PFI contracts given 'best value' approval - Consortium closes £432m hospital deal - Four social housing schemes go-ahead - Small firm hits out at CITB levies - Supply chain plans speed up - Bovis Lend Lease wins £780m Spanish deal

by Carol Millett



A Government consultation paper gives a resounding vote of confidence for local authority private finance initiative contracts under the recently introduced best value regime.

The consultation paper, The Standardisation of Local Authority PFI Contracts, published jointly by the Treasury's task force and the Public Private Partnership Programme (4Ps), looked at how privately financed contracts can meet the needs of local authorities' best value regimes.

Peter Fanning, of the 4Ps, told CJ: "The guidance sets out to tackle the issue of how to reconcile best value and privately financed contracts. It says that, in the view of the 4Ps and the Treasury, there is no inherent conflict between best value and PFI, so long as local authorities and contractors start off with the proposition that both parties want yearly improvement.

"The new contract terms and guidance pick up on how contractors should assist local authorities in obtaining best value. It is an extra set of conditions which need to be factored into the contract."

Under the new guidelines, PFI contractors will be expected to work with local authorities to meet local performance indicators (LPIs) and national performance indicators (NPIs).

The consultation paper acknowledged that some of these indicators could be moving targets. The 4Ps and the Treasury are particularly keen for feedback from contractors on how PFI contracts can be flexible enough to meet changing performance criteria.

A leading lawyer said: "The consultation document is very supportive of PFI contracts for best value councils but we are concerned about the possible impact of national performance indicators being changed during the life of a contract and how to factor that risk into the contract."

Fanning said the chances of performance indicators changing could be anticipated in most cases. He added: "Some will change and in most cases that risk can be factored in. The performance standards will be set in a general way which PFI contractors can easily satisfy. It is just a question of ensuring the best value framework is incorporated into PFI contracts. We are keen for contractors to respond to the draft guidance with their views."

There are currently 126 local authority PFI projects which have been given the go ahead by the Treasury's project review group. Of these, 38 have reached contract signature and another 88 are in the pipeline.

The guidance can be accessed at the 4Ps website at www.4ps.co.uk Financial close has been reached on south Wales's £432m private finance initiative hospital scheme at Baglan Moor.

The four members of the consortium, which will be building and operating a new hospital facility for the Bro Morgannwg NHS Trust over a 27.5 year concessionary period, are: construction group Kier; specialist healthcare designer SSL; main contractor Tilbury Douglas, and Charterhouse Project Equity Investments. The consortium members are putting up 10% of the £74m construction and financing costs and securing the rest from index-linked bonds provided by Greenwich NatWest. Kier's Cardiff-based facilities management subsidiary Caxton will be providing non-clinical support services under a contract worth £160m.

The new hospital will include 270 beds, day hospital facilities and a mental health unit. by Carol Millett

Another four private finance initiative social housing pathfinder schemes have been given the go-ahead by the Treasury's project review group.

The four schemes in Reading, Camden, Newham (£30m), and Islington (£20m), are part of a vanguard of eight PFI social housing projects which will be closely monitored by the Treasury. If they are successful, a host of other PFI social housing schemes are expected to follow.

The schemes follow four other pathfinder projects which won approval last autumn in Manchester, Leeds, Sandwell and north-east Derbyshire, worth £144m (CJ 10 November, page 3).

The pilot schemes involve long-term refurbishment and maintenance contracts on inner- city housing estates. Some contracts will include stringent security, employment and energy targets.

Speaking at the Chartered Institute of Public Finance and Accountancy conference in London, local government minister Hilary Armstrong said that the PFI housing pathfinders demonstrated: "The contribution PFI can make to improving housing stock, while allowing it to remain in local authority ownership. I am convinced that the PFI approach will prove a valuable strategy for boosting investment in social housing." Exclusive by Glenda Thisdell



A Kent road-surfacing firm is bitterly protesting over having to pay more than £2,000 in levies to the Construction Industry Training Board while larger firms are claiming exemption.

This year's bill came as a shock to £1m turnover Revell Surfacing, which has 10 employees, because, in previous years, the firm had worked as subcontractors for larger firms already paying a levy to the CITB. A calculation is performed by the CITB so that the board is not paid twice for the same job.

The firm's managing director Mike Revell said: "Major national road-surfacing companies, some turning over in excess of £15m per annum in road laying operations, can be exempted from paying the CITB levy because their core operation is quarrying or other operations."

A CITB spokesman conceded: "The difficulty is that you have to draw a line. A business whose main activity is not construction does not have to pay a levy to the CITB. If a business is defined in statute as construction, then it does have to be assessed by the CITB. If you take the view that it is activity which must be levied, you would need a register of everyone's activity and this is not practical."

Some 60,000 firms are on the CITB register.

Revell dismissed the idea of applying for a CITB training grant. "We have done so on one occasion and it's not worth doing the paperwork," he said. Exclusive by Kathy Watson



NHS Estates is speeding up its plans to introduce supply chain management into its £3bn a year procurement strategy.

Contracts are to be advertised in the Official Journal of the European Communities (OJEC) at the end of June for pilot framework schemes covering the West Midlands and the North West of England. They will cover all publicly funded NHS work in those geographic areas with no upper value limit. Major PFI schemes will not be included in the regional pilots although the inclusion of PFI schemes valued at under £25m is still being debated.

At the end of this month, NHS Estates is to begin a round of workshops with potential supply chain partners who have flagged up their interest.

The workshops are likely to take place in London, Birmingham and Manchester and possibly Leeds and Bristol. NHS wants to bring construction companies up to speed with its progress on the new supply chain procurement initiative, Pro-Cure 21, which was launched in April (see CJ, 12 April, page 3)

"We are keen to talk to all those who have expressed interest in order to get feedback and tell them what we are doing," said a NHS spokesman.

Although many details are still being worked up, the initiative is similar to that being developed by Defence Estates with whom it is liaising. If the pilots are successful, the other six NHS regions in England will switch to supply chain management over the next five years.

The spokesman admitted that NHS plans have been slowed by the need to sell them to all 500 client bodies that make up the NHS Estates. Its original strategy had included plans for three pilot areas but lack of agreement resulted in a switch to two.

In advance of a wholesale switch to principal supply chain partnering, there will be a push throughout NHS Estates to greater standardisation, with better project management in order to make them better clients. by Tim Wood



Bovis Lend Lease has won a four-year programme management assignment to work with the Spanish Airports and Air Traffic Agency on a £780m expansion of Barcelona's international airport.

Working with joint venture partners Euroestudios SA and Inocsa Ingenieria SL, Bovis will help build a terminal building capable of handling 25 million passengers a year. Other work involves constructing a new runway to increase the airport's aircraft handling capacity, a high speed rail link to the main Madrid/Barcelona line, new cargo handling and car parking areas, and re-routing of access roads.

A six-gate extension to the airport's existing north terminal will kick-off the work early next year.

Bovis was responsible for the expansion of Palma de Mallorca airport in 1987 and has also completed a retail development in Barcelona and a hotel in Seville, while work on a theme park in Benidorm is nearing completion.