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The Conservative Government initiated the Private Finance Initiative in 1992 which mainly focused in enhancing the involvement of the private sector in providing public services. Meanwhile the PFI schemes increased in number as the Labour Government introduced a new life into the PFI since 1997. The projects that undertook the PFI schemes involved the health sector, mainly for acute hospitals and transport in the central government. Very recently this has moved into the schools also.By April 2000, PFI projects worth over £13 billion were signed along with another £20 billion's worth which was proposed for the next 3 years.
The private sector consortium builds the facilities under PFI which includes banks and construction companies while the public sector pays a reasonable fee for a fixed period to use the facilities. These payments are used to -
Pay the loans and the interest on the buildings that are financed to build new schools or hospitals by the consortium.
Pay the services which are given by the consortium.
Make a gain for the shareholders.
They run for about 25 to 35 years. For the purpose of funding the assets, the public authority makes a payment annually to the private company, instead of borrowing, which covers all the costs which involves designing, financing, building and operating of the facility.
When there is a need of a hospital or school, PFI is the funding option that is looked upon by the NHS Trust. For instance, if it's a hospital, the Trust will enquire about the private companies which agree upon tendering of the work. Once the PFI scheme gets approved, a consortium of companies will build the new building and operate it.
Partnering is a term that is used generally which encompasses a set of arrangements aiming in a collaborative work along with co-operation. It is extensively used in both Private Finance Initiative (PFI) and Public Private Partnership (PPP) projects which acts as a base for PFI procurement and also helps to introduce private sector skills and provides finance to those projects which are very small and different, focusing on conventional PFI.
It can appear in a variety of forms, from a legal point of view. A very common type of partnering which is used in the PFI projects is an arrangement which is non- binding and is recorded in an agreement or partnering principles record. The agreement involves a general declaration of responsibility to obey the principles laid out by partnering and to lay out the partnering behaviour which is agreed upon such as the methods for working jointly, monitoring development, structuring the lessons that are learned and the responsibility to solve out the problems collaboratively.
Partnering doesn't mean getting into a settlement and relaxing the contractual responsibilities while it is getting too tough. It also doesn't involve just in keeping up a friendly relationship or working in a group. But in the other hand, partnering involves those partners who are willing to work together in providing joint aims. It also requires staffs to take a decision which is certain and reasonable while answering to the proposals which could make a change in the deal.
ROYAL LIVERPOOL HOSPITAL
At present, a very significant PFI project is the Royal Hospital in Liverpool.
In 1978, the Royal Liverpool University Hospital was opened. The current hospital was built in the 1960s, but there was a delay in the construction due to issues concerning costs and quality. The delay further extended due to fire certification problems. And finally it was opened 15 years after the finalising the design. In 2003, the hospital authorities planned for a new hospital using the Private Finance Initiative (PFI) since the existing building could not handle modern medical techniques. This plan was estimated to a cost of about £451 million.
In 2008, when the project underwent a public consultation, the Trust directors declined in providing the Outline Business Case for the reconstruction of the Royal. Due to this secrecy it is very difficult to compare the PFI projects with those which are publicly financed, before it is been executed. But with this scheme still in operation for about 15 years now, and adding the bills for the tax payers to about billions of pounds, they provide a very disappointing outcome.
The Merseyside branch compares the Liverpool Royal project to those PFI hospital projects which are countrywide, and shows that the reconstruction of the Liverpool Royal project will cost much more than that actual cost to the taxpayers, ending up in the hands of the banks and the project developers.
For 30 years, there must be payments made to the PFI company where the staffs, services and the treatments will be sacrificed to make the payments if any kind of deficits occur. So to save money, more works will be moved away from the hospitals by the Primary Care Trusts by cutting down the charge for the treatment. By doing this, the hospital income goes down which makes it impossible for the hospitals to make the PFI repayments.
PROPOSAL FOR ALDER HEY HOSPITAL
UK's first children's health park is been proposed at Liverpool's Alder Hey hospital which costs about £288m. If the project is given approval the work would begin by 2012 which will be completed in 2014. The Liverpool City Council has given the permission for planning the hospital in the Springfield Park.
Liverpool CITY schools are experiencing bills of tens of thousands at the time of opening, and so are in the verse of sending away groups of people. Almost 20 schools in Liverpool are undergoing this problem due to an article in the contract of private finance discussed by Liverpool council.
By 2001, it was declared that the schools would be reconstructed for a £300m contract signed by the council, and Jarvis PLC was given the duty of giving amenities management services for around 30 years period for the school.
The deal was once again negotiated in 2007 by the council with the plan's PFI holding company. This was because Jarvis had been facing financial problems.
The new contract for amenities management of schools took a charge of around £47 an hour to supply heating, lighting, cleaning and location administration.
Head teacher Nick Fleming of Fazakerley High School said schools would have to give caretakers money frequently on job. He also said that if the facilities are rented at, but is required to give, then it results in a loss each time the school is opened. The standard of the extended school is to be open all hours. The Liverpool council has permitted to be kept captive by the PFI deal.
REASONS FOR CONTROVERSIES
The Private Finance Initiative has a dreadful record in the building of schools and hospitals. PFI schemes are costly, involve poor value for money and are very uncertain. It also leads to services that are worse and escalates in cost. The reasons for such controversies are as follows:
Ethos of public service
Public services differ a lot from other products. They are present to sustain the social, financial and environmental health of the society and is used when the society makes a decision that market single-handedly cannot supply a particular action. After deciding, the state presumes a certain level of accountability for the service: by providing financial support for the service or by managing its value and delivery.
Public finances not public services
PFI was accepted by a Conservative government. The main reason for choosing PFI is the wish of the present government to remove borrowing from public segment balance sheet.Public establishments identify PFI as the single way to obtain financial support, which partially explains the unspent money in the public finds. It is possible for government to disburse for the complete PFI service form its reserves.
PFI cost escalation
PFI proposals require more money than typical funded plans. As the governments can borrow at lower rates, the borrowings made by the private sector are higher than the public sector. The private sector request for high gain and regardless of the very small threats, income from PFI is high.
There is a great amount of proof to show that PFI schemes rise both in size and price. These situations show the true character of PFI, and are not just mere problems of prices. The high prices certainly results in affordability problem for the acquiring establishment, which is obtained by decreasing services and capability, and also funding from other divisions of the public establishment accounts and force on labour costs.
PFI gains from workforce
A research was held to check on the effects of contracting out in local government depending on the terms and conditions of the labour force. And the survey concluded a two- tier labour force for which the Treasury and Health committees had commented:
More than 90% of the workforce that were communicated informed that the pay conditions for the fresh employees were at a worse level than those staffs that were transferred.
The usual working weeks were modified at least in 1 contract out of the 5.
For the employees, pensions have a great value item whereas for the contractors and the public establishments it is of a great cost item.
The up- coming contractors are grateful in giving an equivalent pension to the employees that are transferred. But the research did not find any pension scheme for the fresh employees, as in it was either no scheme at all or else it will be given at a very low- grade and the contractors often made no effort for it.
Unsurprisingly the women were at a higher rate bearing the effects of all the new privatisations. The PFI contracts exist for a longer period of 25 years. The first tier slowly fades down and those left are the staffs on private sector rules and regulations. They are the women workforce who has no pensions and are working in terms and conditions that are low- grade.
PFI goes wrong
There is a lot of declaration that the private service is well-organised than the public service, however no proof is available to assist it. Currently a lot of proof is coming up showing that PFI are not creating the predicted developments in delivery on time or price, not even the that PFI schemes are coming on stream there is growing evidence that they are not produce the excellent standards accepted.
PFI does not offer 'value for money'
In the majority of the PFI projects, it is the transferred risks that create the PFI scheme worth money. The computation of the risk is random and undependable.
Private companies make undesirable gains
The private sectors are making huge profits and are also refinancing contracts and producing huge income at the cost of the public sector. The major risks met by the private sector in PFI plans are those through the construction stage, and these risks vanish at the beginning period of the project. Regardless of this, the risks are taken care as if they were present over entire period of the plan, and the contractors make profit by refinancing the plan.
The private finance initiative is a mechanism which is deteriorating and which increases in variations among health and wealth. Private finance initiative costs a much higher value than the public sector procurement. For those facilities which are privately financed, the annual charge comes between 9.1% and 18% of the actual costs involved in construction while the government borrows it for an interest rate of 3.0% to 3.5%
Even though the public is in need of a new facility, it will have certain effects with the costs. Due to the increase in the PFI costs in many areas, funds have been diverted from various other health services.
The major concern is that the staffs are transferred to those companies of facilities management leading to degradation in the terms and conditions and also there is a loss of control over the assets as wells as the services by the public sector. A genuine threat that involves is that the public services are established depending on what the private company requires instead of the public requirements.