Construction giant warns of Euro threat to PFI projects

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The Independent Online

Construction giant Carillion has warned that Private Finance Initiative projects in the UK could "totally dry up" if new European proposals are turned into law.

The company, which claims to be Britain's biggest PFI contractor, said that under the European plans, bidding costs on PFI projects would increase by up to six times.

The warning comes as the Government is planning to launch a tranche of PFI projects to fund a new wave of spending on public projects, such as schools, hospitals and prisons.

But Carillion director Robin Herzberg said: "Because of the increased costs, the European proposals would dramatically reduce the volume of contracts we could bid for. PFI projects in the UK could totally dry up"

He said that Carillion currently bids for around 15 projects a year. If the proposals were introduced, he said that the number would fall to around two projects a year.

As well as Carillion ­ which has built up a specialist PFI unit of 15 people ­ the proposals would also hit public finance specialists Jarvis and Serco.

The European proposals are still at a draft stage and members of Britain's Office of Government Commerce, a unit within the Treasury, are lobbying Brussels.

The Construction Confederation, whose members are some of the main beneficiaries of the upsurge in PFI, is planning to meet members of the European parliament later this month. "I would strongly urge practitioners to raise their concerns with Brussels," said John Bromley, director of European Affairs at the confederation.

The proposals have also worried management consultants and accountants which have made millions of pounds in fees by advising both PFI bidders and public sector clients. Tim Stone, chairman of KPMG's UK finance team, said: "I am extremely concerned that, if implemented, the draft directive would materially damage what is becoming a mature industry."

Mr Herzberg added that the proposed European law would stifle creativity. "Innovation will go the wall. Companies will not be prepared to give away their detailed plans at the competitive stage so their rivals can cherry-pick all the best ideas."

The draft directive proposes a single set of rules that member states must adhere to when using private finance for public projects. Significantly, the proposals ban the use of informal negotiations between bidder and client ­ a procedure that is common in the UK.

If the proposals are turned into law then all bidders would have to work up their proposals fully before the client selected the preferred bidder. With PFI bids already costing millions to put together, the new rules could put off many companies from bidding all together.

European member states are divided over the draft directive. The Italians have given the plans the thumbs-up, while Britain has secured support from the Germans and the Portuguese.

The Belgians are due to take over the presidency of the European Union next month and well-placed sources say they are keen to push through the directive. The proposals could be put to the vote in August. With qualified majority voting in place, it is essential that the British government wins more allies.

Said one source close to the negotiations: "It is like a game of poker. If Britain reveals its hand too quickly then other member states will want concessions."