Penny Rinta-Suksi is a partner at law firm Blake Morgan
If the government’s latest Spending Review is anything to go by, the momentum behind the next generation of public-private partnerships (PPPs) is showing no signs of slowing.
“Those of us who provide legal advice on PFIs see the same mistakes time and time again: decades-old contracts that are vague and inconsistent”
After years of being somewhat out of fashion, the mood music feels positive with the government announcing that one of its flagship policies, its target for 1.5 million homes to be built by the end of the current parliament, will be delivered in part using a private finance model.
In addition to recent successes, such as the new Silvertown Tunnel in east London, which opened earlier this year and was delivered on time with £1.2bn of private finance, other key infrastructure projects, including the Lower Thames Crossing and redevelopment of Euston Station, are in the pipeline and look set to use similarly innovative models of public-private finance.
NAO report on private finance
Amid the market turmoil and tumult created by US tariffs, the National Audit Office’s (NAO’s) report on private finance for infrastructure, published in May, might have slipped through the cracks for some. But it’s an important, insightful document that draws out crucial lessons that the government would be wise to pay close attention to if it is to avoid the pitfalls of previous generations of PPPs and, crucially, ensure market certainty and predictability for investors.
As recommended by the NAO, the government seems to understand that defining a steady pipeline of infrastructure for public investment that is both credible and consistent is central to successful private financing. The new National Infrastructure and Service Transformation Authority (NISTA), commissioned earlier this year for the Infrastructure Strategy that was published in June, seems a promising sign that it’s taking this seriously.
The government’s devolution agenda aims to replicate this for local government and enable a new era of strategic, regional decision-making and a savvy use of private finance. There is clearly continuity between NISTA’s work on the Infrastructure Strategy and the long-term ambition to create more mayoral strategic authorities in England and, therefore, a statutory requirement to produce a ‘Local Growth Plan’ that would set out a 10-year vision for each region.
To ensure good value, start with the contracts
In the day-to-day, however, those of us who provide legal advice on PFIs see the same mistakes time and time again: decades-old contracts with the public sector that are drawn up without taking full account of the lifecycle of a project, and are often vague and inconsistent in key areas such as handback procedures.
While strides are being made to fix and standardise them, if not managed carefully, then public bodies – in this case the UK government – and the taxpayer will continue to risk failing to secure value for money from their projects at the end of PPP contracts.
Linked to this, the government will also need to think carefully about how it balances providing an attractive opportunity for investors with a desire to minimise the cost of financing.
It’s important to reward private bodies for the risk they are taking with projects, but the NAO recognises this can go too far if it turns into “super profits” that are perceived as unjustified.
The National Wealth Fund is one of the clearest examples of how seriously the government is taking the potential of PPPs, with an ambition to secure more than £70bn of private finance to invest in strategic national projects, including through clean energy, advanced manufacturing and transport.
The government’s positive signals on PPPs are welcome and will be instrumental to unlocking economic growth through Labour’s Plan for Change. What’s needed now is to take stock, learn from the past and, critically, deliver.
