New rules threaten more PFI bottlenecks

Exclusive by Carol Millett



Privately financed public projects will face major delays and soaring costs under new accounting rules published by the Accounting Standards Board this week, according to leading industry and accounting experts.

Hospitals, schools and prisons PFI contracts will be particularly hard hit, with the new rules having to be applied case by case to all new PFI contracts, and to any PFI contracts in the pipeline which fail to reach preferred bidder status by 1 January next year.

The new rules are designed to ensure all PFI schemes are brought onto the balance sheets of either the Government or the private sector companies involved. In reality this will make it more difficult to put together PFI contracts that result in assets and liabilities being transferred to the private sector from the public sector.

This will affect hospitals, prisons, schools and any other deals involving accommodation. It will have less effect on road and rail contracts, where there is less scope for dispute over risk allocation.

Geoffrey Robinson, the Paymaster General accepted the rules in principle this week, but said the Government would not apply them to past deals or to those deals that reach preferred bidder status by 1 January next year.

But PFI experts slammed the new rules this week. Ernst and Young PFI accounting specialist Hedy Richards told CJ: "PFI contractors are instantly plunged into uncertainty by this. The problem is not so much the accounting rules but whether the Treasury will rethink the kind of contract it wants and whether this will change the goalposts for those PFI contracts still in the pipeline."

Richards added that if the Treasury is forced to look at each deal case by case it will cause a bottleneck of PFI contracts. "PFI contractors have every right to be worried. My advice to PFI contractors is to get onto the Treasury and find out just what they plan to do."

Construction Confederation president Sir Martin Laing has also joined the chorus, asserting that that the Government's push for private finance will be slowed down by the rule change. New deals could be delayed by three months as Government departments get to grips with the new requirements, he said.

Tim Pearson of the Confederation of British Industry's PFI accounting committee told CJ that the new rules would make " the procedure for getting clearance much more cumbersome. Hospitals in particular are monumentally complex deals and, just as a template for such deals was starting to evolve, PFI contractors are now to suffer this, which is a pity."

But the Treasury this week insisted that the flow of PFI contracts would be little effected.