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31 July 2017
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Time to be bold

PF2 projects are slowly bubbling to the surface, but will the market take the bait?

Over the past few weeks, the first signs of a new round of PF2 investment have started to emerge, with a tender for advisers for two road projects being issued, and a hospital business case being put forward.

It may be summer, but perhaps pushing out these projects during the early days of the long recess is one way to reduce opposition to the model, with no ministers around to admit that they have pushed the button on these schemes – or, in the hospital’s case, given it little realistic alternative.

Still, these green shoots of PF2 activity should be welcomed by the market, as the long drought that has afflicted the pipeline since the five batches of school projects were signed in 2015. Even the long-delayed Yorkshire batch went on to reach financial close in April last year.

The Infrastructure and Projects Authority (IPA) has talked about developing an ongoing programme, and not wanting to have a ‘big bang’ of a vast tranche of projects coming through in one go, which makes sense in these financially constrained times. However, what is currently happening can hardly be described as the filling of a pipeline of deals.

And that is likely to make the investor community a little nervous. After all, without a series of projects to bid on, will they want to take the risk of forking out fees on a tender process only to lose with no prospect of any other similar deals on the horizon?

Take the hospital plans in Huddersfield, for example. If a bidder comes second on that deal, the only other hospital project it could look to at present is the Velindre scheme in Wales, being procured under the similar-but-different mutual investment model (MIM).

From the government’s point of view, it may seem that it is doing the market a favour by introducing more deals to be hoovered up by hungry developers and investors. But it may well prove difficult, until there are more projects coming to market, for the industry to get overly excited about these deals.

And let’s not forget that the construction market does not have to take up these opportunities. Indeed, many may well have been put off in recent times by their experiences. One needs only to look at Carillion’s decision to pull out of the PPP construction market altogether to see that there can be significant risks and downsides to taking on a PPP contract.

The industry has been eager for a pipeline of projects against which it can plan its future – not a wishlist, and not the occasional dribble of ad hoc schemes. It is time for the government to respond and be bold in its backing of an investment model that it created.

 

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PF2 projects are slowly bubbling to the surface, but will the market take the bait?

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