• This is a stand-to for an incoming competition, one of our most expensive yet.
    Later this week we're going to be offering the opportunity to Win £270 Rab Neutrino Pro military down jacket
    Visit the thread at that link above and Watch it to be notified as soon as the competition goes live

The Credit Crunch and Defence PFIs

#1
How will the credit crunch, lack of liquidity in the banking sector, possible downgrading of UK Government Bonds, Sterling devaluation and all the other financial issues in play at the moment affect the many defence PFI schemes.

Some of the PFI's, for example the FSTA or RoRo ships are based around the concept of civilian usage on a part time basis that is used to offset costs. If there is a falling demand where does that leave the contract.

Everything from accomodation to air refueling tankers are either already in progress or in negotiation.

What's the future for these schemes?
 
R

rogermellie

Guest
#2
intersesting question that i think to date the liability for all pfis is somewhere around 200 billion smackers. it really annoys me when broon and his cronies start quoting how much we have borrowed yadda yadda yadda yet they always forget to mention our liabilities on pfis etc. I am employed by uk plc ( not forces) and our offices / labs are a pfi and this has come up several times in meetings etc and as i see it there is no " get out clause" i,m sure there would be alot lawyers waving contracts in broons face if this was mentioned!.
I guess and i,m probably wrong but money would skimmed off elsewhere to fund this sham that is a "PFI". so in essence aonther bail out by uk plc to fund fat cat shareholders good ennit , when do i get my own personal bail out we wonder !!
 
#3
I cannot claim to be either a legal expert or to have read the fine print in said contracts; but I have seen the low paid hacks, incapable of better paid work, who negotiate on behalf of the MoD; and I have also seen the highly paid legal sharks who negotiate on behalf of business. Whatever happens, the company will make money and the MoD will pay.
 
#5
Thank you Rodger for reminding me/us that there is NO
" get out clause".
Must admit that was always one thing that bothered me.
john
Who only claim in life is his ability to balance his budget.
 
#6
The new Training Establishment in South Wales has gone up hugely in price because of the economic meltdown if I remember correctly.
 
#7
The government is considering under-writing private finance initiative deals
http://www.guardian.co.uk/politics/2009/jan/27/pfi-deals-bsf-government-underwriting

I think we'll see most of these deals quietly being folded into Govt ownership, unfortunetly not at the best value for us.

edited to add, in the next six months a HUGE amount of commercial property borrowings are due to be refinanced, a great many PFI deals are involved and I cannot see the private sector seeing these as a good value investment at the moment.

So RBS & Lloyds / HBOS and Northern Rock will have to step up
 
#8
I have little to contribute as I don't know enough, but I think this is a cracking and perceptive question posed by Meridian. If this isn't managed properly, large parts of our military capability could, in effect, be withdrawn. I think Armchair-Jihad makes a good point - the Govt may quietly step in. But which Govt? PFI, at least as far as MoD was concerned, was introduced by the Tories. I predict an unseemly bunfight with one loser. Us. And those responsible will be elevated to the House of Lords, where they can offer their services for £5000 a day. Oops, they're already there.
 
#9
I think the MoD is one of the biggest PFI 'users' and whilst there might be problems for existing PFI's schemes where who gets shafted depends on who has the sharpest lawyers I can see the biggest problems coming to those that are in the planning or early negotiation phases.

If they can't be financed through PFI they would have to go back into the main budget, ah

More shuffling of the deckchairs but who are the likely losers, if you are faced with a decision on whether to have FSTA or SLAM which do you think will lose
 
#10
without wishing to go too far off-topic, how much of the current defence budget shortfall is due to lack of investment over the first two terms of the labour government? Are we using PFI to make up for lack of investment, for putting off required purchases?
 
#11
Herrumph said:
The new Training Establishment in South Wales has gone up hugely in price because of the economic meltdown if I remember correctly.
Probably because of the financial engineering that is so important to these companies! As the credit dries up, they no longer make sense!

However, labour and material costs will now drop and the Treasury may decide to fund the project properly!

Pigs may fly...

Litotes
 
#12
PFI's are basically hire purchase schemes so you could argue either

1. They are a means of hiding the chronic underfunding by getting capability where the costs are spread
2. Its just basic common sense way of extending a finite budget
 
#13
The tankers had gone Udders Vertical long before the current high profile "credit crunch" Over a year ago when the problem was still called "The Sub-Prime Mortgage Problem" there was already a restriction in cash flow leading to suspicion that the tanker deal would have problems raising cash. I predicted this when the DLO/DPA (as was) told industry that they were buying a lifetime spares delivery for TriStar. I forecast more spars due to the finance issues and sure enugh the spares orders kept rolling in after that lifetime buy was delivered.
 
#14
bakersfield said:
I have little to contribute as I don't know enough, but I think this is a cracking and perceptive question posed by Meridian. If this isn't managed properly, large parts of our military capability could, in effect, be withdrawn. I think Armchair-Jihad makes a good point - the Govt may quietly step in. But which Govt? PFI, at least as far as MoD was concerned, was introduced by the Tories. I predict an unseemly bunfight with one loser. Us. And those responsible will be elevated to the House of Lords, where they can offer their services for £5000 a day. Oops, they're already there.
Every contract will have a fall-back position; if the contractor fails to deliver the capability, the MOD can step in and take over the contract. The contractor remains liable for all the costs.

Now, it was probably never envisaged by the Treasury or the MOD that credit would dry up in the way that it has, so a lot of project leaders will be checking the figures, the contracts and worrying about the financial stability of the prime contractor! Who would be an IPTL in this climate?

Litotes
 
#15
meridian said:
PFI's are basically hire purchase schemes so you could argue either

1. They are a means of hiding the chronic underfunding by getting capability where the costs are spread
2. Its just basic common sense way of extending a finite budget
I agree - as long as today's staff understand that they are spending a proportion of the Defence Budget in 2020 to 2035! And like a mortgage, the PFI bill must be paid first - before all the nice to have bells and whistles.

I am also concerned about the quality of the buildings. The life of a contract is generally 25 years, and the buildings all look as if they have been designed to last 25.5 years. How can that be sustainable?

Look around the Defence Estate; we use a large number of buildings that were built 50-300 years ago!

Litotes
 
#16
The concept of PFIs originally had some veracity in that:

It allowed long term funding of large capital projects that couldn't otherwise be afforded.
It shifted the risk of capital projects to the private sector
Finally it gave financial incentives to industry to get involved

The less reputable aspect which Big G leaped upon was that it allowed big projects to remain off the books allowing him to claim he was sticking to his mythical financial rule. Unfortunately the PFI companies didn't want them on their books either for when the inland revenue came looking. That's when it all got dodgy.

Big G also has put day-to-day projects onto PFIs, which was never the idea. He also allowed the Contractors to shift risk back to Govt by not allowing PFIs to fail, just re-negotiate (ie paid more). The small print of the contracts also allowed PFIs to rack up massive profits which are now starting to bite as contracts reach maturity. Not unexpected, as in any credit arrangement if you defer payments - you pay more in the end. Especially if the bills start arriving when you hit a bit of a credit crunch.

Did anyone seeing it coming? Well the IMF, EC and Private Eye to name but a few.
 
R

rogermellie

Guest
#17
Litotes said:
meridian said:
PFI's are basically hire purchase schemes so you could argue either

1. They are a means of hiding the chronic underfunding by getting capability where the costs are spread
2. Its just basic common sense way of extending a finite budget
I agree - as long as today's staff understand that they are spending a proportion of the Defence Budget in 2020 to 2035! And like a mortgage, the PFI bill must be paid first - before all the nice to have bells and whistles.

I am also concerned about the quality of the buildings. The life of a contract is generally 25 years, and the buildings all look as if they have been designed to last 25.5 years. How can that be sustainable?

Look around the Defence Estate; we use a large number of buildings that were built 50-300 years ago!

Litotes
Yeah good one that about the life of the buildings ours was given 60 years but the roof and walls will need replacing every 15 years . To be honest they really do use the cheapest lowest spec materials on thesde builds dont they?
We have had all sorts of problems in ours yeah ok you get sat it is settlement when cracks etc start appearing but we have had walls subsiding oh well thats the pfis problem not ours we are only renting the fooker :lol:
 
#18
The prices of PFI's will go up, this is due to the companies bidding for the work having to borrow the money at increased rates, this will be put into their bids. As stated above the Training at St Athans has gone up by a billion due to this and is actually less cost effective than the training being carried out now, but i guess after a quick fix to the numbers it'll be cheaper again :eek:

As for PFI's already going, well there's billions upon billions out there, a basic example would be:

Company A win PFI contract for a hospital, it costs £100 million to build, they borrow this money from the bank and hire company B to build it. The cost of the PFI is to be £20 million a year over 30 years, Company A sell the PFI contract to a Bank/Company for £200 million once they have completed the hospital, they walk away with about £60 million, the bank with £40 million and the hospital trust left with payments they can't afford for a hospital that they probably didn't want.
 
#19
Argee2007 said:
Company A win PFI contract for a hospital, it costs £100 million to build, they borrow this money from the bank and hire company B to build it. The cost of the PFI is to be £20 million a year over 30 years, Company A sell the PFI contract to a Bank/Company for £200 million once they have completed the hospital, they walk away with about £60 million, the bank with £40 million and the hospital trust left with payments they can't afford for a hospital that they probably didn't want.
You forgot built by the lowest bidding subcontractor, not one PFI has gone well and some like the MetroNet London tube scam was just a multibillion pound taxpayer shakedown. I really don't like Bob Crow the Commie prick who heads the tube drivers union but he has been bang on the money with what he has exposed with the tube PFI's.

Given the usual MoD hush hush approach the Military PFI's will probably turn out to be much worse.
 

Similar threads

Latest Threads

Top