Very British Corruption

The private finance initiative is rigged from beginning to end; but now we have the chance to stop it

By George Monbiot. Published in the Guardian 22nd January 2002

“All experience hath shewn,” the American Declaration of Independence remarks, “that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed.” Only when the railways start to collapse are we prepared to contemplate the sort of mass protest which might once have saved them from privatisation. Only, I fear, when the universal provision of public services has been abandoned, will we begin seriously to contest the forces destroying them.

It’s not hard to see why it’s proving difficult to mobilise people against the private finance initiative, or PFI. The very term is so boring that most people lose interest before you can explain what it means. The scheme is fantastically complex, and its devil lies in the detail. Much of the most important information is withheld from the public, on the grounds of “commercial confidentiality”.

But unless we can contest it, successfully, now, we can kiss goodbye to effective public services. Patients are already stacking up in the corridors of the first privately financed hospitals, as the companies have charged so much to build them that both beds and staff had to be cut to make them affordable. The same catastrophe is due to be visited on the rest of the health service, as well as on schools, prisons, courts, roads, the London Underground, even the armed forces. Now however, though hardly anyone has grasped its implications, we are faced with the best chance we’ve ever had of bringing it to an end.

This will, like everything involving PFI, require some explanation. The details will hardly pin you to your seat, but unless we start to grapple with these subtleties, our chances of saving social provision in Britain are zero.

Some weeks ago, I was sent a paper written by a senior planner right at the heart of the PFI bidding process. For obvious reasons, he wants his identity kept secret. His paper provides an alarming account of the way the system works.

The private finance initiative, he reveals, is rigged from beginning to end. Ministers have promised us that public services will only be privately financed when PFI offers better value for money than public funding. But the same ministers have also told civil servants that they will not provide any public money for new facilities. In the words of Alan Milburn, secretary of state for health, “it’s PFI or bust”. So the public bodies wishing to build new hospitals, schools, prisons and roads deliberately set the “public sector comparator” higher than the private sector bids they receive, in order to smooth the way for private money.

It is then that the real problems begin. The private companies hoping to build new facilities and rent them back to the government offer what appear to be competitive prices. The government body will select the bid which seems to provide best value for money. The chosen consortium is named the “preferred bidder.” It’s at this stage that the government starts to negotiate the contract.

As a result, the consortium has the government over a barrel. In theory, the contract is still open to competition. In practice, the insider notes, “I am not aware of a single instance where a [preferred] bidder has been deselected”. Once the chosen consortium has its foot in the door, it can increase its price and reduce its services, pretty much as it pleases. There are several familiar means of doing so.

The companies discover costs which weren’t envisaged before, and wildly exaggerate the financial risks they run. They price the likely inflation of labour and materials as generously as possible. In some cases, the paper reveals, financial “adjustments” are simply “slipped in” to the huge and complicated spreadsheets used to calculate how much the government owes. “Without decent public sector advisers”, the insider writes, the opportunities for this kind of practice are “enormous”.

The price of the project can rise, in some cases, by two or three times between the selection of the preferred bidder and the signing of the final PFI contract. But this is the inevitable result of a complete absence of competition during the key stage of negotiation.

Now all this is rather odd. The government has repeatedly assured us that it is introducing “private sector disciplines” into public life, that competition makes private provision more efficient than public funding. Yet our new public services are being provided by a system which allows for no competition and no financial discipline, just when they are needed most.

Reading the construction press, it’s not hard to see why this is allowed to happen. If the consortia bidding for a project had to supply a detailed bid for the final contract before they were chosen, rather than just an outline bid for some broad specifications, they would have to spend, for some of the larger schemes, around £5 million preparing their offer. If three consortia bid for the same contract, they would each face a two-in-three chance of losing their money. But if the winning consortium needs negotiate the contract only after it has been selected, it can develop its bid at public expense, with no fear of loss. If the process were reformed, the big companies have warned, PFI would come to an end.

What this means is that the private finance initiative can be implemented only with the help of an anti-competitive process which leads inexorably to corruption. If it were cleaned up so that it offered fair competition and value for public money, the big corporations would desert it. Public services would, once more, be controlled by the public.

Two years ago, the European Union realised what was happening in Britain and the other European countries experimenting with PFI. In May 2000 the commission published a draft “consolidated procurement directive”, which would ban the selection of preferred bidders before a contract has been developed. Since then, the British government has been campaigning to continue defrauding the British taxpayer and sustaining this very British form of corruption. With the help of the corporations profiting from PFI, it has been pressing for an amendment which would allow preferred bidders to continue to be selected. The directive has now been laid before the European Parliament, and has reached a critical stage of negotiation.

I know it won’t be easy to get people onto the streets to defend a European directive no one has ever heard of. But this obscure piece of legislation offers us the best hope we will ever possess of defending our public services from bankruptcy and collapse. “Down with the government’s amendment to the consolidated procurement directive” isn’t exactly a catchy slogan, but this is the sort of complexity with which we must now engage if we’re serious about political change.