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Thursday, 6 September, 2001, 08:56 GMT 09:56 UK
PPP 'takes hold' in Scotland
By BBC News Online Scotland's Murray Cox
Public Private Partnerships (PPP) have become the funding method of choice for an increasing number of projects in Scotland.
Schools, hospitals, roads and even buses are being paid for under PPP, the successor to Private Finance Initiatives (PFI) as they were known under the Conservatives.
Glasgow City Council has put forward a plan to transfer its housing stock to not-for-profit organisations which would be able to attract private finance for desperately needed renovations.
This is seen as an extension of the PFI/PPP model and it is one which is causing significant political controversy in Scotland.
One of the complaints critics of the Glasgow housing transfer level at it is the complexity of the process.
It has been suggested many people do not understand what is planned and that that is preventing a meaningful debate on the subject.
Aims and objectives
BBC News Online Scotland spoke to lawyer Rhona Harper, of law firm Shepherd and Wedderburn, to find out what PFIs and PPPs are, what the political motivation behind them is and to look at whether or not they have proved to be effective north of the Border.
Ms Harper, said PFIs and PPPs are a way for bodies - whether hospital trusts, councils or other organisations - to procure facilities and services.
For example, a company will be contracted to maintain the fabric of a number of schools for a fixed period of time, perhaps 25 years, at a fixed cost.
The contract allows for inflation, but the advantage for councils, as Ms Harper sees it, is that they effectively have their risk minimised by knowing how much their repayments will be.
A series of controls and minimum service requirements are built in to ensure that contractors do not just pocket the money and run.
However, unions are becoming increasingly uneasy about the use of PPPs - and some of that stems from PFIs.
PPPs were introduced by the Labour Government in 1997 and some people argued they were little more than rebranded PFIs.
"I don't necessarily think there is a substantive difference between PFI and PPP," said Ms Harper.
"I think there was a lot of rebranding going on because, for a number of reasons, PFI was considered unacceptable, particularly to the public sector unions and also the Labour Party.
"When they came in they wanted to differentiate themselves from some of the projects which have gone before. It's a politically correct label, although there probably is some subtle difference."
Deficit financing problem
The rationale behind PFI was often questioned.
"They had a problem with the public sector borrowing requirement (PSBR) for their convergence criteria for the European economic union.
"The PSBR was far too high and they needed to get the public sector borrowings off the public sector balance sheet," said Ms Harper.
"You don't get the public sector borrowing money, you get the private sector borrowing money and to do that you have to transfer risk and ownership of assets to, even if it's in the short term, to the private sector.
"The Conservative Government forced it on people - partly they did that because it's the only way to get the thing done in the first instance.
"You can't say to people, 'Oh, here's a procurement solution which is new, it's different, it involves transferring assets to the private sector and transferring staff to the private sector and nobody's done it before. So go ahead, get on with it.'
"So, there was an element of compulsion and I think some of the schemes that went through favoured the private sector because they were in a better bargaining position and banks were being asked to put money into something which was new, so they had to be persuaded.
"I think the early deals were not public sector friendly and some of the schemes which were chosen were not necessarily appropriate for PFI.
"What changed was they had the Bates Review and Bates basically said all that. He said 'You need to be a bit more clever about which schemes you use and how you go about it'. "
She added: "That's something the Labour Government have taken to heart."
One of the arguments used in favour of PPPs is a claimed capacity for improving public services - but Ms Harper believes the reality of that remains to be seen.
"If you are talking about cleaners cleaning a school, it's the same people that were cleaning the schools in West Lothian last term as it will be under PPP, because they all transfer.
"So can they clean the schools any better? Physically the answer is probably no, but you are looking at a different management structure and local authorities have no performance targets, they have no standard against which they are delivering services and their funding is different.
Under PPP, the contractor has to deliver a service at a fixed price.
"A local authority has an annual budget, and if at the end of the year they are running tight on money and a roof needs repaired then it won't be repaired because the first thing to go is the maintenance budget.
"A PPP contractor is, in some senses the opposite position, because he's been told, 'We will pay you X amount of money per month if you achieve the following service standards, if you don't achieve the service standards we are not going to pay you, or we are going to pay you less'.
"So, the rationale for them delivering the service is different. They are saying, 'We have to go out there and do this and we have to do it well. If we don't do it well we won't get paid.'
"I think this becomes a debate about whether or not local authorities are structured in a way which motivates people to do their jobs well."
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