Wednesday, 26 January 2011

Make It Like a G6

Now I understand where the Rt Hon Jesse Norman is coming from; no-one likes being taken for a ride. However, I rather think the Government asking for money back from business when they realise they have been swindled (and contributed almost entirely to said swindling), is a little rich and probably the wrong tack. I am talking, of course, about Private Finance Initiatives (PFIs). Now I shan't recount what has already been said about them. For a precis of this week's offerings since the House of Commons Public Accounts Committee Report, you could glance at these (here, here and here). Indeed, for Mr Norman's plea to business to hand back their profits, just click here. Or you could just take it as wrote that they have turned out to generally be a monumental economic disaster.

The PFIs were an ok idea given the correct application. Of course, the majority of these PFIs were signed duting the last Labour Government, so there was little chance of that. Nope, instead of considering PFIs as alternatives, it appears many authorities were railroaded into accepting PFIs with little thought to value for money. Why? Because Labour liked the idea of being able to throw money at the public sector without having to spend up front. In essence, to Labour, the PFI was a massive credit card. Not only could they spend loads of money on the public sector to show how lovely they were, they wouldn't even had to pay for it, and it didn't appear on their bank statement. Yes folks, you'll never guess what - the nice people of the private sector offered to cover all our debts with the little proviso that we have to make a few monthly instalments to pay it all off. Sound familiar? Yup, welcome again to Ocean Finance. Unsurprisingly, it has turned out a teensy bit more expensive than Gordy and co might have thought when they tuned into channel 888 to deal with the economy.

Legal bills alone ran into millions and the Government locked themselves in to pay off projects well after they became obsolete (they being thankfully Labour, unfortunately also said projects). Now the economic flaws in the PFI argument have been laid bare for all to see, but I wanted to talk about an element of it that rears its ugly head all over. It is the combination of politicians pushing through purchases with drastic economic ramifications that they do not fully (or at all) understand and the help in these debacles of some pretty dubious lawyers.

Now I don't know who works in the Government's legal teams, but I have some suspicions. Firstly, not one of my many friends who have gone on from university to become lawyers talked about one day working for the Government. Nope, it was all Linklaters this and Freshfields that. Maybe the work is dull, maybe the remuneration is not attractive enough. Either way, 'Magic Circle', they ain't, which leads me to suspect the Government may not always get the top of the class. This rash assumption is backed up anecdotally though, and in quite some volume. I have lost count of the number of times I have heard of Government bodies (local and national) being tied into poor contracts, or of contracts that are seen through even when it finally dawns on people they are useless, because it would cost more to cancel. For one specific area where the Government really excel themselves look no further than Defence Procurement. Anyone want a second aircraft carrier? How much was Eurofighter meant to cost? I could go on, but you get the idea.

My point is twofold. Firstly for the Coalition and Mr Norman. Don't cry over spilt milk. Certainly point out the milk to everyone, and show everyone the evidence that it was the last lot's fault it got spilt. But if you genuinely think the companies who recognised PFIs for the gravy train they were might or should give back their profits, you're barking up the wrong tree. It certainly wouldn't happen the other way round. No, instead, take the lessons identified, and try to turn them into lessons learned.

For everyone else. If you want to make your millions, find something the Government want, whether it's hospitals, houses or ostrich feathers. Spend all you can afford on a proper lawyer to draw up the contract - it'll be the best money you've ever spent. As you kick back and relax in your Gulfstream 6, mopping your brow with £50 notes, remember who told you so; because, late, over estimate, not to spec, not fit for purpose, whatever crap you turn out, it seems for the moment at least, the Government is still paying out. Just get in on the act before Dave and co get round to hiring someone competent to write their contracts.

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