The Credit Crunch and Defence PFIs

Discussion in 'Current Affairs, News and Analysis' started by meridian, Jan 26, 2009.

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  1. meridian

    meridian LE Good Egg (charities)

    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?
  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.
  4. If HBOS goes under it takes AFC Harrogate with it.

    £1.2million per month that one costs to run.
  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.
    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.

    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. meridian

    meridian LE Good Egg (charities)

    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. 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...

  12. meridian

    meridian LE Good Egg (charities)

    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. 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?

  15. 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!