Page 28 - Civil Engineering Project Management, Fourth Edition

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The development of construction procedures
civil engineering, incorrect or insufficient advice is given. The sending of copies
of a communication ‘for information only’ to parties additional to the main
intended recipient may also have to be restrained to prevent too many docu-
ments cluttering computer screens. The indexing of data files covering much
diverse data also needs careful pre-planning to provide an adequate definition
of the contents of each file and avoid mis-filing of further data added.
1.14 A criticism of certain systems
A criticism of systems such as BOOT and PFI is that only the larger contracting
firms with large financial resources or sufficient financial backing can under-
take them. Such systems also tend to utilize the services of a major contractor
and his subcontractors for long periods. Consequently if the use of these forms
of contract by promoters should become too widespread, there may be an insuf-
ficient number of large contractors left for proper open competition to occur for
new projects, and a promoter may have difficulty in obtaining satisfactorily
experienced bidders interested in a project he wishes to undertake. The smaller
contractors may be forced out of business as promoters use these systems or
favour work packages too large for the smaller contractors to undertake. Also
the best quality subcontractors and suppliers can become tied to one or another
major contractor for long periods, and not be available to serve other con-
tractors. The end result could reduce competition on price and quality between
contractors which is still of importance in fostering the development of innov-
ative methods and improvements in efficiency.
An objection frequently voiced is that PFI projects must be more expensive
than publicly funded projects, because the shareholders and commercial
lenders financing PFI want a higher return on capital than is paid on loans
raised by a public authority. However, shareholders usually provide only a
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small proportion of the capital required for a major project the rest being
provided by loans from banks and other financial organizations on which the
interest charges are only a little above the interest charges payable on public
loans. Hence, the overall cost difference between private and public funding
can be relatively modest. However precise evaluation of the cost differential is
complicated because account has also to be taken of such matters as the admin-
istrative costs in setting up PFI, the different sums involved to cover risks,
project maintenance and supervision thereof over a long term of years. One
estimate suggests the cost of private finance is about 3 per cent higher than
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public finance. A cost difference of this order does not seem particularly
8 In the case of the Channel Tunnel, 25 per cent of the capital required was in shares, 75 per cent being
in the form of loans. For the proposed modernization of London’s Tube lines, a consortium of bidding
contractors are reported as aiming to provide £180 million share capital and raising £2000 million from
bank loans.
9 Grubb S.R.T. ‘The private finance initiative – public private partnerships’ Civil Engineering, August
1998, pp. 133–140.