PFI – are we really powerless in the face of this scandal?

Scottish Policy Apr 20, 2012 6 Comments

It is time the Scottish public sector considered a much more robust and comprehensive challenge to the PFI landscape, putting real effort into finding legal ways to rip up unjustified contracts. Claiming we can’t do anything about it is not a good enough response.

In fact, there is so little that needs to be written about PFI any more. In 2000 I started editing the Scottish Left Review. We dedicated our second issue to the topic of PFI. In it a number of writers looked at the policy when it was in its comparative infancy. Looking back now, it is hard to find any part of the predictions contained in the analysis which didn’t turn out to be accurate.

But it was ignored. Instead New Labour and the Tories were falling over each other to promote PFI as a New Dawn for the public sector. If you look back at the ‘mainstream political understanding’ of PFI it hasn’t so much evolved as kept changing its coat. As each new issue came along (the debt refinancing scandal, the litany of bad construction projects, the increasing awareness that perfectly good buildings were being sacrificed because the value of the land was where the profit for the companies came from and so on) all that happened was excuses kept changing. So ‘well, the early negotiations were not as good as they might be, its a learning process’ and then ‘we’ve closed a scandalous loophole, but only partly’ and then ‘the latest round of PFIs are different – they are much better designed’. But always – always – ‘this is our only option – be grateful for your new school’.

Except my personal experience doesn’t match this. After a car accident I was a regular returned to my local hospital for a number of years and I got to know some of the staff over a period when they moved from the old, run-down hospital to the new-shiny one. “Delighted?” I asked. “Hell no” was the universal answer – the old hospital might have been long in the tooth but staff could get parked, they could make it to the staffroom and back during a coffee break, they had flexibility in how they allocated space, the cleaning and catering was under their control and was good quality. My local school, now PFIed? I’m on the board of our local youth group and the school pays us money because the PFI firm wouldn’t allow for any social space for sixth year pupils who have gaps in the timetable, so we act as a cut-price surrogate common room. And the school can’t even hold meetings in the evening because they have to pay the PFI company for the pleasure. I used to work with a university which was PFIed. It now has the worst debt-to-revenue ration in the UK. And every member of staff I’ve met complains about the climate control – too hot, too cold.

Good examples of PFI actually working? I’m sure there are some. But as a regular user of the health service (I have a two year old daughter), the education service and lots of local authority services, I haven’t come across many. OK, we didn’t have a local library and now we do – and it’s pretty good. But the fact it’s in a PFI school doesn’t mean ‘PFI is responsible’. I know it would have been delivered at less cost if any other form of financing had been used.

But things have changed. Even Tories know PFI has been something of a disaster.  But only for us. It has been a free gift to the big construction sector (but not so much to indigenous business – as our procurement report makes clear, PFI is designed to make it impossible for small businesses to compete) and even more to the ‘service companies’ which have used PFI as a battering ram to break down the public sector and make itself rich. The finance terms are unacceptable, the service quality is unacceptable, the length of the contract is unacceptable, the loss of control of public service is unacceptable.

No-one now believes in PFI, though some will still support it. So the Edinburgh Royal Infirmary decision to say enough is enough is a wonderful thing. This has been a corrupt system which was forced on us by an ideological elite who spent 20 years undermining the public sector for the sole reason of making the business elite enormously rich. PFI wasn’t about building school, it was about building a US-style commercial free-for-all in which the public realm was designed as a sort of fish-in-a-barrel set-up for making the rich richer.

What now? Well, my simple contribution. Can’t we encourage the Scottish Government to set up a team of the brightest and more active legal minds in Scotland to rip through the PFI landscape and work out how to take our property back? The problem with PFI was largely that it was intentionally badly negotiated – the private side did all the negotiating, the public side did all the capitulating. There is a case to say that this was a dereliction of public duty and that these contracts might in some cases be considered illegitimate on the basis of negligent practice. I simply don’t believe that a serious attempt to forcibly renegotiate contracts (or take them away altogether) would cost more than it saved.

PFI is a national scandal and that it took the nation so long to realise it is very much part of that scandal. But do we really need to act like there is nothing we can do?

Robin McAlpine

6 Responses to “PFI – are we really powerless in the face of this scandal?”

  1. Tony Kenny says:

    Robin

    I run a boys fitba team, I use facilities in S. Lanarkshire because the facilities are free. To hire a pitch in Glasgow can cost upto £60 an hour, an absolutely outrageous sum to which must be added league and referee’s fees’.

    I was hoping you were going to provide me with a panacea to run with, alas this was not the case. I don’t really think that potential court cases perhaps costing millions perhaps going all the way to the Supreme court is the answer. My suggestion is that a new SNP administration in Glasgow city council work with the Scottish government and what will be an emancipated media free from labour blackmail threats, to work together to put pressure on these companies to voluntarily re-negotiate these unfair contracts.

    The companies in question do not like bad publicity, a Glasgow city council shorn of the labour party who were responsible for this folly will be able to act with the government and media to convince these companies that it is in their best interests to do so. Most of my boys come from comfortable off families because I am positive the weekly minimum fee’s of almost £10 is too much for many folk.

  2. robin says:

    I was perhaps to quick in knocking this out this morning. I agree that putting pressure on the PFI firms to voluntarily give ground is helpful, but the right kind of pressure needs to be found. And that probably means profits. My wider point is that generally the private partner negotiated much harder than the public partner when deals were struck. The concept ‘odious debt’ might be a genuine issue here – if it can be shown that debt terms are unreasonable and that the people who are suffering as a result were blame-free in accruing the debt there can be a legal case for renegotiation. I’m not a lawyer so this is not my expert area. But my conclusion would be that there must certainly be plenty scope for renegotiation. And beyond this, the best way to get companies to start a process of voluntary renegotiation would be the kind of pressure at a national level which might make them feel their profits are at risk. So the idea of a national process of opening up this issue to proper legal scrutiny would set the tone and hopefully reinforce the confidence of others (such as local authorities) to try and change the deals they are stuck with. There may be better ways to do this, but the main point is that someone has to give a lead on this and it needs to be more than rhetoric.

    Robin

  3. Tony Kenny says:

    Yep I reckon the two could work hand in hand. I do have a legal background but am not strong on business law, however I do know that it is possible to string out court cases which help no-one in the short or medium term, which of course is where I’d say the two of us are coming from.

    Thing is about threatening legal action is it can’t be seen to be a bluff, and whilst you may well have a point over unfair terms and the people who are suffering not being responsible, equally the PFI companies would argue that politicians are elected to represent such. And are exactly who they did negotiate with. Quid pro quo.

  4. robin says:

    It’s probably worth mentioning that this was a very quick restatement of a bit of policy work that is on the Foundation’s books for perhaps six months’ time or something like that. I don’t believe that there is any chance of a blanket rescinding of contracts and I accept that the concept of ‘odious debt’ is unlikely to apply across the board for the very reason you point out. But there have already been a number of isolated cases in which courts have overturned aspects of contracts (as you know, just because both sides sign that does not mean everything in the contract would be considered legally binding under challenge). And I should have been clearer – I would expect a simple legal solution to this issue. But a politico-legal solution is possible. It requires the Scottish Government to send out the message that it is going to start to look in detail and in a more comprehensive way at how the public can get more value by adjusting contracts.There will be cases where this is enough to win major concessions (again, there are examples of this happening – where for example a court has ruled that certain services should be taken to be implicit in contracts even if not stated directly so service providers can’t charge for that ‘extra’ service). And then more will be able to be opened up by exerting this kind of pressure. I also want to flag up Network Rail. I had an argument with someone that contract law meant that the Government had to ‘save’ Network Rail as a private company no matter what. I argued that it was perfectly legal to remove subsidies which were they were not legally bound to provide, effectively bankrupting the company so it could be taken into public ownership at little or no cost. And hey presto, that’s what happened. This unwillingness to challenge contract law and the assumption that the interests of corporations will always be protected by the law has been shown to be untrue. So why not start to look at how the public sector can flex its muscle? The corporates spend a helluva lot of money on lawyers – I’m just suggesting perhaps we should spend some money of our own, and not on lawyers with conflicts of interest but ones willing to go after companies for real.

    Robin

  5. Tony Kenny says:

    Aye fair point. I think it essential that certain utilities are taken into public ownership post independence. Why not use this issue, with massive public and political backing as a marker. It’ll cost us money in the short-term re-legal processes but let them know we are serious for the medium and long-terms which ultimately will not only save the govt. money but the paying public also.

  6. Ben Power says:

    PFI will have a contract behind it and that contract will have performance specifications. A decent contract management apparatus that inspected every item of the performance enforcing it meticulously could either make it work better for us or drive them out of the contract if compliance became uneconomic for them.

    We need to beef up the number of Scots Govt auditors and contract managers. I mention that as another trick is to contract out government auditing and contract management and project management functions with lousy performance specifications and not enough people to manage them.

    PFI or privatising government services is a tacit admission by the executives running the show that they cannot actually manage anything. If they could there would be no need to privatise or for PFI.

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