A new report released by a group of major infrastructure investors urges the public sector to unlock new investment in public infrastructure upon which critical public services like the NHS rely.

The Association of Infrastructure Investors in Public Private Partnerships (AIIP), which is chaired by the former cabinet minister, Lord Hutton, urges ministers to develop new models of public private partnerships to unlock a wall of capital that could contribute towards a £1tn investment in British infrastructure.

And it calls on the Government to update rules in the forthcoming autumn Budget to allow social infrastructure projects, including new hospital and acute care schemes, to leverage in private finance for the first time since 2018, echoing calls from the NHS Confederation.

Ministers announced plans in July as part of the 10-Year Health Plan to allow PPPs to be developed for neighbourhood health centres, but have not said they will do the same for rebuilding hospitals. Separately, work to explore broader PPP use, building on lessons learned from past government experience, has been announced.

New analysis of official Treasury returns also shows that 90 hospitals were built under PFI in less than a decade, with the capital investment totalling over £10bn – around £17.8bn in today’s prices. By contrast, the New Hospital Programme (NHP), announced by the previous Government in 2020, has been beset by delays and some of the hospitals planned will not start construction until 2039, while the NAO found that Private Finance Initiative (PFI) hospitals were built ‘on time and on budget’.

The AIIP report proposes a series of changes to the way PPPs are developed to learn the lessons from previous schemes, such as PFI – which built or rebuilt around 700 new schools, hospitals, and other public buildings.

The report outlines 35 recommendations across seven areas for an improved PPP model, in order to improve transparency, reduce complexity, and deliver value for money for the taxpayer. They include developing ‘jointly-appointed independent certifiers throughout construction’ to ensure ‘impartial oversight and quality’ built in from the point of procurement.

Investors also point to how PPPs are now being used in other countries such as Australia and New Zealand, where the ‘precinct model’ can crowd in outside capital to develop place-based schemes which provide better value for money than traditional procurement.

But investors have warned they will have to consider investing in other jurisdictions because of challenges in contractual disputes in the UK and a lack of clarity on the future of PPP.

The renewal of PPP, the report says, should reduce complexity where not warranted, and measure what matters – some current contracts have over 500 separate measures of performance, presenting an administrative burden on all parties, often for limited benefit.

Lord Hutton said: “We urgently need to inject the NHS with billions to repair our crumbling estate and to build new capacity to meet the health challenges of the next 20 years.

“New partnerships with private investors could unlock billions to cut waiting lists, reduce serious clinical incidents and improve accountability.

“PPPs, when structured effectively, bring private sector expertise, efficiency, innovation, and capital to bear on complex public challenges.

“And the model also ensures that critical infrastructure is maintained and managed in the long-term interests of the nation, insulating it from the short-termism of budget cuts.”

 

Why PPPs?

A report prepared for Infrastructure Partnerships Australia found that ‘PPPs demonstrate clearly superior cost efficiency over traditional procurement, which can range from 30.8% when measured from project inception, to 11.4% when measured from contractual commitment to the final outcome….On a contracted $4.9bn of PPP projects the net cost over-run was only $58m – not statistically different from zero. For $4.5bn of traditional procurement projects, the net cost over-run amounted to $673m’.

In the UK, PPP projects were three times as likely to be built on time and on budget when compared to traditional public procurement, according to a census by the National Audit Office in 2002.

And, in March this year, the National Audit Office report ‘Lessons learned: private finance for infrastructure’, found that PPP projects are ‘usually delivered on-time and on budget’.

 

Key reforms: Learning the lessons from PFI and other PPP models around the world

 

Changing the climate

Reforms to a new model should be accompanied by a commitment from both politicians on behalf of the public sector, and senior industry figures on behalf of the private sector, to change the climate and adopt a more-relational approach to contracting.

Partnership working is essential to delivering the value that these reforms unlock.

 

Improved transparency

Improvements should be made to the transparency of schemes by breaking down unitary charges into different payments – covering  construction, financing, and facilities management in order to improve accountability if contractors do not deliver.

Making better use of technology and digital models to assess the performance of how projects are managed is paramount to achieving this.

A new PPP should explore the development of ‘digital twins’ for particularly-complex assets that will allow a clear record of how assets are managed through a comprehensive history of asset performance and maintenance data.

The process of handing back assets to the public sector should be ‘standardised’, supported by this data, to avoid disputes and there should be a series of periodic reviews through the contract, in a more-robust manner than was attempted in some later PFI deals, to renegotiate key terms as the needs of patients and staff evolve.

 

Reducing unnecessary complexity

It also suggests that future contract terms should reduce unnecessary complexity, measuring what matters and more proportionately calibrating performance-related financial penalties around these priorities.

This will enable the achievement of better outcomes directly for end users, and indirectly for taxpayers. Some contracts have had 500 different performance measures.

 

A recent report from the NHS Confederation found that PFI projects ‘appear to offer better value for money than the recent New Hospitals Programme (NHP), once delays and overspend costs are accounted for’.

There is no question there is an urgent need to invest in our critical infrastructure.

Four in every 10 hospital buildings are more than 40 years old, and one in seven hospitals predates Nye Bevan’s landmark creation in 1945.

And that affects services, with the NAO pointing to 5,400 clinical service incidents occurring in the NHS every year due to property and infrastructure failures.

Health sector leaders estimate that the NHS alone needs an additional £6.4bn per year in capital investment over the next three-year Spending Review, and overall there is a £49bn maintenance backlog in public buildings, according to the NAO.