Civil Engineering Reference
In-Depth Information
Another significant drawback is that successful partnering is far easier for big
firms than small firms - and construction is still dominated by the latter. In a truly
competitive perfect market all information is freely available - everybody has access
to the knowledge they need for exchange to take place - and transaction costs are
zero. Governments often try to ensure these conditions prevail by standardising
legal and financial procedures, in order that market participants know where they
stand. However, in construction markets where partnering and, in particular, PFI is
emerging these conditions do not prevail. Many firms lack the necessary resources
to understand the complex legal information that is inevitably associated with these
forms of procurement. Transaction costs are prohibitively high, with architects',
lawyers' and accountants' fees to be met by all the participating parties. As a
result, it is unusual for more than three or four consortium groups to find sufficient
resources to engage in the tedious, lengthy and detailed bidding processes involved.
Indeed, PFI bidding costs can commonly exceed £1 million per project. The firms
that are able to take on such large-scale operations and risks are few and far
between, and it is a common concern that partnering arrangements often exclude
smaller contractors.
The credit crunch compounded these issues even further. It led to a shortage of
finance across public and private sectors, bringing the questions raised above into
sharper focus. In some ways PFI has stopped looking so attractive: it financially ties
the government in for too long and does not offer enough flexibility to adapt to
change. As a consequence during the public sector spending reviews of 2010 and
2011 the Treasury took the opportunity to reassess the future expansion of PFI and
opened up a debate about the best way to attract private finance into public sector
projects. At the time of writing this debate continues and new PFI schemes have
been put on hold (The City UK 2012).
Key Points 6.2
❍
Partnering is a broadly used term describing several different types of
collaborative arrangement.
❍
Partnering has made great strides in recent years, particularly in the
public sector, as few governments can meet social and infrastructure
needs from public funds alone. PFI and other forms of PPP contracts
are used to unlock private sector capital.
❍
Partnering assumes a win-win scenario for all parties. Several of the
benefits are summarised in
Table 6.2
.
❍
Discussions about the pros and cons of using PFI tend to focus on value for
money but the debate needs to broaden to recognise the social capital that
PFI delivers.
