In order for the government to buy privately funded public building projects, there will be a considerable monetary expenditure necessary, perhaps in the region of tens of millions of pounds.
In Scotland, the construction of a vast number of buildings, including schools, has made extensive use of the Private Finance Initiative (PFI) model. This approach calls for private corporations to develop and maintain public infrastructure in return for an ongoing fee.
The bulk of these agreements conclude with the facilities being handed over to the public agencies who will be using them.
On the other hand, this is different with 11 PFI contracts that will expire in the future years.
According to research conducted by Bt Scotland News, many accords include stipulations that indicate public organizations would be required to pay the PFI provider a fee or the property’s market value if they wish to assume full ownership of the facility when the contract for the building expires.
Caution on the expense of repaying private financing arrangements
Maintenance issues at the Royal Infirmary of Edinburgh are causing concern.
Encourage an investigation into the funding of public infrastructure in Scotland.
Among the impacted institutions are the Royal Infirmary of Edinburgh, Wishaw General in Lanarkshire, five secondary schools in Falkirk, and two waste factories operated by Scottish Water.
Some detractors of public-private partnerships (PFIs) point out that some of the PFI operators have banked repayments throughout the course of these accords at an amount that is up to ten times the facility’s initial construction cost.
According to Lilian Macer, secretary of the Unison Scottish branch, “These PFI repurchase provisions are, quite plainly, a disgrace.” During the duration of the contract, the government has already sent over a significant sum of money to private companies as payment.
“Once you have paid off your mortgage in full, you will no longer be subject to a penalty clause in order to purchase your house. It should be the same for all of the public services.
Five High Schools in Falkirk Larkfield Day Hospital in Inverclyde Royal Infirmary of Edinburgh Tippethill community hospital in Bathgate Carseview psychiatric facility in Dundee Kilwinning Campus in Ayrshire College Daldowie waste plant in South Lanarkshire Five High Schools in Falkirk Daldowie waste plant in South Lanarkshire Daldowie waste plant in South Lanarkshire Daldowie waste plant in South Lanarkshire Five High Schools in Falk
Wishaw, North Lanarkshire, Dalmuir Waste Plant, Clydebank Police Scotland Training Centre, East Kilbride New Craigs Hospital, and Inverness University Hospital are some of the hospitals in the area.
PFI was first implemented by the Conservative administration led by John Major, although Labour was the party that provided the most support for the contentious funding scheme.
It meant that the initial costs of creating things like schools and hospitals were assumed by the private sector in exchange for repayments to fund construction and upkeep, often spread out over a period of 25 years.
However, the magnitude of profits gained by PFI operators, as well as the construction quality of specific locations, have drawn considerable condemnation.
“Buy back” provisions in contracts.
The contracts, including “buy back” provisions, were among the first wave of PFI accords signed by Tony Blair’s Labour administration.
The vast majority of future acquisitions involving private financing did not have clauses of this kind.
The contract for the Royal Infirmary of Edinburgh is one of the 11 arrangements that BBC Scotland News has discovered. By the time the contract is up in 2027, the operator Consort will have received almost £1.1 billion in PFI repayments.
Because of the complicated deal for the hospital, NHS Lothian will enter a secondary contract period in 2027, which could potentially last until 2053. During this period, NHS Lothian will continue to pay a “management charge” to Consort, but it will also have the ability to give three months’ notice to terminate the arrangement, at which point the facility will return to public hands.
On the other hand, in the event that NHS Lothian does give notice, the organization will be required to compensate Consort for the “net present value” of this management charge spread out over the remaining time of the secondary term.
Following the discovery of a number of infrastructural problems that, according to NHS Lothian, need rectification, the organization initiated official dispute proceedings against Consort Healthcare in the previous year.
According to NHS Lothian, the two parties are now working through an improvement plan in order to resolve the shortcomings.
At the Police Scotland College in East Kilbride, which was established with funding from a PFI agreement, armed police officers participate in training exercises.
A Public-Private-Partnership (PPP) agreement funded the construction of the Police Scotland College at East Kilbride, which is where armed police officers get their training.
If the department wishes to keep using the facility, it will be required to make a payment in order to do so.
When the BBC inquired about this contract, Police Scotland said that it “would not be acceptable” to identify the PFI operator involved in it.
A Public-Private-Partnership (PPP) contract that covers five high schools in Falkirk is set to expire in 2025, at which point the local government intends to assume complete administration of the schools.
Under the terms of the agreement, the local government will be required to make a “buy back” payment of either £5 million or the current worth of the properties, whichever is lower.
Recent locations of settlements
At the University Hospital Wishaw, the PFI arrangement is set to expire in 2028, and the contract indicates that in order to altogether terminate the participation of the private operator Summit Healthcare at that time, a payment, the exact amount of which is up for discussion but cannot be more than £15 million, would be required.
It was said by NHS Lanarkshire that the future ownership of the hospital will be a subject of discussion. However, it is intended that this process would be finished by the beginning of 2024.
When the PFI contract for New Craigs Hospital in Inverness expires in 2025, NHS Highland will be required to pay a price of three million pounds in order to assume ownership of the facility.
Although it is not yet known how much money will be paid out in full for most of the 11 contracts that will expire in the years to come, recently terminated PFI contracts provide some insight into the potential quantities of money that will be at stake.
The private finance initiative (PFI) contract for the Carseview Centre in Dundee, which is a mental health institution, will end in 2026.
The Highland waste water PFI contract resulted in the construction of two sewage treatment facilities in 1998, one located near Inverness and the other found near Fort William. The total cost of the building was 32 million pounds.
The private consortium that was behind the initiative was paid a total of £218 million to develop and manage the facilities until 2022. After that point, according to Scottish Water’s most recent accounts, it received an interim payment of £18.8 million to enable the facility to transition into complete public control.
The termination payment was paid, according to Scottish Water, “while private conversations continue, awaiting the conclusion of a final payment amount.”
In a separate development, the PFI consortium that was responsible for the construction of East Ayrshire Community Hospital in Cumnock was compensated the sum of £12 million by NHS Ayrshire and Arran in 2021 in order to assume control of the facility.