Under PFIre

Discussion in 'Current Affairs, News and Analysis' started by Adjutant, Jan 11, 2007.

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  1. Defence Spending

    Under PFIre
    Jan 11th 2007
    From The Economist print edition

    How Britain is managing to fight two wars on a peace-time budget.

    BRITAIN has asked much of its military in recent years, deploying thousands of soldiers in Iraq and Afghanistan where they have fought in some of the most intense battles since the Korean war. But it has done so on a shoestring.

    A decade of defence cuts (now being reversed) has trimmed defence spending to about 2.5% of GDP, its lowest level since 1930, and left commanders in the field with fewer men, helicopters and armoured vehicles than they need. Last month a coroner ruled that the first British soldier shot and killed in Iraq in 2003 had died because of “unforgivable and inexcusable” delays in supplying bullet-proof jackets to the front line.

    Like any household whose budget is under pressure, Britain's defence establishment has turned to buying on credit. It has become one of the government's most enthusiastic adopters of the Private Finance Initiative (PFI). In December the Ministry of Defence (MoD) revealed that it had already signed contracts with private suppliers worth about £26 billion ($50 billion) over the next 30 years. Among the things it gets in return are a shiny headquarters building in Whitehall, new barracks at Aldershot and training for its ranks of newly minted helicopter pilots and submariners.

    Bigger deals are on the way. Civil servants and generals are currently poring over plans worth more than £35 billion over three decades, which is a bit more than the annual defence budget itself. Only the NHS, which is rebuilding hospitals, has a bigger pipeline of PFI deals.

    Until now most PFI deals have been for large capital projects such as roads, prisons and hospitals, where contractors have built a facility and then tagged on the provision of “soft” services such as cleaners and a maintenance man. It seems that they have been most successful with projects that provide an easily measured “hard” output—such as a school, for instance, with a roof that keeps the rain out.

    But the armed forces are becoming ever more daring, vastly expanding the ambit of PFI deals. Within the next few weeks the MoD plans to announce the winner of a contract worth more than £10 billion for taking over most of the training of soldiers, airmen and sailors. In November it selected a group of companies to train fighter pilots in a contract worth about £12 billion. And the ministry is negotiating the final details of a £13 billion aerial-refuelling contract for the private provision of airborne tankers for jet fighters and bombers on their way to the front line.
    The attraction is that under PFI deals the state does not have to borrow to pay capital costs at the start. Instead it gets to spread its payments over the life of the contract, in much the same way as one might lease rather than buy a car.

    Enthusiasm for such deals should be tempered, however. Fixed payments on PFI contracts are consuming an increasing share of defence spending. This has some advantages: one is that the generals need not worry about finding money in the budget each year to keep their new headquarters freshly painted. But the pluses must be set against a loss of flexibility and freedom to allocate resources in an organisation that can never know for sure what war it will next be called upon to fight.

    Moreover, defence PFI deals have also proved poor at transferring risk from the government to suppliers. The National Audit Office (NAO), a spending watchdog, found last year that the costs of a PFI contract for satellite communications had increased by £885m to £3.6 billion, partly because the price of satellite insurance had soared. Yet the contractor had agreed to provide insurance at a fixed price as part of the deal. Another NAO study found that the price of the MoD's refurbished offices in Whitehall had increased by 15% after the government had selected a final bidder because interest rates had changed and the building proved to be in worse shape than expected. Yet these were risks that ought to have been assumed by the contractor.

    Fans of the PFI argue that these failures do not reflect any inherent flaw in the model. They say the soldiers and civil servants who negotiate the contracts have a poor grasp of risk. Nor—unlike derivatives traders, for example—are they motivated by the prospect of a reward if they succeed in drafting a watertight deal or a penalty if contract costs increase. This leads to a bias towards selecting the cheapest bid, even if it must subsequently be renegotiated.

    The Treasury has long been criticised by those who believe that the PFI is little more than a wheeze to get debt off the public balance sheet. But it has been able to argue (not always plausibly) that these deals are entered into only when they provide better value than old-style procurement (which, to be fair, also has its problems). On defence the civil servants have abandoned that fig leaf. Ministers have let slip that they could not afford to revamp their training facilities if the government had to assume the costs at the start, rather than spreading payments over decades.

    This leads to a disturbing conclusion. Although PFI deals may offer value, that is not the yardstick by which they are being measured. Instead, the pressure of fighting two wars on a peacetime budget seems to be driving the government to enter into hasty deals, the true costs of which will become apparent only in years to come.

    Hmmn..... The folk at The Economist aren't reknown for being daft.
  2. Refuelling aircraft mid-flight in non-combat situation I could understand privatising out, less strain on doing so in combat environments. But it does defiantly raise an eyebrow how are the standards going to be and how cost effective. Training of troops is one thing I would have thought would never even be considered for privatisation! Is there any logic here or am I not the only one a bit concerned?
  3. Be concerned, be very concerned. It is a political scam from beginning to end. We should know more by the end of Jan - crock of shit comes to mind.
  4. Does our military not pride itself on the best training in the world, this will bring the Toms down to sceptic levels of training.
  5. The point is that PFI is very flawed. The govt can raise money through taxes or borrow money at public money rates, i.e. cheaper than commercial rates that business must use. The key feature of PFI is that it is more expensive in the long term. The tax payer has to pay more.
    The people who make money out of PFI are big business, bankers and lawyers. The PFI for the tube in London had spent £400M, mostly on lawyers fees, merely arguing about the nature of what they were trying to achieve.

    The govt propaganda is that risk is transferred to business. In practice, unless the risk is extremely low, business will not engage. If you read Private Eye you will find countless examples of where the govt has underwritten the risk it claims business is taking. The govt has mortgaged our future, through countless PFIs that run for 25 to 30 years, instead of raising money the normal way. Politicians are lining the pockets of businessmen, lawyers and bankers.

    The Defence Training Review PFI will be the final nail in the coffin of decent military capability.
  6. once more the family silver is sold off cheap
  7. I'm concerned but what actually does "training of troops" mean in terms of whats delivered? Does anyone know?
  8. cant believe they really plan to outsource basic training , like everything else it looks like it'll now be done on the cheap , this govt really does seem hellbent on the destruction of our armed forces & all that they stand for , honour & integrity do not seem to be in the vocabulary of new liarbour , this once great nation is being destroyed from within by this corrupt bunch of gangsters & spin doctors
  9. If I understand it correctly, the proposed £19Bn Defence Training Review PFI will essentially outsource all virtually military training tri-service. That means that the military, the nations insurance policy who stopped us all having the learn German, will become a profit making enterprise for a large consortium.

    Military service is supposed to be selfless duty for the good of the nation to protect democracy and the principle of self-determination as a nation, right? Apparently not, New Labour are turning it into a money making enterprise for their cronies. Lets ignore the risk of being defeated. Just follow the money.
  10. Don't worry about Basic Training. It'll all be done by correspondence course soon. That'll save having to pay for training Depots and lots of instructors.

    The whole course could be done by ticking the answer on a multi-choice exam. 100 questions, answer A, B, C or D. Pass mark 25%.

    Remember - you read it here first.

  11. When that says training of troops I'm thinking in terms of a major role which is obviously a worst case scenario. I do remember reading somewhere that the plan was for training facility maintenance is being privatised out, things like the plumbing to running of the RAF flight Simulators. This makes it sound like they will be a lot more into it than just that, then again could be bad wording unless somebody can share some enlightened wisdom on the matter.
  12. god help the army if PFIs get involved. it'll be 'management consultants' next like in the nhs. bunch of suits with no effin clue going round telling people who have been doing the dam job for years how they should be doing the job instead to save money. meanwhile the management counsultants are costiing millions a day.
  13. Looks like the family silverware in the Tower of London will be the next to be pawned:)

    PFIre will not work in the long term as the commercial sector is geared for one thing, and one thing only, and that is profit. Invaribly when profits decline and most companies in an effort to reduce the impact of losses upon profit margins immediately reduce customer service and care. Consequently in the long term, the commercial viability and the economic well being of a company could drastically affect the quality of training our armed forces actually receive.

    But there again there will be alot of jobs going for the "old boy network" once their military careers are over with some fat salaries to boot. So I think it will definately go ahead irrespective :)
  14. It supposed to be happening here at Chatham sometime in the near future. I have a few doubts as to how civilians can put a military edge on the training. Have most civvy instructors been on ops and used their trade? Not likely. Another concern of mine, trade related is losing posts. When PFI kicks in 40 Cpl slots and a min. of 5 Sgt slots go. Where are they going to put everybody? I know 4 more squadrons are being formed but as most squadrons only have a max. of 2 plant full screw what about the rest? Also watch promotion slow right down. The pyramid will get even tighter going from LCpl to Cpl. Slower promotion means more p155ed off people means more sign offs!
  15. To be fair to the MOD will only sign up for PFI deals if they believe they will provide value for money, and they aren't afraid to cancel projects that don't stand up to scrutiny. For example Armoured Vehicle Training System (AVTS) was due to be a PFI type deal, where we contracted out all armoured vehicle training, however the contractor was unable to accept the risk of potential surge requirement for training etc and the programme was canned as it wouldn't provide Value for Money. The project has now been replaced by Enhanced Capability for Armoured Trg Systems (ECATS) which is already bringing in trg solutions for the RAC and Inf.

    Whilst I fully accept that we don't always get it right sometimes, just sometimes the powers that be are prepared to take difficult decisions.....