Page 23 - Civil Engineering Project Management, Fourth Edition

Civil Engineering Project Management
8
other funding agencies for the necessary capital. Hence, only the largest con-
tractors with substantial financial backing are able to undertake a PFI scheme.
The promoter has also to spend money on setting up an organization to
check that the sponsors and their contractor comply with the terms of a conces-
sionary agreement, and to resolve any problems occurring due to changed
circumstances arising during construction and the period of the agreement.
1.8 Public–Private Partnerships

There are certain infrastructure and other public works which are not favoured
for PFI because they do not give the assurance of providing an adequate return
on funders’ investment. Yet it may be in the interests of public authorities to
involve a private contractor in executing a project because of his experience
and efficiency (when well run) and the capital contribution made by the con-
tractor and his funders which reduces capital borrowings by the public sector. 5
Thus instead of PFI some form of Public–Private Partnership (PPP) may be
adopted, under which the public authority takes on some risks in order to
make the project attractive enough for the contractor and his financial backers
to undertake it. Thus if a road is constructed and financed by a contractor and
he is to be rewarded by ‘shadow tolls’ on the number of vehicles using the
road annually, the promoter may guarantee a minimum payment to the con-
tractor. Thus the public authority takes the risk of traffic being less or more
than that estimated.
There are many other possible arrangements under PPP. Some PPP projects
are ‘quasi PFI’ such as when a public authority provides a grant towards the
capital cost, or arranges for a grant to be received from some other funding
body, such as the European Community (EC).

1.9 Partnering

6
The Egan Report of 1998 had a wide effect on the construction industry because
it suggested many ways in which knowledge of good practice in design and
construction could be more widely disseminated to achieve increased efficiency
and also reduce costs, accidents, defects and time for construction. It empha-
sized that there should be more use of partnering and alliancing. This was

5 This reduces the PSBR (public sector borrowing requirement) i.e. the total amount of government
debt which, expressed as proportion of the GDP (gross domestic product), is used as an indicator of a
nation’s economic health – just as a person’s ‘credit-worthiness’ is undermined if he falls into too
much debt relative to his income.
6 ‘Rethinking Construction’ by Sir John Egan. Report of UK Government Construction Task Force.