17/98
10 February 1998
Significant projects list published
New approach heralds step change in PFI project quality, says Geoffrey Robinson
Around 50 private finance projects deemed as significant, are benefiting from Treasury Private Finance Taskforce input to help ensure their commercial viability, Geoffrey Robinson announced today. The announcement coincides with two other publications: a list of nearly 30 projects signed since 1 May and details of the working methods that the Taskforce will employ, to help deliver many more viable projects.
Geoffrey Robinson said:
"It is no good sitting back and simply hoping that a steady stream of good PFI projects will evolve as if by magic. Our approach to private finance is to concentrate top notch Taskforce expertise on developing, together with Departments, a representative batch of quality model contracts. Those can then become templates that provide the soundest possible basis for future business."
The Taskforce, which is limited in size, will be focusing its efforts on the 50 transactions currently in or near procurement that have been published today. In line with the Bates Review of PFI, these have been deemed "significant" for at least one of four reasons. Each project is big, high profile, highly replicable, or ground breaking. Each one is likely to raise issues that require speedy resolution. People who pursue these projects now do so in the confidence that they have direct Treasury Taskforce involvement.
Concern has been expressed that selection of only 50 projects risks down-grading perfectly good deals that fall outside the list.
Geoffrey Robinson added:
"I am alive to that danger and want to make absolutely clear that there are undoubtedly many very attractive PFI projects not listed today. Such projects will still go ahead. But the Taskforce itself must not attempt too much at once. By selecting a representative family of projects currently in or near the procurement stage I am confident that lessons learnt in these 50 can and will rapidly be imported into similar deals."
The Taskforce is also playing a key role in developing and quality assuring significant projects (in areas such as education and the NHS) before procurement gets underway , and more projects will be added to the list as they approach the start of procurement. Chief Executive Adrian Montague explained:
"Malcolm Bates said the Taskforce should road test the commercial viability of significant transactions before more than minor costs are incurred by public and private sectors. Today we have
published full details of how the Taskforce will carry out that task. We hope this open approach will help all PFI practitioners do the sort of project planning that maximises their chances of successful procurement to a disciplined timetable.
It incorporates significant Information Technology (IT) projects, reflecting the amalgamation into the Taskforce, from 1 February, of expert support from the Cabinet Office's Central IT Unit. It also includes 4 of the 21 English local authority projects, earmarked for Central Government support and announced today by
Hilary Armstrong, in which the Taskforce will offer to play an active role, alongside the 4Ps.
NOTES TO EDITORS
1. On 23 June Malcolm Bates made 29 recommendations to reinvigorate the PFI (HMT press release 69/97). Recommendation 4 said the Taskforce should sign off the commercial viability of all significant projects before the procurement process commences. He asked the Treasury to define "significant". This has been done through assessing which current projects are either big, high profile, highly replicable or ground breaking.
2. The Taskforce inherited a set of projects at varying stages in the procurement process. This list is of schemes that have already reached the market or which will do so soon. The task is to help departments deliver them on value for money terms. The list comprises projects within Central Government Departments and their associated Agencies and NDPBs and has been compiled following discussion with them. It includes significant local authority projects in Scotland, two of which are at the development stage. English local authority projects to receive an offer of direct Taskforce input alongside the 4Ps are selected from those projects earmarked for Central Government support by the Project Review Group and announced today by Local Government Minister Hilary Armstrong. See DETR press releases on 19 November and 9 December for further details. Separate arrangements apply in Wales.
3. The Taskforce is also working on road testing the commercial viability of further projects which are, as yet, at too early a stage of development to justify inclusion on the list of significant projects. It is intended to publish an updated list quarterly.
4. Details of the methodology to be employed by the Project Taskforce in road testing new transactions is attached, along with further information about the team's working methods.
5. Media enquiries should be addressed to Malcolm Graves on 0171 270 5192. Detailed questions about individual projects should be referred to the relevant Government Department.
Projects signed since 1 May
Defence:
Army Personnel IT System 150 million Pounds
Defence Fixed Telecoms 70 million Pounds
Helicopter Simulator 100 million Pounds
DfEE (PFI/PPPs):
Clarendon 16 million Pounds
Colfox 15 million Pounds
Falmouth 3 million Pounds
UCL 14 million Pounds
Kings/ UMDS 142 million Pounds
DETR:
Harrow (IT) (LA) 1 million Pounds
Isle of Wight waste management (LA 13 million Pounds
FCO:
2 small vehicle service contracts (3 million Pounds between them)
N Ireland:
Medical equipment 3 million Pounds
Belfast Hospital Renal Unit 3 million Pounds
Planning Services IT 3 million Pounds
Health:
Carlisle 63 million Pounds
Dartford 115 million Pounds
Norfolk and Norwich 214 million Pounds
South Bucks 39 million Pounds
Home Office:
2 Passport Agency contracts worth 15 million each Pounds
Inland Revenue:
Edinburgh 9 million Pounds
Glasgow 9 million Pounds
LCD:
ARAMIS 30 million Pounds
Scotland:
Baldovie Waste to energy 43 million Pounds
Bowhouse Prison 80 million Pounds
Stirling FE Centre 4 million Pounds
DSS:
Longbenton 120 million Pounds
Prime 350 million Pounds
Serious Fraud Office:
Document management IT 4 million Pounds
THE TASKFORCE'S SIGNIFICANT PROJECTS
CABINET OFFICE
GCHQ - new accommodation project
CUSTOMS AND EXCISE
Assistance with proposals for provision of office accommodation
IS/IT Infrastructure
MINISTRY OF DEFENCE
Colchester Garrison
Development of MoD - wide water and sewerage proposals
Heavy Equipment Transportation
MoD Main Building Refurbishment
White fleets (non deployable vehicles such as cars, coaches etc)
DEPARTMENT FOR EDUCATION AND EMPLOYMENT
Dudley MBC, schools IT network (local authority)
Employment Service IT Partnership Project
Stoke on Trent, schools estate (local authority)
DEPARTMENT OF ENVIRONMENT, TRANSPORT AND THE REGIONS
A13 Thames Gateway DBFO
Assistance with proposals for wider Public/Private Partnerships
for London Underground
Channel Tunnel Rail Link
Connect (London Underground)
Development of MOT Computerisation proposals (Vehicle
Inspectorate)
Hereford and Worcester, waste management (local authority)
New Scottish Air Traffic Control Centre (CAA)
Power (London Underground)
Prestige (London Transport)
FOREIGN AND COMMONWEALTH OFFICE
Global Telecoms Project
NORTHERN IRELAND OFFICE
Development of PPPs in the Water Industry, including Bangor and
Kinnegar Sewerage Projects (DoE)
DEPARTMENT OF HEALTH
Support as required for the 11 prioritised major hospital
projects in England:
Bishop Auckland Hospitals NHS Trust
Bromley Hospitals NHS Trust
Calderdale Healthcare NHS Trust
Greenwich Healthcare NHS Trust
Hereford Hospitals NHS Trust
North Durham Acute NHS Trust
South Manchester University Hospitals NHS Trust
South Tees Acute Hospital NHS Trust
Swindon and Marlborough NHS Trust
Wellhouse NHS Trust
Worcester Royal Infirmary NHS Trust
HOME OFFICE
Central London Estate
Marchington and Onley Prisons
IT2000
Public Safety Radio Communication Project
QUANTUM (IT infrastructure for prisons)
INLAND REVENUE
Assistance with proposals for provision of office accommodation
LORD CHANCELLOR'S DEPARTMENT
Hereford and Worcester, Magistrates' Court (local authority)
LIBRA Magistrates' Courts IT services
NATIONAL SAVINGS
Development of Public/Private Partnerships
SCOTTISH OFFICE
Development of Glasgow District Heating System proposals
(Glasgow City Council)
Development of Glasgow Secondary School Estate proposals
(Glasgow City Council)
Falkirk Schools (Falkirk Council)
Hairmyres and Stonehouse Hospitals NHS Trust
Law Hospital NHS Trust
Royal Infirmary of Edinburgh NHS Trust
DEPARTMENT OF SOCIAL SECURITY
ACCORD (IT infrastructure project)
Assistance with ADAPT (Benefits Agency field offices)
DEPARTMENT OF TRADE AND INDUSTRY
ELGAR (Electronic Government through Administrative Re-engineering)
WELSH OFFICE
A55
Baglan Hospital
HOW THE PRIVATE FINANCE TASKFORCE WILL WORK
Introduction
The Bates Report said that the Treasury Taskforce should:
"sign off the commercial viability of all significant projects before the procurement process commences by way of publication in the Official Journal."
Recommendation 4
"be responsible for regular monitoring of priority projects in procurement to ensure progress in accordance with agreed timetables."
Recommendation 6
"attempt to make projects more cost-effective by minimising costs to the private sector of bidding for PFI projects."
Recommendation 29
Recommendation 12 said that "prioritisation is important so that effort is focused on delivering pathfinder deals and establishing good model transactions."
This paper describes how the Taskforce will work in conjunction with Departments, Agencies and Non-Departmental Public Bodies in order to fulfil these objectives.
Functions of the Taskforce
Accounting Officers are responsible for the expenditure of their Departments. The creation of the Taskforce does not affect this principle, and the Taskforce does not seek in any sense to "take over" the running of projects sponsored by others. The Taskforce has an important role in signing off significant projects before they enter procurement and before significant costs are incurred. Beyond that, it represents a resource for Departments and associated bodies to draw on as their negotiations progress.
In practice, the Taskforce is likely to work with Departments in
several distinct ways:
It is available to help Departments at an early stage; long before a significant project comes to the Taskforce for formal sign off. Taskforce members have extensive experience from their time in the private sector of private sector requirements in terms of what constitutes a promising transaction. They can help advise on the private sector's capabilities, its appetite for risk and conditions prevailing in financial markets. The earlier the Taskforce becomes involved in the development of a project, the more routine becomes the formal sign off prior to the beginning of the procurement process through publication in the Official Journal.
It will also be working with Departments to foster best practice solutions in relation to managing the tender process itself. The Taskforce will develop guidance for each stage to help deliver consistency in the standards of information available to the private sector; a common approach to the appointment of a preferred bidder where appropriate; and taking steps to manage the transition from the appointment of a preferred bidder to financial close more efficiently.
The Taskforce sees the development of "templates" for specific types of transaction as an important contributor to expediting the bidding process and reducing tendering costs. Its proposals in this area were published on 5 November. The project and policy sides of the Taskforce will be collaborating closely with Departments to generate a flow of templates covering the more usual types of transaction.
The Taskforce's resources will focus on the significant projects referred to it by Departments but will still be available, whenever the pressure of its other commitments allows, to assist on other deals of difficulty of to resolve any generic issues which may arise.
The Taskforce sees itself as a bridge between the private sector and the public sector and, therefore, encourages the maintenance of an easy, informal and open dialogue with both sides. It is the public sector's champion for PFI within HM Treasury, and it seeks to enhance the public sector's purchasing capability in PFI by complementing public sector skills with its own private sector experience of PFI deals.
Organisation of the Taskforce
The members of the Taskforce are drawn from a variety of backgrounds in the private sector including banking, management consultancy, legal, project management, IT and property. The philosophy has been to create within HM Treasury, for the benefit of the public sector, the skill set which a private sector developer would need to assemble in tendering for PFI projects.
Each Department has a nominated member of the Taskforce who acts as its principal point of contact with the Taskforce. However, in order to ensure that the Taskforce is able to contribute all those skills to any significant project he or she will bring in other members of the Taskforce to assist as required.
IT Projects
From 1 February the responsibility for the application of PFI to IT projects will be transferred from the Cabinet Office's Central IT Unit (CITU) to the Treasury Taskforce, putting in one place expert project support for all Central Government transactions.
Signing-off new projects
The signing-off process is a project level review. Departments will remain responsible for defining service needs, for establishing priorities and for assessing the economic case for a project. The purpose of the Taskforce's appraisal of a project is to confirm the commercial viability of proposals put forward by Departments with a view to ensuring a well-managed and competitive procurement through the PFI process. The Taskforce will work closely with the Treasury's expenditure teams in order to achieve a single point sign-off within HM Treasury for significant projects. Sign off will signify serious central attention has been given to a project. It does not guarantee contract award. That will, of course, be dependent on receiving a value for money bid.
The form and content of the approach will vary according to the nature and size of the proposed scheme, as well as the extent to which it follows an established template or involves an innovative framework. The Taskforce intends that the sign-off should involve Departments and their Agencies in a little incremental work as possible, at least for projects with which the Taskforce has been concerned from an early stage, and normally it should be possible to complete the signing-off process on the basis of a comprehensive Outline Business Case.
The criteria that the Taskforce will generally apply for the purpose of signing-off projects are set out in Appendix II.
Significant projects are by no means the only good projects being promoted by the Government. They are a representative batch of transactions selected to provide a range of good quality templates for the future. Other projects are not included on the list will often be closely related to listed transactions and should be proceeding on similar terms or can be handled by Departments and their advisers using the commercial viability criteria set out in Appendix II as a self assessment form.
Footnote 1: Hereinafter referred to simply as Departments
APPENDIX II
TASKFORCE SIGNING-OFF CRITERIA
Affordability
Projected PFI service payments estimated.
Affordable over the whole life of the contract, taking into account all sources of existing revenue support and
additional income from capital receipts or third party income.
Affordability analysis, and impact on budgets, accepted by the Department or Agency.
Output Specification
Requirement specified in terms of service outputs required, rather than particular assets or solutions.
Range of on-going services included in the requirement defined broadly, to offer scope for efficiencies and innovation.
Specification pitched at a level that is justifiable as the level at which the Department or Agency would specify it using traditional procurement, by reference to precedent, or any enhancement in specification provides greater value for money.
Risk Allocation
A risk register has been prepared, identifying all the foreseeable risks associated with the scheme, and making a preliminary risk allocation.
The preliminary allocation, as a minimum, transfers the principal risks associated with design, build finance and operation of the facilities, and considers the allocation of risks associated with levels of usage, residual values, technology and obsolescence and changes in legislation or regulation.
Indication of bankability
Evidence of commercial interest.
Certainty of income stream to meet contract payments.
Willingness to consider all opportunities for generation of other revenues, either from sales of assets or third party use of assets and services.
Key Terms and Conditions
Following a template for commercial and legal terms where one exists.
Heads of term or outline contract prepared.
Proposed payment mechanism that reflects risk allocation.
Use of Appropriate Comparators
If a Public Sector Comparator (PSC) is to be prepared:
base case and level of direct costs identified;
approach to valuing risks to be transferred identified.
If PSC not required:
the justification for that;
an alternative approach to demonstrating VFM has been identified, including competition and other comparators (such as previous similar deals);
the whole life costs of not carrying out the scheme have been identified.
Suitability of Proposed Advisers
Arrangements for obtaining legal, financial and technical advisers, with appropriate experience, and demonstrating VFM from advisers.
Willingness of advisers to share lessons and approaches, without undue confidentiality and copyright constraints.
Arrangements for periodic review of performance of advisers.
Indicative Timetable
Timetable prepared.
Stages of procurement process kept to a minimum consistent with achieving VFM.
Total elapsed time from OJEC to completion realistic.
Project team
Project management experience.
Appropriate range of skills and experience, whether from advisers or in house, for the deal envisaged.
Accessible to involvement of Taskforce.
Statutory Processes
Statutory processes addressed (such as planning permission, public enquiry etc as appropriate).
Commitment of sponsors/users
Demonstrable support from key users and, where appropriate, consultation with those users.