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Private expertise \’key to reining in out-of-control public works- The Times

Peter Jones, The Times, 16 October 2009

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The rising cost of public sector building projects could be controlled by marrying private sector expertise with taxpayers’ money, according to an influential Scottish think-tank.

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Reform Scotland argues that the new method can replace the “failed” private finance initiative and give a new purpose to the much-criticised Scottish Futures Trust.

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The Trust, set up by the SNP government, was meant to find new sources of money to replace the use of private funds in public building projects but as yet it has not raised any funds.

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The SNP has criticised the use of private finance in infrastructure building, saying it produces excessive profits for private companies at the expense of the taxpayer.

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However, public sector building works also tend to have big cost over-runs. The Scottish Parliament ended up costing nearly four times the initial estimate of £109 million.

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The Scottish government controversially cancelled the Glasgow airport rail link because, it said, costs had risen by £70 million and there are now fears that Edinburgh’s tram line will over-run its projected cost of £500 million.

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Ben Thomson, chairman of Reform Scotland and the main author of Power to Build, is championing a new approach which he believes will solve both these problems.

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Mr Thomson said that public funds, which could be raised by local authority bonds as well from central government borrowing, should mainly be used to finance building works.

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This was because one of the main arguments for private finance — to transfer the risks involved in public sector project to private companies — had been shown not to work. “As with the banks, the taxpayer invariably ends up picking up the pieces of any failure,” he said.

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However, private management of public building works had been shown to deliver projects on time and within budget, he said. A National Audit Office report in 2001 found that 80 per cent of privately-procured projects had been completed on time and to cost, whereas only 20 per cent of publicly procured schemes had met cost and time deadlines.

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Mr Thomson is chairman of Noble Group, an Edinburgh-based investment bank involved in several consortiums bidding for work on privately financed projects.

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He said: “The public sector is just not very good at public sector procurement. On one project we were involved with, we undercut the NHS on buying knives and forks by 25 per cent.”

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This should not have been possible, he said, because NHS was the largest buyer of cutlery in Western Europe and ought to have secured the best deal.

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In his paper, Mr Thomson proposes that the Scottish Futures Trust should supervise the bringing together of private sector management and local and government in special companies set up to manage the procurement of a building project.

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He argues that this would deal with one of the main headaches of privately financed projects: that large consortiums covering all aspects of the project, from construction to maintenance, need to be assembled to bid for work.

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These consortiums, he says, are unwieldy while assembling, negotiating and signing the mountain of paperwork that goes with them can take a long time. Instead, the special company would deal with each contract individually.

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Mr Thomson said that the private company involved should have 10 per cent of the shareholding in such a venture, and its profit from that equity should depend on delivery of the contracts on time and on budget.

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Barry White, chief executive of the Scottish Futures Trust, said: “We welcome any contribution to the debate on infrastructure investment, But it seems to us that Ben Thomson’s ideas are very much ones for the future and do seem to depend on the Scottish government being granted borrowing powers.”

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