Opinion

Will Carillion collapse and NAO report end PFI?

Story for CM? Get in touch via email: [email protected]

Comments

  1. You might conclude that the NAO finds nothing fundamentally wrong with PFI as a model; it balancing advantage, risk and reward into an acceptable value-for-money proposition between the parties. PFIs are above all not a one-size-fits-all proposition. Bidding and finance costs do make PFI inherently suited to larger projects where only those with deep pockets, the capacity for the securities and an appetite for the broader risks can play. In PFI models, the deal is opened to considerable external scrutiny before commitment; as technical, legal and commercial risks and obligations are all examined against the operating model before lenders are convinced enough to approve and sign up, so these ought to be more ‘secure’ projects. However, if your portfolio of PFI projects doesn’t contain either enough inherent risk contingency and/or you trade at such low margins; then one failure can indeed be an enterprise risk. Couple this with poor acquisition decisions, consequential debt and poor operational control and financial prudence and the house can be blown down – as we now see.

  2. There has been a trend over the last 30 years for non construction trained persons to take over the senior management of construction companies and who have very limited understanding of the risks and need for proper risk assessment. Likewise the City have also become involved by their demands for taking all the cash out of businesses and leaving insufficient reserves for those rainy days

Comments are closed.

Latest articles in Opinion