œ800m of new schemes fail to allay PFI fears

Contractors and the Chancellor remain at loggerheads over the success of the Government's private finance initiative despite Ken Clarke's rallying call at a major conference this week.

Clarke moved to allay industry fears about PFI by stressing that the Treasury's commitment to it is absolute and that during 1995 it will generate œ5 billion-worth of work.

To boost the initiative he announced new private schemes including œ800 million of health projects and the refurbishment of the Treasury.

And he dismissed the doubters as 'churlish' and 'unfair'.

But despite the upbeat tone contractors say their three major concerns about PFI work - that it is too risky, that the work is not coming through and that it is replacing public spend rather than adding to it - have not been addressed.

Typical of the contractors reaction was that of James Armstrong, finance director, John Laing, who said: 'Yes, there was evidence of vision at the top for the first time today, but at the nuts-and-bolts end it is still difficult, particularly in health where the schemes actually started through PFI don't add up to a row of beans.'

And Robert Heathfield, managing director of Trafalgar House Construction (Regions) said: 'We are still waiting to see the fruits of all the hard work.'

And it was not only the big firms who were worried. There was also concern that PFI is squeezing out smaller firms. William Barr, chairman of Ayr based Barr, wanted the biggest dbfo road schemes to be no more than œ25-35 million (currently the largest project is œ190 million).

'The present strategy is playing into the hands of the national plcs,' said Barr. 'Clarke's tone was encouraging but he has made it difficult for companies of our size. Contractors like us mustn't be excluded from PFI.'

Even PFI enthusiast Neville Simms, chief executive of Tarmac, had to concede risk-transfer is proving troublesome. Simms told the Chancellor: 'The feedback I get is that the public sector is attempting to transfer all the risk. If so, most projects won't succeed.'

Simms said PFI rules needed changing to allow for re-negotiation of projects at key stages.

But Clarke argued: 'There are billions in business to go for. It is new business, in a new business sector. The opportunity is there for profitable business. We accept that for the private sector to assume new risks means that new levels of rewards must be there too.'

n The PFP has ear-marked a total of œ20 billion of schemes for PFI, including the Channel Tunnel Rail Link and CrossRail.

Clarke promised in his autumn statement that œ5 billion-worth of this would be delivered during 1995.

The first œ1 billion of this has already been put in place and Clarke announced on Tuesday (24 January) a further five NHS district general hospitals, worth a total of œ800 million, at North Durham, Bishop Auckland, Carlisle, Swindon & Marlborough, and Edinburgh.

And next year, invitations to tender will be issued on a further 15 major hospital schemes, worth a total of œ1 billion.