PFI Expiry - a critical dependency
A potential storm is coming. Huge demands on a decreasing specialist labour market may lead to spiralling costs or even unavailability as clients, investors and suppliers compete for scarce resources.
In 2018 the National Audit Office reported by 2040 some £200bn will have been committed to PFI - an enormous amount. However, truth is, most of this spending would be required whether the vehicle was PFI or any other funding model. Given the history of PFIs and some of the negative press, some of this spending will be money well-spent, but some, sadly, may represent poor value for money. Ensuring the public purse and society at large maximises value for money throughout the entire life of the PFI is of paramount importance, especially as many PFI projects relate to critical infrastructure such as hospitals, schools and other community assets that were built for service users.
As many PFI projects are beginning to mature and reach the end of their natural lifespan, understanding the key drivers for a successful expiry is key to value for money outcomes and operational continuity of our critical infrastructure. One such driver is the “expiry” or “handback” survey, where the condition of each asset, and all core elements like boilers, air conditioning systems and so on, within the project are assessed and a view taken on the need to undertake asset replacement so that the assets meet the condition requirements set out in the PFI contract. Getting this survey right, can be seen as mission critical.
The vast majority of PFI projects are due to end between now and 2040, with a peak due around 2034 to 2038, with some 50 projects due to expire in 2036 alone. This will create an unprecedented demand for surveying talent which will include general, as well as highly specialised asset-specific surveyors. Given this demand, each interested party including Contracting Authorities (Central Government, NHS Trusts, Schools Academies, Local Authorities), Investors, Management Service Providers, Facilities Management (FM) Companies and indeed the entire PFI supply chain could, in theory, end up competing to secure the services of a pretty small talent pool. This will no doubt drive up prices, but may also fuel competitive behaviours - which could be disastrous for the end service users the infrastructure was built for.
Estimating the size of the surveying talent pool or, in other words, the market capacity for building surveying, is challenging - especially considering the profession is global and practitioners may be internationally mobile. Based on our research, we believe the total labour pool is somewhere in the region of 150,000, with around 50% of these based in the UK. Compounding this further, RICS has recently highlighted a growing skills gap in the profession - driven by increased construction activity, retirements of experienced surveyors and a lack of new entrants into the field.
We believe this increased demand from a relatively small and seemingly diminishing talent pool presents a possible doomsday scenario, with costs spiralling as organisations compete fiercely to obtain the best possible commercial position, to the detriment of all others in the supply chain - with service users suffering potential disruption. We have advocated for some time that all parties with a vested interest in PFI should adopt collaborative behaviours revolving around an efficient, equitable and effective (CURSHAW’s ‘E3’) handback where all stakeholders can ensure their objectives are met, without detriment to any other stakeholder.
Okay, you’ve read this far so we hope this kind of makes sense or at least has sparked your interest, so, what do we, collectively, do next?
Other than engaging the industry leading consultants with a proven track record of managing successful PFI expiry we urge all vested parties to, as a matter of urgency develop a suitable category strategy and sourcing plan in order to access this market in the best possible way. First move advantage will be a key determinant of success.
Good news, CURSHAW has already done some of this work and have already developed category and sourcing plans. If you would like to know how to mitigate these market capacity risks, then speak to us.
Want to learn more or have a different view, get in touch!