Section 14 - Other

Please use this box to include views on other issues that you consider are important that are not covered by the questions in chapter 2 of the Reform of the Private Finance Initiative.  You can also use this box to capture alternative proposals or you may want to submit these in a separate attachment.

Given the key benefits of a "payment for available assets" structure discussed in Question 4, SFT has given some early consideration to whether these could be delivered without the use of private finance. 

Integration: The benefits of integrating "whole life thinking" including constructability of the design, maintenance costs, life cycle costs of significant building and systems elements and environmental sustainability are clear. They could however be delivered to a large extent through a clarity of their importance at the specification stage, whole life costing, application of sustainability measures and appropriate diligence without wrapping the whole life into a single contract. Any consideration of whole-life contracting without a financing element would not give as strong a risk transfer as current structures due to the lack of capital at risk during the operational phase. 

Diligence: Is generally delivered by financiers, but through the skills of a small group of in-house and contracted individuals. It would be possible, and has shown to be so through high-profile programmes such as the Olympics infrastructure to deliver this diligence in the public sector. What is critical is that the governance arrangements in place properly empower and incentivise the diligence team to give certainty.

Risk Transfer: To an extent would naturally be lost through self-financing in the public sector but equally it is possible to question the value that has really been gained from it given the low level of losses by financiers under this structure. Significant construction risks can be transferred through robust building contracts as has been shown on many successful public sector projects and could (if required) be further enhanced (at the expense of some private sector costs of finance) through bullet payment on completion. 

Certainty of Maintenance: As discussed, this has proved difficult to deliver in the public sector, but a clear ring-fencing of budgets at a high level outside the service delivering organisation could go a long way towards it. 

SFT has made a high-level suggestion along these lines in a speech to the David Hume Institute in Edinburgh10: 

"Another option would be an independently operated "Building Scotland Fund". Borrowing powers, or indeed traditional capital budgets could be used to invest in the fund. The fund would be mandated to act transparently in calculating future repayment obligations, thereby contributing to the first discussion point this evening of considering repayment obligations in aggregate when deciding on a sustainable level of investment to make. It would then be asked by procuring authorities to finance projects identified as priorities - again potentially following the enhanced processes discussed.  

The managers of the fund would undertake due diligence and would not agree to finance the project unless they could see a reasonable level of certainty in whole-life costing with robust construction contracts in place. At the outset as well, there would be an agreement to an ongoing annual budget allocation to the fund for life cycle maintenance of the asset. It would have the effect of making properly transparent, if not contractual the financial commitment to the moral obligation of maintaining the asset.  

The purpose of this example is not to make a concrete proposal to be leapt upon or rejected, but to illustrate how a considered debate may take us if we can agree that in a fiscally tight environment, and with new powers for Scotland coming along, business as usual is not an option and an increasingly pragmatic approach to risk and real sustainability is going to be required."