Treasury guidelines put bidders at risk

Exclusive by Carol Millett

Leading private finance initiative lawyers and contractors warned this week that the Treasury's new design guidelines on privately financed projects will expose bidders to considerably more planning risk.

The new technical note, entitled How to Achieve Design Quality in PFI Projects, is aimed at helping public sector clients to improve the design quality of buildings and equipment. However, lawyers and contractors are alarmed at the amount of planning risk that could be passed on to the private sector under the guidelines.

In a section on planning permission, the guidelines state: "It is important that the specification does not retain detailed planning risk in the public sector. Contract documentation will normally place the full responsibility for achieving planning permission fairly and squarely on bidders. Detailed planning permission should not normally be required to be obtained before the appointment of a preferred bidder."

Stan Gniadkowski, PFI partner at law firm Denton Wilde Sapte, said: "Until now on most schemes, the design details are approved by the planning authority before financial close. Under the new guidelines, consortia will have to sign up to the contract with only outline planning consent agreed.

"This will expose them to the risk that the planning authority could then demand substantial changes to the design details. This added risk also begs the question: Is this value for money because the financiers may become reluctant to advance finance until the planning issues are sorted out? This will force the consortia to seek out more expensive equity until the planning issues are sorted out."

A leading contractor also voiced concern over planning risk. He said: "It's tricky. We have not found planning authorities particularly amenable in the past. This could cause all sorts of delays and extra costs."

Another contractor told CJ: "It's worrying because, if the PFI is with a local authority, then the planning authority will also be in the same authority and could take advantage of that to really turn the screw on the design and specification details."

A Treasury spokesman said: "The general principle is that the public sector commits to getting the outline planning permission and then the private sector does the fine negotiation on the details. This is based on current best practice but there may be exceptions to that principle. Any PFI contract must have flexibility on either side or no one would commit to the project."