MoD Private Finance Initiatives

Previous governments have sought to obtain capability improvements for the MoD via the mechanisms of Private Finance Initiatives (PFI) and Public Private Partnerships (PPP)

The graph below shows the start and end date for each of the contracts listed in the MoD’s 2013/14 Annual Accounts with each project referenced on the Y axis.

MoD PFI Version 2

These projects are detailed in the table below

[table id=6 /]

The table shows the original contract value and end date, in some cases contracts have been extended (DFTS for example) and contract values may have changed also, especially given SDSR 2010 mandated reductions so this data should be seen as subject to confirmation.

There are a couple of interesting changes since I last looked at this in 2009, gone are the Hayes Records and Storage, Strategic Sealift and Defence Animal Centre projects.

Not shown is the payment profile, it is unlikely that projects will take the principal value and divide by the number of months to get a monthly payment, th e profile will no doubt vary over the term so this does not show the potential problems with variable payment profiles.

With all that said, it is still interesting to see how certain PFI’s will come to an end and speculate what comes next.

Some are due to finish in the next few years.

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Smurphboy
Smurphboy
January 21, 2015 1:15 pm

More interesting is that some PFIs will outlive the life of the equipment they need to support… cough… Tornado GR4 Synthetic Training… I seem to remember there are some termination charges in the contracts to allow the provider to recover the capital charges if the contract is cut short (where the asset can’t be sold, housing being the obvious exception)

And someone needs to make an FOI request for the Service Charge each year. The silting up of budgets with service charges (and the limitations in flexibility of budgets) is a very interesting topic.

Smurphboy
Smurphboy
January 21, 2015 2:03 pm

One man’s interesting anomaly, is another man’s cock up. But there is a delicious irony to a platform being so successful that it is flown far harder and more often than ever intended. Surely they should have bought the training service on a flying hours rather than calendar basis???

Observer
Observer
January 21, 2015 3:04 pm

On the other hand, remember that there have been a lot of cases where equipment have outlasted their theoretical lifespan, unfortunately mostly because of budget constraints putting a crimp in their replacements.

Might be a hint of a GR4 SLEP coming up. :)

Dan R
Dan R
January 21, 2015 5:43 pm

I think my big issue with these contracts isn’t the private, it’s the finance. Fundamentally it makes no sense for agovernment to use someone else to take a loan it on their behalf as generally the UK government can borrow chapter than any commercial organisation.

Hohum
Hohum
January 21, 2015 6:23 pm

Dan R,

You are of course absolutely right. However, PFI is a clever little trick in that it allows what is in reality a debt obligation to be kept of the overall balance sheet and thus not be recorded as debt. Which makes politicians of all colours, especially red ones, very happy indeed.

John Hartley
John Hartley
January 21, 2015 7:01 pm

I have no problem with PFI if it works out cheaper than outright purchase & public sector operation. Have not found an example of that yet. Most PFI companies seem to be run by ex public sector managers & retired politicians who use their contacts to get the contract, then fleece the taxpayer. Cannot talk about the Voyager PFI for the sake of my blood pressure.

Smurphboy
Smurphboy
January 21, 2015 7:15 pm

There is evidence that the service housing PFIs were cheaper as the builder has a highly saleable asset at the end of the term and discounted the service charge to take that into account over the term of the contract. I also believe that the PFIs were there was a real possibility of third party revenues were also good value for money.

But yes, PFI was an excellent way to overcome Capital DEL limits by committing RDEL for an extended period for the Department, and off the Asset Register (making the Treasury position look better).

tweckyspat
January 21, 2015 8:56 pm

Is it just me or does the Jt Staff College PFI contract look cheap ? Less than a million a year ? I suspect that the figure quoted was just the initial x years of the contract not the full 30.

Nevertheless I do think one unintended result of the PFI-mania was that subsequent cost saving exercises had to focus elsewhere. I remember being on the staff at Shrivenham in the early 2000s when the inevitable cost saving ruler was passed across the budget; outside the PFI there was very little which could be cut, which made the exercise quite brief. Sadly although this made being on the staff much more pleasant than being in some cash strapped part of defence, we all knew that this would mean the axe fell elsewhere….

Chris.B.
Chris.B.
January 21, 2015 10:43 pm

The other reason governments like PFI is because it effectively allows you to buy now and pay later. Or rather, buy now, let someone else pick up the bill later. And once you’re tied into the contract, it becomes very difficult for future governments to get out of it, ensuring your pet projects can survive a change in government.

Smurphboy
Smurphboy
January 22, 2015 3:40 pm

The JSCSC value is wrong, I believe.

I’ve seen the total operating contract reported as £168M over the 28 years. http://reports.investis.com/reports/srp_en_ara_2002/downloads/part9.pdf

tweckyspat
January 22, 2015 5:16 pm

S-B; thanks for that – just what i misremembered. If that number is wrong, I wonder how many others are in the original table ?

Smurphboy
Smurphboy
January 22, 2015 8:20 pm

Quite a few look wrong… I’ll do some digging, I’m pretty sure there is a decent Hansard answer on 28 of the MOD deals… will have to adjust the numbers but I remember there was an answer that gave the values in NPV so they can be compared properly.

Smurphboy
Smurphboy
January 22, 2015 10:41 pm
ArmChairCivvy
ArmChairCivvy
January 23, 2015 5:10 am

According to the above detail, Strategic Sealift runs to 2022/23 (pmnt for only part of that year).

I did read somewhere that the terms had been altered during the contract, which wording is different from having been terminated.

ArmChairCivvy
ArmChairCivvy
January 23, 2015 5:13 am

My reading of the Change in terms was to make the availability Clause less onorous to the operator.

tweckyspat
January 23, 2015 6:47 am

Thanks smurphboy – that’s more like it. JSCSC will cost 2.1Bn GBP over 30 years in unitary charges, original value of contract 93M

TD suggest this might be worth a proper post…..

Smurphboy
Smurphboy
January 23, 2015 9:01 am

I’ve made some graphs…

A breakdown by project: http://imgur.com/JD84DIt

A breakdown by ‘Command’ – I’ve allocated housing to the primary beneficiary rather than categorize them as Centre or DIO. http://imgur.com/nUHSpbZ