PFI CRISIS POINT

Further evidence of the deepening crisis surrounding PFI emerged this week as Contract Journal exclusively reveals that yet another company has withdrawn from bidding for a major healthcare scheme.

News that MDA Group is pulling out of the œ100 million PFI project at St Thomas's Hospital in London follows last weekend's leak of a letter from Chancellor Kenneth Clarke to Deputy Prime Minister Michael Heseltine warning that PFI is in trouble.

Prime Minister John Major was told last week at a special meeting on PFI that major Government departments, including Health, are failing to achieve their PFI targets.

These developments come as the Confederation of British Industry publishes a report tomorrow on PFI which urges further action to make the initiative work (see box).

Industry leaders contacted by CJ warn that confidence in PFI is "ebbing away". The situation is compounded by the sharp fall in new orders for construction in May.

Jenny Price, director of the Major Contractors Group, commented: "The public sector mindset of having to have things 100 per cent right before doing anything is causing serious problems." She added that "confidence is ebbing away in health."

Neville Simms, chief executive of Tarmac and a member of the Private Finance Panel, told CJ that health PFI was out of control, but stressed that patience was needed.

Clarke's letter to Heseltine warns that "poor treatment" of potential partners risks "discrediting PFI" and urges a faster close to deals once a preferred better is selected.

Officials say Major, Clarke and Heseltine came away from last week's meeting determined to speed up the rate at which PFI deals are signed. Treasury officials promised a clamp down on Government departments to ensure they abide by new PFI guidelines introduced in April. These call for an early selection of preferred bidder and clear negotiating timetables.

However, recent research by Contract Journal and James R Knowles found that clients are increasingly taking two bidders to the wire in a second stage of tendering. According to "Making PFI Work", they are shunning a negotiating timetable, preferring maximum "flexibility" in negotiating.

The private sector believes far more action is need, including a 'blitzkrieg' approach to closing pathfinder health deals, releasing decision making to more individuals. reports by david nunn, neil doyle, leon clifford and james atkinson