.

But it looks great on the balance sheets, as you get new hospitals and roads with very little public money spend, and no (apparent) debt.

From the private sector point of view, it is an investment with zero risk (well, near zero - there is always the possibility of sovereign debt default...), a rare find at any time...
 

mattc

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when you buy a house with a mortgage you end up paying back between 2 and 3 times the amount actually borowed. Why should it be any different with a school or hospital? I am guessing this is the same 'principle'.

That said you would also have thought the government could have found a more efficient method (i.e. less costly) than you or I can access.
 

markjay

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when you buy a house with a mortgage you end up paying back between 2 and 3 times the amount actually borowed. Why should it be any different with a school or hospital? I am guessing this is the same 'principle'.

That said you would also have thought the government could have found a more efficient method (i.e. less costly) than you or I can access.
This is precisely the pint... if you had a few millions sitting in a bank account earning misery interest, you wouldn't buy a house on a mortgage would you? You'd use your own money, much cheaper that way.

And a Mortgage is just a loan anyway... you would normally try to raise finance in the cheapest way possible.

The real advantage of PFIs is not in saving, but as said - they look better on the balance sheets. The government is basically selling our future in order to look good for next elections - we have all these new hospitals and we didn't borrow any money for it, nor used tax payers money - aren't we clever? Err... no you're not.
 

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One thing not mentioned is that many of these contracts have been " sold on" by the original contractor [ whose main interest has been the construction phase of any project since that's what they do in the main ] to 3rd parties to take over the "maintenance" phase of the project where most of the abuse/ licence to print money appears to take place? There is a section in the telegraph's report detailing the solution The National Audit Officer report said that in future Government should have the power to cancel or substantially renegotiate PFI projects where it could be proved that taxpayers were not receiving value for money. If they protest just feed them the guff that we are expected to swallow-- the nations almost bankrupt---we are deeply in debt--- we have all to tighten our belts-- sacrifices will have to be made---- we all have to pull together for the nation ------- or would you rather go to jail for 10 years?:devil:
 

Scott_F

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when you buy a house with a mortgage you end up paying back between 2 and 3 times the amount actually borowed. Why should it be any different with a school or hospital? I am guessing this is the same 'principle'.
It really isn't that simple. Typically, PFI contracts have placed most of the risk on the "public" side of the partnership whilst allowing the "private" side free to start "lining investors pockets" according to a report by the Public Accounts Committee. Complex re-financing deals have enabled private companies to make tens of millions of pounds from PFI deals whilst the public side of the partnership usually sees little, if any, of this money.
 

blondebier

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It really isn't that simple. Typically, PFI contracts have placed most of the risk on the "public" side of the partnership whilst allowing the "private" side free to start "lining investors pockets" according to a report by the Public Accounts Committee. Complex re-financing deals have enabled private companies to make tens of millions of pounds from PFI deals whilst the public side of the partnership usually sees little, if any, of this money.
On the flip side, we got hospitals delivered sooner than they otherwise would've been, delivering healthcare to the people that desperately need it.

I don't think the patients who were and are being treated in these hospitals really care.
 

mattc

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It really isn't that simple. Typically, PFI contracts have placed most of the risk on the "public" side of the partnership whilst allowing the "private" side free to start "lining investors pockets" according to a report by the Public Accounts Committee. Complex re-financing deals have enabled private companies to make tens of millions of pounds from PFI deals whilst the public side of the partnership usually sees little, if any, of this money.
I never said it was simple. I was effectively saying the principle of "borrow now against future earnings" is one that many people have subscribed to (hence the horrendous levels of private debt this country has run up). I understand the political expediency that Grober alludes too as well.

If the government wants to move the goal posts on these contracts (as per the NAO quote) could it not chose to do so by simply changing the law..it may not make them very popular with the other contractors but it might go down well with the voting public:devil:

Perhaps we should realise by now that any "innovative financial solutions" jargon is just code for "we are ripping you off"
 

Scott_F

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On the flip side, we got hospitals delivered sooner than they otherwise would've been, delivering healthcare to the people that desperately need it.

I don't think the patients who were and are being treated in these hospitals really care.
No they probably don't - but those now trying to manage the budgets probably do. In simple terms, less money wasted on private sector profits = more money to spend on running existing hospitals and investing in new ones. The BBC reported today that for some trusts the annual PFI repayments represent 20% of their entire budget and this level of debt is threatening the future of 22 trusts.

That's why the current in Government is quietly moving away from instigating new PFI projects.
 

Benzowner

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when you buy a house with a mortgage you end up paying back between 2 and 3 times the amount actually borowed. Why should it be any different with a school or hospital? I am guessing this is the same 'principle'.

That said you would also have thought the government could have found a more efficient method (i.e. less costly) than you or I can access.
Thats fine, but as the householder you can go wherever you want for the maintenance, it would appear under this scheme you can't.
 

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Perhaps we should realise by now that any "innovative financial solutions" jargon is just code for "we are ripping you off"
I would use the term 'fashionable financial solutions'.

A lot of the people jumping on the bandwagon do so not because they carefully evaluate the true costs and benefits but because they are fashionable. If they also offer an expedient solution to cost of capital then that is yet another incentive not think too hard about the longer term implications.

Having talked to a number of private individuals about house and car purchases over the years it's quite clear that the majority never actually add up what it really costs. Despite these being the the largest and most significant categories of purchases during their lives.

Same goes for pensions.

Politicians and many managers aren't that much different.
 

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As a school facilities manager, I have some limited experience of PFIs in schools. Posters are correct in saying that the prices for additional works are prohibitive, there are stories about of one school trying to obtain "Healthy Schools Status" In order to achieve this, the school requested the PFI provider to remove the snack and fizzy drinks vending machines, the PFI provider wanted the school to compensate them for the loss of future profits generated by the machines somewhere IRO £30k . IT equipment is supplied by the provider, one visauliser provided had a mark of 150% over a well known supplier.

Other schools report that they only have access to the school building for a set time,over a set number of days, any extra hourly requirements are charged for. I couild go on and on
 

Colin_b

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when you buy a house with a mortgage you end up paying back between 2 and 3 times the amount actually borowed. Why should it be any different with a school or hospital? I am guessing this is the same 'principle'.

That said you would also have thought the government could have found a more efficient method (i.e. less costly) than you or I can access.
The catch is you cannot change your house - internally or externally, maintain it yourself, or sell it for the duration of the contract, unless you pay an eye-wateringly large amount of money with terrifying regularity.

As usual, politicians are not good at reading and understanding contracts, or thinking beyond the next election.:dk:
 

Dryce

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As usual, politicians are not good at reading and understanding contracts, or thinking beyond the next election.:dk:
I don't think it was politicians who were supposed to read and understand the contracts.

There would have been senior public sector staff and their consultants involved in that part.
 
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nick mercedes

nick mercedes

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As usual, politicians are not good at reading and understanding contracts, or thinking beyond the next election.:dk:
I was always led to believe that an unfair contract was an unenforcable contract?

You'd think after the first PFI merchant had been sent down for 20 years for defrauding the taxpayer, the rest might be happy to tear up the contracts...

Not that our government would have the balls to take on the bankers...
 

Colin_b

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I don't think it was politicians who were supposed to read and understand the contracts.

There would have been senior public sector staff and their consultants involved in that part.
They advise the politicians, that is their job. The politicians decide and set policy. The buck stops with them - or should do.
 

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