29. What is striking when looking at the official Treasury PFI database is how few companies are equity owners of the Special Purpose Vehicles which have been established to run individual PFI schemes. As Table D shows, according to the Treasury Database just 8 companies appear to have stakes in 115 or 92% of the 125 Department of Health PFI schemes.xiv
Table D: Companies with major stakes in the NHS PFI business | |
Company/Group | No. of equity stakes in PFI SPVs |
Semperian | 24 |
Innisfree | 19 |
Barclays | 16 |
HICL | 16 |
InfraRed Capital Partners | 13 |
John Laing | 10 |
Aberdeen Asset Management | 9 |
Interserve | 8 |
Total | 115 |
30. Moreover many of these companies have joint equity stakes across multiple PFI schemes. This raises the questions of how competitive the market is for PFI. Competition is meant to ensure that good value-for-money bids are made and is one of the purported advantages of choosing PFI procurement over public sector procurement.
31. However, evidence from the NAO showed that in 33% of PFI projects examined between 2004-2006 there were only two viable bidders, mostly due to other bidders pulling out, or to lack of interest.9 This limits the potential gains from private sector competition, and leaves the tendering process vulnerable if one of the two bidders pulls out and prevents there being another bid's role as a benchmark of value for money.
32. With a new round of PFI likely to take place in the form of PF2, there is a risk that bids from different consortia of companies may appear to be in competition with one another but in fact won't be, due to the joint financial interest that binds many of the companies together in existing PFI companies. This is partly mitigated by the fact that the current owners of the SPVs ('secondary equity') often differ from the companies that initially bid for the contracts ('primary equity'). More research is needed into the impact on the competiveness of the market during the tendering stage.
33. In addition, the consolidation of ownership within the PFI market could lead to a small number of players wielding excessive market power over smaller public sector authorities which are tendering for and managing PFI contracts, with the potential for these companies to dictate commercial and contractual terms.
34. Further, it was difficult to identify from the information filed with Companies House the full extent of equity ownership across all the PFI contracts that we examined. This is problematic because a lack of visibility over equity ownership hinders the ability of public authorities to prevent abuse of market power and collusive behaviour emerging in existing and new PFI contracts. This would negatively impact the value for money of PFI projects.
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xiv Details of ownership were ascertained using Treasury PFI equity holders data, Companies House filings, infrastructure fund prospectuses, company websites, and stock exchange regulatory notices. However numerous equity stakes sales have taken place and not all are reported publicly so this information may not be up to date.