PFI comes under fire as delays dog projects

The flagship of the Treasury's Private Finance Initiative, a pounds 200m project to refurbish its own headquarters in Whitehall, is running almost a year behind schedule. The delay is the latest in a series of embarrassing setbacks.

The Government originally planned to announce the winner of the contract in the first quarter of this year but it is now unlikely to be awarded until some time in early 1997.

The competition to redevelop the Treasury building in Great George Street was announced with much fanfare by Chancellor Kenneth Clarke in November 1994, as part of a package to kickstart the flagging initiative.

A year later in November 1995, the Treasury shortlisted two private sector consortia. One comprised the construction group Bovis, Hambros Bank, the property company Stanhope and the property consultancy Chesterton. The other was Whitehall Corporation, a special purpose company set up by property developer Geoffrey Bradman in partnership with Haselmere Estates.

The two bidders submitted their tenders in January but nothing has happened since. The Treasury is now asking the consortia to resubmit their bids next month.

It is thought that Whitehall Corporation offered the best financial deal while the other consortium came up with the most attractive proposals for redeveloping the site. The Treasury now wants either Whitehall Corporation to come up with a better proposal or the rival bidder to reduce its cost.

One source said: "You can appreciate that this is quite frustrating. It has taken the civil servants at the Treasury five months just to ask us to resubmit bids. We will be lucky to hear who has won the project this year."

The time taken to award contracts and the laborious tendering process involved is one the main complaints levelled against the PFI. Some companies have been deterred from bidding altogether because of the tendering costs which can reach pounds 2.5m to pounds 3m on big projects, according to building analysts.

Builder John Laing has withdrawn from a pounds 260m contract to build a new hospital in east London, Britain's biggest privately-financed NHS project. The company said the deal was too complex, with the bidding process alone costing up to pounds 500m.

Last week Bovis said it would not tender for any further PFI road projects. Even though it is only a minor player in the road building business, the decision was nevertheless seen as a blow to the initiative.

Even strong supporters of the PFI such as Taylor Woodrow, which has bid for two roads, three health projects and a light rail scheme, have criticisms of the initiative. A Taylor Woodrow spokesman said: "We are still positive about the PFI as a concept but everything is slow, the bidding costs are high and we haven't had any tangible results yet. We are still to put a spade in the ground on a PFI project."

In April the Treasury set a target of agreeing at least pounds 14bn of projects under the PFI by the end of 1998/99. In 1995/96 deals worth pounds 4.8bn - just under the Treasury's pounds 5bn target - were agreed although one of these, the Channel tunnel rail link, accounted for pounds 3bn of that total.