BRITISH BROADCASTING CORPORATION				RADIO 4







TRANSCRIPT OF “FILE ON 4”- ‘PRIVATE FINANCE INITIATIVE’








CURRENT AFFAIRS GROUP







TRANSMISSION:	Tuesday 12th June 2007		2000 - 2040

REPEAT:		Sunday	 17th June 2007		1700 - 1740








REPORTER:		Gerry Northam

PRODUCER:		Karen Kiernan

EDITOR:		David Ross







PROGRAMME NUMBER:		07VQ3912LHO



THE ATTACHED TRANSCRIPT WAS TYPED FROM A RECORDING AND NOT COPIED 
FROM AN ORIGINAL SCRIPT.  BECAUSE OF THE RISK OF MISHEARING AND THE 
DIFFICULTY IN SOME CASES OF IDENTIFYING INDIVIDUAL SPEAKERS, THE BBC 
CANNOT VOUCH FOR ITS COMPLETE ACCURACY.

“FILE ON 4”

Transmission:		Tuesday 12th June 2007
Repeat:		Sunday 17th June 2007

Producer:		Karen Kiernan
Reporter:		Gerry Northam
Editor:			David Ross

NORTHAM:	For a decade, the Chancellor has promoted 
unprecedented capital spending on public services. Hundreds of new and refurbished schools and 
hospitals have been commissioned using a funding system Labour previously derided in 
opposition – PFI, the Private Finance Initiative.

EXTRACT FROM GORDON BROWN SPEECH

BROWN:	The purpose of PFI, as I see it, is to bind these 
contractors in to value for money, so that they and not the public bear the cost of flaws, failures, 
overruns and delays.

NORTHAM:	A succession of gleaming new buildings has been 
opened. But head teachers and hospital doctors complain that PFI has led them into peril; its high 
costs and inflexibility forcing cuts in other essential areas of service.

FIELDEN:	NHS managers were put into the bear pit of private 
financing and fleeced.  These long term debts are distorting clinical priorities now.  They’re 
distorting our ability to treat patients.



MCVITTIE:	We would have to lose a minimum of three teachers and 
potentially rising to five or six to manage the budget, which is totally unacceptable.

NORTHAM:	This week File On 4 reports on PFI projects which 
have gone wrong. As Gordon Brown prepares to be Prime Minister, we ask if one of his pet 
schemes is showing signs of strain.

SIGNATURE TUNE

ACTUALITY AT BALMORAL HIGH SCHOOL

NORTHAM:	This is one of the new schools the government should be 
able to regard as a great success.  It’s Balmoral High School, in Belfast, opened five years ago 
under PFI at a cost of £17 million and purpose-built for education in the 
21st century. It seems to have everything. Everything, that is, except the thing it needs most – 
children.  It’s morning break time here, but the playground is all but deserted. There are perhaps 
a dozen students in their smart blue uniforms checking their mobiles, but otherwise just empty 
stretches of grey asphalt.

COREY:	The facts are that the school, designed and built for five 
hundred pupils, found itself in a very short period of time unable to attract that number of pupils, 
and so we have a situation where this school is now scheduled to close in August 2008, but the 
private sector owners, under their contract, will have to be paid for this school for the next twenty 
years at a cost of millions of pounds to the Exchequer.

NORTHAM:	The case of Balmoral High School has become a cause 
celebre for opponents of PFI, like the trade unionist John Corey of the Northern Ireland Public 
Service Alliance.  The school is a victim of demographic change. Although it was built for five 
hundred students, population movements have meant that it now has just a hundred and fifty, and 
falling. Once it closes, there’ll be a serious problem of what to do with it. Because it was built 
under PFI, it’s now owned by the contractors, so the education board can’t sell it. And, even if 
the school remains empty, the public purse has to go on paying for the building and cleaning and 
maintenance until 2027.  John Corey points to this as a classic instance of failure.


COREY:	We think PFI is inappropriate for all public 
infrastructure, but for education in Northern Ireland it is going through a period of significant 
change and the position is that it is recognised that there will have to be changes to the school 
system, to the school’s infrastructure for schools.  The government lost its flexibility whenever it 
built the school through that method in that it now must pay for this school even though it can no 
longer be used as a school, it’s no longer viable.  

NORTHAM:	For Belfast’s Education Board, the case of Balmoral 
High School is profoundly uncomfortable. There’s no disguising the fact that the Board got its 
forecast of student numbers drastically wrong.  The chairman, Councillor Jim Rodgers, is left 
having to explain why the school was built at all. 
Is this a cause of some embarrassment to the Education and Library Board?  I mean, to put it 
crudely, do you feel you’ve got a degree of egg on your face over Balmoral High School?

RODGERS:	Well, up to a point, but what you must remember, we 
were clearly of the impression, as were the officers, that the advice was accurate and was 
correct.  But unfortunately circumstances change.  Many young people who would have went to 
that school, their families were forced out of the area the school is situated in, because they were 
intimidated through our terror campaign in Northern Ireland.

NORTHAM:	Councillor Rodgers is keeping his fingers crossed that 
he’ll be able to find another use for which the school can be adapted. But even that could prove 
expensive, and whether he finds an alternative or not, he is committed to paying service charges 
for twenty years. This year’s rate is more than £370,000. So by 2027, the total will amount to 
something in excess of £7.4 million.

RODGERS:	That figure is fairly accurate, and that’s what worries me 
as a taxpayer and also as a rate payer.  It’s an enormous amount of money, but whenever we 
entered into this, no one ever thought that this would be the case.  I have never backed the road 
of PFI, but being a realistic person, I fully understood if we were going to provide a new building 
- and that’s basically what we had to do - we were going to have to go down a PFI route.


NORTHAM:	At the Department for Education and Skills in London, 
PFI is presented as a massive success story. But the Schools Minister, Jim Knight, accepts that it 
doesn’t always have a happy ending.
There are some serious anomalies, aren’t there? If you’ve got a school, as one we visited in 
Northern Ireland, where the school is going to be closed for demographic reasons, that the 
Education Board is committed to paying for it and its maintenance and cleaning for another 
twenty years, that does seem odd, doesn’t it?

KNIGHT:	Yes.  We’ve got a couple of examples in England where 
that may have occurred and of course we don’t think it’s right that the local authorities should 
have to pay for it over future decades if they no longer need the school.  So what we would say 
is that local authorities should be able to agree with the private sector partner a price to then take 
the redundant school out of the contract with obviously the reduction that they’ll then get in their 
charges as a result and ….

NORTHAM:	They’re in a weak position in that negotiation, aren’t 
they, in that it’s entirely up to the private contractor whether they agree or not?

KNIGHT:	Well, we’ve got an example where we managed to 
achieve that in Brighton, and I think most cases the private sector companies, they want more of 
this sort of work and they want to be reasonable.

NORTHAM:	As Belfast tries to get out of the mess it’s created at 
Balmoral High School, other problems with PFI schemes in the rest of the country are beginning 
to come to light.

ACTUALITY AT WOODSIDE HIGH SCHOOL

NORTHAM:	One thing they’re not short of at this school in north 
London is students. Woodside High on the famous White Hart Lane is a bustling, multi-ethnic 
secondary with a roll of twelve hundred. Its new Head is busy pulling the school out of past 
failure and displays a photograph of the Prime Minister taken on a visit last year on which he has 
written ‘Well done on turning your school round’. Staff think they’ve got a lot to be proud of. But 
not the nature of the PFI contract that covers their school.  Three years ago, a part of the school 
was rebuilt to accommodate subjects like modern 
NORTHAM cont:	languages, design and technology and IT. There are 
some complaints about the way that even this new building has turned out. But the remaining 
four-fifths of the school are plain crummy, with ticky-tacky walls, broken windows and peeling 
paint.  What annoys the Head, Joan McVittie, is that under the terms of the PFI contract, a 
private company, Land Securities Trillium, has responsibility for cleaning and maintenance of the 
whole school, for which she pays hundreds of thousands of pounds a year. Mrs McVittie doesn’t 
think she’s getting her money’s worth – particularly when she thinks back to the arrangement at 
her previous school, where she had a traditional team of caretakers.

MCVITTIE:	There is absolutely no comparison at all.  The previous 
school, it was a well maintained school that the children certainly felt was a good environment to 
be in, and certainly as you move round the building at the minute in here, you will come across 
graffiti, broken windows, poor cleaning, generally a poor state of repair in the school.

NORTHAM:	Have you raised this with Trillium, the contractor?

MCVITTIE:	We’ve raised this umpteen times with the contractor, 
yes, in meetings and through emails, etc.

NORTHAM:	What happens when you do complain?

MCVITTIE:	Generally we wait a long time for a response actually 
and sometimes the response isn’t really what we want.  When I arrived, I was concerned at just 
the general state of maintenance of the children’s toilets.  I put in a number of requests to Trillium 
to repaint the toilets. This was actually done verbally through the site supervisor. There was no 
outcome at all and eventually the children came to us, the Year 8 girls, in fact, with a petition 
asking us to do something about the toilets. So I said to my leadership team, ‘I’m going to come 
in and paint these over the Easter break.  Will you come in and help me?’  And the whole of the 
leadership team came in and we repainted the main girls’ toilets and the main boys’ toilets.  But 
what I would say was, we spent the whole of the first day cleaning them before we could even 
begin to paint them.  They were in an appalling state.


NORTHAM:	We asked for an interview with the PFI contractor, 
Trillium, but were told nobody was available.  In a statement, the company says:

READER IN STUDIO:	We do acknowledge there have been some specific 
issues in regard to the facilities management services at Woodside High School. However, it is a 
challenging environment, especially with the high weekly incidence of damage. We remain fully 
committed to working with the school to provide a high level of services.

NORTHAM:	Last year, Mrs McVittie’s school paid £380,000 to 
Trillium for maintenance, utilities and cleaning. This year the contractual payment is up 13% to 
£431,000 - a large sum for any Head to find out of the school budget.  But 
Joan McVittie has suffered a further shock. The company is claiming substantial extra payments, 
to cover what it says was previous undercharging and the costs of preparing for the next stage of 
PFI, which will see the rest of the site redeveloped.  Other schools in the borough are facing 
increased PFI costs too. The council calls them ‘very substantial’ and says it remains ‘gravely 
concerned’ about the quality of service under the contract.  At Woodside High, the annual 
payment to Trillium will go to well over half a million pounds with the increased charges Mrs 
McVittie faces.

MCVITTIE:	We’re certainly going to have to pay another £130,000 
with the potential of that rising to £200,000 with some costs that the council are currently 
disputing.

NORTHAM:	An increase of 30%?

MCVITTIE:	Yes, absolutely, and that’s a significant increase on a 
school budget.

NORTHAM:	What does it mean for your finances?

MCVITTIE:	Well, basically it’s in terms of teaching, because when 
you have that sort of cut, that you have to make, you have to cut the number of teachers, so that 
will probably mean for us a minimum of three teachers and potentially rising to five or six.

NORTHAM:	That you would have to lose?
MCVITTIE:	We would have to lose to manage the budget, which is 
totally unacceptable.  We have a school currently that is not fit for purpose in terms of use for the 
children. 

NORTHAM:	In its statement to File On 4, the PFI contractor, 
Trillium, defends the increase in its charges at Joan McVittie’s school.

READER IN STUDIO:	The increase in facilities management charges has arisen 
following a periodic review of these costs as is required under our PFI contract with the local 
authority. The charge was identified as being lower for five years when compared to other 
schools in Haringey. As such, an increased charge was discussed and agreed with the local 
authority to reflect the current level of service being provided.

NORTHAM:	Schools in other boroughs are also experiencing 
problems with PFI contracts.  The Association of School and College Leaders has become 
concerned that a number of head teachers are stuck with unsatisfactory deals. The Association’s 
President, Malcolm Trobe, is not opposed to PFI in principle, but does find that its operation in 
practice can be distinctly unsatisfactory.

TROBE:	One of the reasons that PFI was sold to schools and 
schools so readily accepted it was that school leaders would be able to concentrate on the 
educational aspects of the school.  And this in many ways has turned out to be a myth, because a 
great deal of time is having to be spent now in dealing with changes in contract, in dealing with the 
details of working with the contractor, ensuring that all the services that they are providing are up 
to scratch, and then some of the negotiations with the contractor are just taking an interminable 
amount of time and energy.

NORTHAM:	Is there something one-sided about this?  Your 
members have been quite happy to accept the new schools and colleges that have been built for 
them, and now they are complaining about the terms of the contracts.

TROBE:	There are a number of contracts that are running 
extremely smoothly.  There are other contracts where our members are indicating that there are 
significant issues.  There are minor arguments about when something is broken,
TROBE cont:	the contractor calling it vandalism when in fact the 
materials are not actually fit for purpose in the school, and on occasions they have to go to some 
form of arbitration process in order to determine the outcome, and all of that is extremely time-
consuming.

NORTHAM:	At the Department for Education, the commitment to 
using PFI is undimmed. The Minister for Schools, Jim Knight, argues that heads like Joan 
McVittie of Woodside High should be able to sort out any problems of poor maintenance.

KNIGHT:	I mean, I don’t know the details of the individual 
contract that that particular head teacher might be facing in Haringey.  You know, if she wants to 
send the contract through to me, I’m happy to get people to look at it here and make sure that 
they are properly implementing that contract in terms of the requirements on the contractor to do 
the proper maintenance and whether there are penalty clauses that can be used if they are not.

NORTHAM:	It’s not just one or two schools.  We’ve talked to the 
Association of School and College Leaders and their president said that, up and down the 
country heads are finding that they are caught up in interminable negotiations and delays with PFI 
contractors when they’d been promised that the whole benefit of PFI is that they needn’t worry 
their heads about this sort of thing.

KNIGHT:	Well, I’ve got no reason to doubt what the president of 
ASCL says, he’s a perfectly reasonable person, but we all know in those sorts of positions, we 
hear more from the people where things aren’t going right than the people where things are going 
wrong.  But when I look at the whole picture, when I look at all 843 schools that have been 
involved in PFI in over a hundred contracts, I don’t hear that complaint consistently, but there is 
some complaint that’s there and we’ve got to deal with that.

NORTHAM:	If some schools have encountered PFI problems to 
date, the scale of their projects is minor compared with the huge investments which have been 
made in the NHS. And many of the grandest schemes in health have turned on the building of 
new hospitals - even superhospitals.
EXTRACT FROM NEWS REPORT

PRESENTER:	This summer healthcare in Coventry will change 
dramatically with the opening of the new University Hospital here on the site of the Walsgrave in 
Coventry.

NORTHAM:	The vast project of the new University Hospital in 
Coventry is one of the most exciting NHS developments in recent years. 

PRESENTER:	It’ll be a quarter of a mile long, there’ll be twelve 
hundred hospital beds, thirty-two operating theatres, private healthcare, even a helipad.

NORTHAM:	Known as the Walsgrave Project, it’s £400 million 
worth of investment carried out under a PFI scheme.  But even before it opened, the hospital 
Trust was struggling to afford it. A year ago, as the first payment of £54 million was due to the 
private contractor, the Trust was £37 million short of cash and had to be bailed out by a loan.  
The local Socialist councillor, Dave Nellist, has tracked the financial growth of the scheme with a 
sense of wonder.

NELLIST:	Well, fifteen years ago, there was a proposal to 
modernise to European standards the Walsgrave Hospital at the cost of £28 million. Now most 
reports refer to this hospital as a capital cost of £400 million.  The cost has gone up many times in 
recent years, but the real expense comes when you levy over thirty-nine years the payback costs.

NORTHAM:	The Trust was unable to meet the first of the payments it 
was committed to under the PFI contract.

NELLIST:	That’s right, and it couldn’t turn to the local Primary 
Care Trust in Coventry, Warwickshire, because they themselves are facing new regional and 
national targets, which led to them being said to be overspending.  However, the PCTs did 
underwrite a loan from the regional health bank of some £27 million to assist the Hospital Trust in 
its first year.


NORTHAM:	The financial problems over the PFI at Walsgrave 
Hospital have aroused national concern. At the British Medical Association, Dr Jonathan Fielden 
chairs the consultants’ committee, and has become increasingly anxious about the implications of 
the high costs of the project.

FIELDEN:	We know there that they do have a fabulous new 
facility, but the payments they are tied into, the long term thirty plus year deal that they’re tied 
into, means that because the amount of money coming in from Payment By Results and the new 
financial mechanisms in the health service is now less than they predicted, they are mothballing 
services, they are closing wards, they are not running all the theatres that they could do, they are 
potentially reducing jobs because of this.

NORTHAM:	Doing it in order to pay the costs of the PFI?

FIELDEN:	In order to pay the costs of the PFI, yes.  It is also 
affecting the hospitals around Coventry Walsgrave, because their payments from the Strategic 
Health Authority are also threatened to ensure that the contract they are signed into, the legally 
binding contract they cannot get out of, is paid.  Clearly when you have large fixed costs like that, 
it puts the overall finances at great strain.

NORTHAM:	Sixty beds are already closed at the Walsgrave Hospital 
and a further forty-nine may follow. Two operating theatres were closed last year and there’s a 
plan to cut two hundred and fifty jobs.  Nobody from the Hospital Trust was available for 
interview about the impact of the PFI costs. In a statement to File On 4, the Director of Finance 
remains upbeat:

READER IN STUDIO:	Technology within the new hospital is giving us the 
opportunity to change and improve the way we deliver healthcare, while at the same time 
becoming more efficient and therefore making savings to overcome our current financial 
challenges.

NORTHAM:	But he also admits that, even after being rescued last 
year, the hospital is still £30 million short after this year’s PFI payment.  At the BMA, 
Dr Jonathan Fielden has come to doubt the value of PFI deals generally for the hospital sector.
FIELDEN:	There was a political decision made that we wouldn’t go 
down the public financing side.  The only way you would get your new hospital – and many new 
hospitals were and still are needed – was to go down this route.  Then NHS managers were put 
into the bear pit of private financing and fleeced. The private sector is extremely good at making 
money, that is what it is there for, it is there to make money for its shareholders, and the public 
sector managers were too naïve. They didn’t see the long term consequences, they couldn’t see 
the long term consequences of the change of government policy, and thus they signed into deals 
which were not as good as they should have been.  We cannot have these long term debts.  
These long term debts are distorting clinical priorities now, they are distorting our ability to treat 
patients.

NORTHAM:	But they are stuck with the PFI commitments?

FIELDEN:	They are stuck with those commitments.  That means 
they have to cut back in other areas.  It means shrinking the hospital, it means not treating as 
many patients as they could.  It means cutting staff numbers back, making staff redundant when 
they should be in trusts, helping treat patients.
 
NORTHAM:	File On 4 has found the value of many PFI schemes in 
the health service being questioned across the political spectrum.  Even some ardent advocates of 
private sector involvement have come to doubt the economic sense of sinking hundreds of 
millions of pounds in capital costs alone into new PFI hospitals. At the free market think-tank, 
Reform, Prof Nick Bosanquet of Imperial College, has analysed the impact on the health 
economy of huge building projects which have sprung up not only in Coventry but across the 
country.  He’s become convinced that much of this money may be ill-spent.

BOSANQUET:	Our problem is that we’ve got a lot of projects which 
were started before anybody knew whether they could be funded.  We’ve now got a number of 
hospitals which are really going to be too expensive and too large for their local health 
economies.

NORTHAM:	These are hospitals built under PFI and you’re saying 
the costs of them are going to be too high?


BOSANQUET:	Well yes.  Our study of larger PFI schemes, ten of the 
fifteen were rated as weak in the use of resources and financial controls and most of them had 
quite serious deficits, so they start under a very very big handicap that they’re causing enormous 
financial stresses. There are already one or two PFI hospitals where wards and wings are 
standing empty, because there there’s nobody who wants to buy their services.  Just closing 
down the non PFI hospitals in order to up the activity in the PFI ones is not going to be the 
answer, because we may then have the wrong kind of services in the wrong places for local 
patients.
  
NORTHAM:	As a number of Trusts struggle to meet their PFI 
charges, new research suggests that some contractors are finding these deals very lucrative.  
Professor Jean Shaoul of Manchester Business School, a longstanding critic of PFI, is preparing 
for publication a study of the amounts made by contractors in twelve large hospital developments 
which were among the early waves of PFIs.  The results leave her adamant that these were bad 
deals.

SHAOUL:	We found that in the case of hospitals the private sector 
was making a 58% rate of return on shareholders’ funds, so that’s really quite a hefty rate of 
profit.  And from what we can tell, that for many of the construction companies – but not all – 
they make higher rates of return on their PFI projects than they do on their regular business.

NORTHAM:	The government disputes these figures and says that 
actually the rate of return is a much more acceptable level – 12% to 14%.

SHAOUL:	What they actually say is that it is more likely to be 
between 12% and 14%.  They haven’t looked at what is actually the case.  What we have done 
is look at how much they have made, and in some years the rate of return on shareholders’ funds 
has been far far in excess of 58%.

NORTHAM:	How did you get these figures?  Aren’t these contracts 
normally regarded as confidential?

SHAOUL:	What we did was, we got the accounts from Companies 
House of the private sector companies that contract with the Trusts.
NORTHAM:	So you’re confident, are you, that these figures are 
accurate?

SHAOUL:	Oh absolutely. 

NORTHAM:	File On 4 wanted to put to the Department of Health 
Professor Shaoul’s finding of 58% returns for some PFI contractors, and also to hear the 
government’s response to the doubts expressed by Professor Bosanquet and the BMA. We 
were told no health minister would be available for interview about PFI spending.  Nor was any 
minister available from the Treasury team. In a statement, they say that recent Treasury figures 
show that 96% of current PFI projects are performing to a satisfactory standard or higher.  But 
concern over the impact on hospital budgets is not confined to academic researchers.  In recent 
months, some NHS Trusts have announced that they reject PFI as a way of funding major 
projects.  Bradford Teaching Hospitals Trust said, ‘Thanks But No Thanks,’ with the Chairman 
giving a crisp explanation of why.

READER IN STUDIO:	We have no intention of using PFI. We will not saddle 
the people who come after us with a massive millstone of debt around their necks.

NORTHAM:	Then South Devon Healthcare Trust decided that it too 
would reject PFI for the rebuilding of Torbay hospital.  Its chairman explained:

READER IN STUDIO:	The Board’s approach reflects the views of our NHS 
partners, staff representatives and the general public, and we have been well aware that they 
would prefer us not to have to depend on PFI as the means to finance the future hospital.

ACTUALITY IN NORTH DEVON

NORTHAM:	And the same decision has now been reached in North 
Devon over redevelopment of the hospital here in Barnstaple.  Last month the local Healthcare 
Trust met to consider what to do with its collection of 1970s and 80s buildings, which no longer 
match the needs of the modern NHS.  They decided to gut the existing estate and provide a 
thoroughly refurbished hospital from top to bottom. 


ROY:	We’re on level one of the main acute hospital, and as 
you can see, we have five very large domestic hot water storage vessels.  We will remove all 
these five units, that will then enable us to release plant room space.

NORTHAM:	Iain Roy is the Facilities Director, planning a new use for 
areas like the existing basement.

ROY:	The current plan is to use this for medical records 
storage, which is all over the hospital, dotted in different places, including ward areas and other 
areas that we could use for staff facilities and generally refurbish.

NORTHAM:	The Trust had a consultants’ report recommending a 
completely new hospital on a new site, which would be built under PFI.  But it decided, on 
economic grounds, to turn the idea down. Instead, its refurbishment project will cost less than a 
quarter of the capital outlay, and it can find that without PFI by accumulating its own maintenance 
budget and selling off part of the site which currently contains old nursing homes.  In a Trust 
which, like many, is fighting to break even, the Finance Director, Andy Robinson, believes this 
will avoid a pitfall other hospitals have stumbled into.

ROBINSON:	We believe we can refurbish the site at a cost of about 
£23.5 million over the five year period from now.  We estimated that the PFI would probably 
take a couple of years longer than that and would cost about £100 million.

NORTHAM:	£100 million as against £23.5 million?

ROBINSON:	That’s correct.  The ongoing running cost of a PFI we 
assessed as likely to cost more than our existing running costs, even with the £23.5 million 
investment.

NORTHAM:	More than your existing running costs, so you wouldn’t 
be able to afford it?

ROBINSON:	That’s correct.


NORTHAM:	Will you get as good a building out of this as you would 
have done with the PFI?

ROBINSON:	Probably not is the black and white answer to that, but 
it depends how you determine what’s best.  Certainly we believe that we would retain more 
flexibility with a site that we own and can therefore control how it develops in the future, whereas 
with a PFI you’re fairly tied down to what you design when you agree the contract.

NORTHAM:	Among health economists and market analysts we’ve 
found a widespread view that the day of the huge hospital PFI project may be passing - in part 
because government policy has shifted towards smaller-scale localised provision of many 
services. For the fewer huge projects that remain, analysts argue that clear disadvantages have 
emerged.  The PFI specialist, Richard Tierney, of accountants BDO Stoy Hayward, finds that 
even attracting adequate interest from the private sector can become difficult.

TIERNEY:	Some of the big mega projects unfortunately suffer from 
a lack of interest in the market, simply on scale and simply because they are so difficult to close.

NORTHAM:	Those are what kind of projects?

TIERNEY:	They’re the really big health projects in particular, the 
£500 million mark.  In those cases there are only a handful of organisations across the UK who 
have the credibility and the scale to bid effectively for that kind of deal.

NORTHAM:	So from the outside it may look as if the bigger the 
contract, the more appealing it will be to the huge contractors, but you’re saying that’s too 
simplistic?

TIERNEY:	Yes, I’d say it ain’t necessarily so.  Once you hit a pivot 
point, it’s only the big players that can afford to bid for those particular projects - £300 million or 
£400 million perhaps.  After that, the risk goes up.  Okay, the profit goes 


TIERNEY cont:	up, but the sheer scale of the deal can lead to it being 
unattractive to the market.  You’re immediately in trouble if you’ve only got two or three bidders 
to begin with.

NORTHAM:	They can have you over a barrel, can they?

TIERNEY:	That’s possibly exaggerating it slightly, but you wouldn’t 
get the best value for money that you could.

NORTHAM:	The difficulty in finding enough bidders to make a real 
competition for some of the grandest hospital projects has made at least one large Trust think of 
an innovative and highly controversial way of letting PFI contracts.
In North Bristol, plans for development of Southmead Hospital are already well advanced.

ACTUALITY AT SOUTHMEAD

DOWN:	We’re really standing in the heart of the development 
zone, so this will be where the new facility is built.  We’ve got a very old ward here.  This was a 
ward that was built in, I think it was round about 1938 ….

NORTHAM:	Tricia Down is the Deputy Director of the project, 
which has a capital cost of £374 million.
And all of this is going to come down?

DOWN:	All of this will come down as part of the PFI 
development.  We hope that we will have finished the procurement phase over the next two or 
two and a bit years, so by the end of 2013 we hope we’ll have a fantastic new building ready.

NORTHAM:	North Bristol Trust recognises the problem of attracting 
enough private interest for such a large project - a problem which could become particularly 
acute under the government’s new bidding system, known as Competitive Dialogue, which 
requires contractors to do more work upfront.  So the Trust is considering paying back some of 
the millions of pounds in bidding costs not only for the winning firm,


NORTHAM cont:	but also for the losers.  And this is what’s proving 
contentious.  One of the local MPs, the Liberal Democrat, Steve Webb, concludes that once 
again the public sector is being taken for a ride.
 
WEBB:	I think there’s a paradox here that all the rhetoric about 
PFIs, the rigours of the private sector being brought to bear and not a stale public sector that 
doesn’t do things efficiently, and here we are saying that we will bribe you to enter the market 
and compete, so it its paradoxic.  I can see exactly why they’re doing it, but it’s a sign I think of a 
lack of competition in the supply side here that they have to think about this sort of desperate 
measure.

NORTHAM:	Bribe?

WEBB:	It’s quite clearly a bribe, it’s saying that rather than 
being a market where people enter and compete freely and take the consequences of failure, 
which is what markets are supposed to be about, actually that this is a guarantee, a guarantee that 
there is no such thing as failure, and that seems a very strange notion when they’re talking the 
language of markets.

NORTHAM:	But at North Bristol Trust, Tricia Down rejects any 
suggestion of giving in to contractors.
Isn’t the principle of PFI, at least the rhetoric of PFI is that risk is transferred to the private 
sector.  What you’re actually setting up if you start paying the losers’ costs is a system where 
heads they win and tails you lose.

DOWN:	Yes.  I mean, we won’t be refunding their costs, 
because they will still have the magnitude of costs that they have had under the historic system of 
the negotiated procedure.  I think all we’d be looking at is the additional costs of this new 
process that they wouldn’t have been able to factor into their business plans.

NORTHAM:	But shouldn’t they just take the risk?

DOWN:	I mean, that is a question that one might ask and that 
might be the end result of our further discussions with the Department of Health.


NORTHAM:	One of the local MPs, Steve Webb, says that it amounts 
effectively to a bribe in order to get contractors to take an interest and bid for you.  Is it a bribe?

DOWN:	It’s certainly not a bribe.  I think we’ve had a lot of 
interest in our scheme.  Certainly we’ve had discussions over the past year or two with potential 
bidders. I think they like our approach to the scheme and I think they see us as a robust project 
team and one that they’d be able to work with.

NORTHAM:	If you do end up paying some of the losing contractor’s 
costs, will that come out of patient care?

DOWN:	No, what will happen effectively with that is that the 
successful bidder will include those costs in the overall costs that they will give to us.

NORTHAM:	So you’ll end up paying it anyway.

DOWN:	But the costs will be very small over the period of time 
that we’re talking about.

NORTHAM:	But it will nonetheless affect what you can do for 
patients, won’t it?

DOWN:	No, it shouldn’t do, because we …

NORTHAM:	Well you won’t get money out of thin air.

DOWN:	We have a range of factors that we need to balance 
whenever we’re delivering services, and there will always be particular areas that we will need to 
fund.  As we become increasingly efficient, we find better ways of delivering our services and we 
reduce costs in other areas that can cover issues such as these.



NORTHAM:	The PFI in North Bristol may turn out to be one of the 
last major hospital projects. The Department of Health has already cut billions of pounds off its 
large PFI programme.  The coming big wave of spending is to be on schools. Over fifteen years, 
the government wants to rebuild or refurbish every secondary school in England – 3,500 of them 
– under the banner BSF: Building Schools for the Future.  Most of the new buildings will be 
under PFI at a total cost of £20 billion.  But we’ve found major education authorities, 
Manchester and Liverpool, deciding against PFI for their schools.  So, given the problems 
identified in this programme, does the Schools Minister, Jim Knight, think that PFI is running into 
resistance?
Does it trouble you that some local authorities, like Manchester and Liverpool, are rejecting PFI 
and saying they want to do the funding some other way?

KNIGHT:	No, because we are not imposing absolutely everything 
on local authorities as part of PFI.

NORTHAM:	But if PFI is as promising as you say it is, those major 
local authorities don’t seem to have got your message.

KNIGHT:	Yes, but others, you know, Bristol are using the model 
and Bristol will be the first authority to open a new BSF school and it’s worked very well there.

NORTHAM:	Given that it isn’t just some local authorities, but also 
we’ve found, outside your field we’ve found a number of NHS Trusts which are rejecting PFI.  
Is the Chancellor’s big idea, PFI, now beginning to show signs of strain?

KNIGHT:	No, I don’t think so.  What would be a mistake would 
be to say that there is a single answer to every problem and that applies to capital projects in 
government as much as anything else.  There remains a place for conventionally funded projects 
and equally there remains a place for PFI, and I have ministers from other countries that come 
and talk to me about PFI because they see it working.

NORTHAM:	No question of PFI running out of steam?


KNIGHT:	No, I really don’t think so, because we’re just getting 
better at doing it, and whilst there may have been some weaknesses in the past, the assessments 
that we’ve seen show that PFI, on balance, is working very well.

SIGNATURE TUNE 


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