See the book
Captive State by George Monbiot for more.
http://www.spectator.co.uk/article.php3?table=old§ion=current&issue=2002-03-09&id=1646
Because the private finance initiative mobilises private capital, ministers have argued, it allows the government to start more schemes than it would otherwise be able to commission. Private companies provide the money for public infrastructure the state can’t afford, and the government pays it back over a number of years. Because the private sector is more efficient, they insist, PFI schemes offer better value for money than public funding. And because private companies, rather than the government, provide the capital, the money spent on new projects does not contribute to the public sector borrowing requirement.
The reality is that PFI, or ‘public private partnership’ as the government now prefers to call it, is a scam. It works for neither socialists nor free marketeers, as it offers neither effective public provision nor business efficiencies. Far from introducing market disciplines, it has become an official licence to fleece the taxpayer. Far from reducing the public sector borrowing requirement, PFI is, as the Accounting Standards Board has noted, simply ‘an off-balance sheet fiddle’. Most alarmingly, the ministers I have spoken to simply do not understand how it works.
The first of the problems Labour has failed to grasp is the process by which the private investors are chosen. The government announces a new scheme, companies make their bids, and the government selects the bid which appears to offer best value for money. The chosen consortium is named the ‘preferred bidder’, and the government starts to negotiate the contract.
The consortium then has the government over a barrel. In theory, the contract is still open to competition. In practice, preferred bidders have been deselected only, as far as I can discover, in two of the hundreds of PFI schemes the government has launched. Once the consortium has its foot in the door, it can raise its price and reduce its services. Costs which weren’t envisaged before will emerge. The likely inflation of labour and materials will be priced as generously as possible. In some cases, I have found, companies have simply slipped extra figures into the spreadsheets. Most importantly, value for money in PFI contracts is a function of the extent to which the projects’ risks are transferred to the private sector. Because the government is hopelessly outclassed in negotiations, companies routinely transfer most of the key risks back to the taxpayer. As a result, PFI, from the corporate point of view, is a far better deal than privatisation. The consortia get the assets but not the liabilities. In some cases, they carry no greater risk than ordinary contractors for the public sector, but they are rewarded as if they were the most reckless entrepreneurs