Largest UK council PFI gets Government funds

27 September 2007

The Government has approved credits for the UK’s largest local authority PFI deal covering highways maintenance at Birmingham City Council.

Neil Dancer, Birmingham's head of highways, said that transport secretary Ruth Kelly’s approval of £588M in PFI credits for a £2.7bn contract was a ‘reaffirmation’ of Government faith in the city and in PFI road deals.

The Government accepted new evidence on the cost of transferring risk to a private contractor, together with the impact of construction inflation up to 2009, justified the hike in funding from the £379M ministers approved back in 2003.

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The green light commits the Government to paying £1.18bn over 25 years – the future cost of the £588M – to tackle Birmingham’s huge backlog of repairs.

Nearly £300M would be ploughed into resurfacing work across Birmingham’s 2,500km network in the first five years alone, alongside a large-scale replacement of 85,000 streetlights, and the repair of 400 road structures.

But sealing the deal depends upon resolving the thorny issue of meeting union demands on maintaining pay and conditions when they are transferred to the private contractor.

Mr Dancer was confident that this issue would now be resolved, and that this would be affordable. ‘We’ll be asking the two bidders to provide option prices [addressing those concerns] in their “best and final offers”. The laws of the land cannot be ignored.’

The decision comes six years after the council first embarked upon the process, and 18 months after the Department for Transport’s original target date for sealing the contract.

But Mr Dancer said that the additional time spent in negotiations had been worthwhile. The DfT had now acknowledged the bidders’ view that the cost of repairing latent defects – particularly for structures – needs to be included in the contract price.

The department had also recognised the need to include funding to cover the insurance costs involved in transferring the work to a private contractor.

He was confident that the bidders, Amey and Birmingham Street Services – the Ringway-led consortium backed by its parents, Vinci – would produce strong bids, to allow work to start on street in April 2009.

Chris Wilson, the executive director of 4Ps, the PFI advisors, said that the latest approval was ‘excellent news for Birmingham and for future highways management projects’.

There has been lacklustre interest in highways PFI in the past, but the DfT has now received nine expressions of interest, from the Isle of Wight, Hounslow, Hull, Leeds, Newcastle, Redbridge, Sheffield, Southampton and York.

But Matthew Lugg, chair of the County Surveyors’ Society engineering committee, said that PFI deals had ‘prohibitive start-up costs’. But if the Government does not increase revenue and capital allocations, ‘there isn’t much of an alternative for some authorities’.

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Largest UK council PFI gets Government funds

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