The huge construction, services and financing company, Carillion, has been compulsory liquidated with long term risks to its 43,000 employees (20,000 in the UK alone), their pensions and of course contractors and suppliers. Carillion was vast, its services extended deep into civic life, providing ‘meals to school children in the UK, highways maintenance in Qatar or snow clearance in Canada’ (Carillion, 2018:online). Among other things, Carillion organised the building and management of schools for government, borrowing money from banks to do so, and then leased these new schools (often with tied maintenance and other services) back to government over a period of 25 or 30 years. This is essentially a mortgage – known as Private Finance Initiative (PFI). I focus on the school-side of things and some broader issues of PFI.
Few points below are original: my aim is to bring them together in an attempt to show just how wide these problems extend. Susan Leigh Star’s discussion on the nature of infrastructure is relevant and useful if we see Carillion not only as a company but as part of the infrastructure of procurement, financing and management of schools, of financial markets (e.g. the investments and funds that find the long-term repayment schemes of PFI attractive) and the way in which these are governed (or not governed or poorly governed). Her points: “Infrastructure is transparent to use, in the sense that it does not have to be reinvented each time or assembled for each task, but invisibly supports those tasks” (1999:381); “The normally invisible quality of working infrastructure becomes visible when it breaks” (ibid:382); “[Infrastructure] is fixed in modular increments, not all at once or globally. Because infrastructure is big, layered, and complex … Nobody is really in charge of infrastructure” (ibid). This last point is relevant because already some are treating Carillion as a company – as only a company – even claiming that its downfall is a sign of healthy capitalism performing its unglamorous but necessary role of letting the weakest fail, rather than seeing it as a mode of governance, part of the infrastructure shaping how schooling, education, and relationships between businesses, buildings, people and the state are done.
Given that infrastructure is more visible when it breaks, now would be a useful time to increase discussion about what is happening to schools, school-building, architecture and how they are funded. What’s happened is awful, debate is already overdue but this makes it more important than ever to consider what’s happening under “normal” circumstances and how. [Since writing this, the National Audit Office have published a report on PFI (18/01/18) that I haven’t yet read.]
- Theoretical Advantages of PFI for building schools Carillion is only one part in a long policy shift away from direct public management and financing of construction and operation of schools towards increasing private sector involvement. This transition involved all governments with 1992 marking the date for a particular form of financing: PFI (Mahony et al., 2011:343). In building a school by PFI, the government avoids adding upfront capital expenditure to its books by having a private company assume the risk (in theory) and provide the capital expenditure involved. At a minimum, government payments to that company must therefore include construction costs + interest + risk premiums + shareholder dividends. Other claimed advantages include: getting schools built more quickly by unlocking capital from the money markets; getting guarantees on that speedy building by starting payments only when the building is inhabitable; quality guarantees (if the company building the school is also responsible for maintaining it over 30 years, it’s more likely, in theory, to make a well-performing building.
- PFI Advantages Can be Disadvantages Many of these advantages can also be read as disadvantages: committing to spending for 30 years is also a reduction in future spending flexibility and capacity; if any investment is made that contributes positively to a school building’s performance in years 31+, it is financially inefficient and forsaken shareholder dividend; if a company such as Carillion is really more of an outsourcing agency, then the theory of incentives to build quality buildings for 30 years is much more fragile; PFI sets up new incentives and disincentives across the funding, design and construction industries that may only be seen much later. We are seeing evidence of this in the case of Carillion, now. I mention some of these below.
- PFI Expansion The Labour Government in 2003 extended PFI for schools (as well as capital investment) on the back of this consultation Building Schools for the Future – Consultation on a new approach to capital investment (pdf, 3MB) Pages 26-8 are especially relevant, note the emphasis on transferring risk.
- PFI and Design Participation PFI is complex and increases barriers between users and designers (CABE, 2007:44 – pdf, 4MB). Rowan Moore said pretty much the same thing: “the machinery of PFI meant that teachers and governors had limited contact with the people designing their buildings” (2012:229). But architects are also more likely to be distant, not simply from users, but from the process as a whole, with less say in what happens. Architects are also more likely to have longer-term visions about what constitutes quality and value, but their role in large-scale procurement projects or batches is decreased. This, again from Rowan Moore but in the Observer in 2011 on the back of Michael Gove’s short-sighted comments about the value of architects in school design, is worth reading.
- PFI and Design Cycles, Gap between PFI in theory and in practice One of the most experienced architects of schools in England, David Medd, made a case to “Abandon PFI, which seems to be faltering, and breaks the design cycle and narrows the range of architects who can participate” (Medd, 2009:44). Why? Leaman, Stevenson and Bordass argue that “[PFI] finance, design, build, and operate packages … might be expected to link things up. However, inside the package, responsibilities can be even more tightly divided up than ever, e.g. with the project being sold on after it has been built; and if feedback is obtained, it tends not to be shared” (2010:576). I find this last point particularly interesting. Knowledge about buildings in use can improve the development of construction materials, design, how buildings are constructed and managed, lower costs (in construction and in use) and make buildings better places for people. If one model of procurement (PFI) incentivises the withholding of knowledge because it now has immediate commercial potential, or because it is held within parts of a highly fragmented system or because it increases the risk of litigation if buildings don’t turn out how they should and this becomes known during evaluation, it can make designers cautious (Hay et al., 2017:5-6), then everyone suffers. Clearly public procurement is no guarantee of sharing knowledge and putting it into practice but there are probably fewer incentives to its transformation into a private good, and more positive incentives to produce, share and engage with it. If the experiences of building buildings that work well can be shared freely, everyone benefits which is why artificial limits on access to knowledge (patents, for example) have time limits.
- Financial Structure For a company financing and organising construction such as Carillion, the presence of shareholders, and the obligation to provide them with dividends, and the need to borrow from the markets (rather than raise money through bond sales, for example) to fund the construction of schools, changes the incentive structures of construction projects away from longer term, more holistic measures towards more immediate returns.
- History Matters and Outsourcing has Ongoing Effects Parker and Cahill provide an excellent analysis of Australia’s huge school-building and redevelopment programme, Building the Education Revolution (BER). They find that when BER was implemented, “those states most heavily reliant upon outsourcing were those whose capacity to provide infrastructure directly had been most eroded through decades of internal neoliberal state transformation” (2017: 267) Once experience and capacity are lost, methods of procurement become method and so no longer a choice but a form of dependency, further reducing the ability of governments to manage their own affairs. And there’s a backstory to the whole Carillion affair in that Tarmac (part of which became a constituent of Carillion in 1999) had bought part of the publicly-owned Property Services Agency in 1992 (a transaction that the National Audit Office said cost the government £81million). Again, rather than the story of one company, this is a systematic running down of the state’s capacity and freedom to act (as well as a transfer of assets to the private sector). A useful counterpoint to the huge scale of outsourcing and Carillion-like players is Geraint Franklin et al.’s study of schools (and school-building) in England (pdf, 5MB). The section on the Ministry of Education’s Architects and Building Branch (page 101 onwards) is especially interesting, given their role in what was a much more distributed system).