The barriers to entry into the PFI marketEZULIKE, EKENE I.; PERRY, JOHN G.; HAWWASH, KAMEL
1997 Engineering Construction & Architectural Management
doi: 10.1108/eb021047
This paper reports early results of a study of construction contractors and their experiences of the PFI market. Utilizing material from semistructured interviews with three categories of construction contractor, small, medium and large, consideration is given to the barriers to entry which contractors face when approaching the PFI market. The paper highlights six barriers of entry lack of appropriate skills high participation costs high project values high risk lack of credibility and contacts and demands on management time. These barriers affect the three categories of construction contractor in different ways. The findings suggest that the larger the contractor, the more able it is to overcome these barriers and to compete in the PFI market. The findings also suggest that certain barriers to entry will decline as the industry matures, whilst others will remain.
Key legal issues in projects procured under the private finance initiativePAYNE, HELEN
1997 Engineering, Construction and Architectural Management
doi: 10.1108/eb021048
Over the last few years several projects have been procured under the Private Finance Initiative, which brought with them some challenging, often novel, legal issues. A new statutory framework has been established creating new legal entities and regulating the powers and obligations of those new entities. The public procurement regime of the European Union has had to be carefully considered by both the public and private sector parties as failure by either to adhere to the strict rules and procedures can result in the imposition of sanctions. Attitudes to the way in which contracts are structured have had to change. The public sector had to step back from the more traditional involvement and control it has exercised in the past, and permit the private sector to come up with innovative solutions to the public sector's output requirements. The issues of force majeure and change of law have had to be looked at very closely and mechanisms for the sharing of the risk negotiated between the public and private sectors. A uniform approach to these legal issues would be welcomed along with some standarization of fundamental terms.
The potential for adopting the NEC's family of contracts on PFI projectsHAWWASH, KAMEL; BARNES, MARTIN
1997 Engineering Construction & Architectural Management
doi: 10.1108/eb021049
The use of the private sector in the provision of public services under the Private Finance Initiative PFI is still a relatively new concept. The structure of a project under the PFI leads to the involvement of a number of parties and this necessitates the formation of a number of different contracts to regulate the relationships. These range in complexity from the main concession contract for the funding, supply, operation and maintenance of the asset, to subcontracts between the concessionaire and the various subcontractors. As the New Engineering Contract NEC has been designed to provide a contracting system which stimuates good management and is sufficiently flexible to be used for all the interfaces in a complex project, it is a strong candidate for adoption at all the interfaces in a PFI project. The paper concludes that there is potential for using the different contract forms in the NEC family for a number of the different relationships under a PFI project and more specifically DBFO projects.
PFI in the NHSGRIMSEY, DARRIN; GRAHAM, RICHARD
1997 Engineering Construction & Architectural Management
doi: 10.1108/eb021050
The National Health Service NHS hospitals in Britain are currently in a state of decay following many years of underinvestment in the estate. The NHS urgently requires billions of pounds of investment ranging from total hospital new builds to small refurbishment of existing facilities. The previous Conservative government put forward the Private Finance Initiative PFI as the procurement mechanism to address this problem. The new Labour government currently appear to be committing themselves to the same approach. PFI project sponsors have spent upwards of 30m bidding for around 30 major PFI schemes. Despite this, by the time of the UK election in May 1997 not one scheme had reached financial close and many sponsors were expressing their disillusionment with the process. Unlike PFI on other Government infrastructure and service schemes, each PFI hospital is tendered by a separate Trust with their own limited budgets. Many Trusts have demanded schemes without realising that they cannot afford them and whilst these schemes may work out cheaper than publicly financed hospitals over 30 years or more, charges are higher in the early years. This is primarily due to the market for loans, the conditions attached to these loans in terms of repayment periods and cover ratios, and the requirement of the sponsors to generate a reasonable return on their investment. This paper discusses the major issues and analyses some of the technical financial problems surrounding the PFI in the NHS. The authors draw on practical experience of financial structuring and modelling hospital projects to build a generic model to analyse NHS PFI economics.
Karachi light rail transit a private finance proposalFARUQI, S.; SMITH, N.J.
1997 Engineering Construction & Architectural Management
doi: 10.1108/eb021051
Light Rail Transit LRT systems have emerged as an attractive form of public transport both in industrialised as well as developing countries. This paper reviews the implementation mechanism of LRT projects proured by private finance, through Build Operate Transfer BOT type concession contracts. A case study approach is used to model an actual LRT project. The case study analysis shows that the uncertainty factor could be converted to monetary terms and the process would enhance ability of the decision makers to have a better understanding of the consequences of risks.