It hasn’t been a banner month for Private Finance Initiatives, or PFIs – the UK equivalent of P3s.
A PFI hospital mega-project planned for central London has just been cancelled at a cost of $31.5 million (CDN). Construction hadn’t even started on the Paddington Health Campus despite the project’s 2006 completion target, set in 1997. The British health secretary is expected to approve an independent inquiry into the debacle.
Projected costs for Paddington had soared to $2.5 billion from the original $810 million. The cancellation costs include fees to planners, architects, lawyers and PR firms, as well as the cost of National Health System (NHS) managers seconded to the project.
Analysis in the British Guardian newspaper noted the project’s failure “may mark the end for very large PFI projects that tie the NHS into expensive and inflexible 30-year leases and management and maintenance contracts, on the grounds that such extravagant agreements cannot take account of changing health care demands.”
Adding fuel to the anti-PFI fire, a secret government report revealed that another PFI project, a hospital for people who are mentally ill or have lifelong learning difficulties, had serious safety shortcomings that put patients’ lives at risk.
The study of the Newsam Centre revealed serious design and construction flaws, including hallways that made patient observation and speedy evacuation difficult. The wall and floor joints lacked proper fire protection materials, and furniture wasn’t adequately flame retardant. The study also found improper observation of patients – there had been four patient suicides in four years.
One of the companies involved in the PFI has folded, leaving critics to wonder if taxpayers will have to pick up the tab for the much-needed improvements. The facility was built in 2002.
The greed behind PFIs has also been exposed through a British National Audit Office (NAO) investigation. The inquiry revealed that shareholders refinancing a PFI hospital scheme raked in a $182 million windfall in two short years. Investors have milked two other PFIs in similar ways.
The Norfolk and Norwich University Hospital opened in 2001 as one of the first PFIs. Soon after opening, the consortium behind the hospital found other sources of financing with much lower interest rates – and pocketed much of the difference. Shareholders in Octagon Healthcare, the consortium holding the contract to build, manage and maintain the facilities, saw their profits soar to a 60 per cent return on investment from an initial 18.9 per cent.
The head of Unison, CUPE’s UK sister union, told the media it was an “obscene” amount of money, and that the deals created a host of accountability problems.
“Shares in PFI hospitals are now bought and sold on the secondary market by people who don’t know and don’t care about the patients, the hospital or its staff. Companies pocket windfall profits and the public is kept in the dark about who actually owns hospitals,” said Unison general secretary Dave Prentis.
PFI expert Allyson Pollock told the British Medical Journal “the taxpayer is being left with a much higher burden of debt, which they are going to have to service for a much longer period. So the real risks are sitting with the public sector for much, much longer.”
The NAO is calling for a close examination of PFI hospital deals to see if they are delivering better value for money than early PFI schemes like Norfolk.
In further bad press for PFIs, Britain’s Ministry of Defence has cancelled a $2.5 billion PFI contract for training on military vehicles because it did not offer the best value for money. A week after the cancellation, the government admitted there are major problems with a PFI scheme for social housing repairs.