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| AM 75072 |
| AMA PFI and Local Authority Market Report JULY 2002 |
| Overview |
This report covers: Private funding for public services, housing & construction, responsibilities of local government, local authority revenue, future partnerships, private public partnerships in local government, road maintenance, political factors, trade unions, future prospects and other local government issues, local government expenditure in England & Wales, regeneration programmes, PFI projects,
Companies covered include:
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Key Areas Executive Summary Table of Contents
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PFI and Local Authority Market Report 2002 |
||
Table of Contents |
||
1. |
INTRODUCTION |
6 |
| 1.1 | DEVELOPMENT OF PRIVATE FUNDING FOR PUBLIC SERVICES - INITIAL STAGES | 6 |
| 1.2 | THE NEW LABOUR GOVERNMENT IN 1997 | 8 |
| 1.3 | THE MAY 2001 ELECTION AND THE LABOUR PARTY MANIFESTO | 9 |
2. |
EXECUTIVE SUMMARY |
10 |
3. |
ECONOMIC ENVIRONMENT |
14 |
| 3.1 | GENERAL | 14 |
| 3.2 | GDP | 14 |
| 3.3 | INFLATION & INTEREST RATES | 15 |
| 3.4 | UNEMPLOYMENT & CONSUMER SPENDING | 16 |
| 3.5 | HOUSING & CONSTRUCTION | 16 |
| 3 6 | INTEREST RATES AND INFLATION | 17 |
| 3 7 | CONSUMERS DISPOSABLE INCOME LEVELS AND SAVINGS | 17 |
| 3 8 | OUTLOOK | 19 |
| 3 9 | BY SECTOR | 20 |
4. |
LOCAL GOVERNMENT |
22 |
| 4.1 | HISTORY OF LOCAL GOVERNMENT IN BRITAIN | 22 |
| 4.2 | RESPONSIBILITIES OF LOCAL GOVERNMENT | 24 |
| 4.2.1 | Background | 24 |
| 4.2.2 | Key areas of responsibility of Local Government | 25 |
| 4.3 | LOCAL AUTHORITY REVENUE | 26 |
| 4.4 | PROCUREMENT OF GOODS AND SERVICES | 30 |
| 4.4.1 | Background | 30 |
| 4.4.2 | Local Government Procurement Using PFI and PPP | 34 |
| 4.5 | FUTURE PARTNERSHIPS | 38 |
5. |
PFI/PPP AGREEMENTS |
39 |
| 5.1 | MARKET SIZE AND POTENTIAL | 39 |
| 5.2 | ACTUAL MARKET SIZE | 41 |
| 5.3 | PRIVATE PUBLIC PARTNERSHIPS IN LOCAL GOVERNMENT | 43 |
| 5.4 | ROAD MAINTENANCE | 63 |
| 5 5 | OTHER SERVICES | 68 |
6. |
MAJOR ISSUES |
69 |
| 6 1 | POLITICAL FACTORS | 69 |
| 6.2 | TRADE UNIONS | 69 |
7. |
CASE STUDIES |
71 |
| 7.1 | BRENT STREET LIGHTING PROJECT | 71 |
| 7.2 | KIRKLEES INTEGRATED WASTE MANAGEMENT SERVICES | 75 |
8. |
SUPPLIERS/CONTRACTORS |
81 |
| 8.1 | ORIGINS | 81 |
| 8.2 | STRUCTURE OF SUPPLY | 86 |
| 8.3 | KEY TRENDS | 89 |
| 8.4 | FM CONTRACTORS | 94 |
9. |
FUTURE PROSPECTS AND OTHER LOCAL GOVERNMENT ISSUES |
104 |
| 9.1 | IMPORTANCE OF GOVERNMENT POLICY | 104 |
| 9 2 | BARRIERS TO GROWTH | 104 |
| 9 3 | WHO WILL BENEFIT? | 105 |
| APPENDIX 1 | 109 | |
| APPENDIX 2 | 127 | |
| GLOSSARY OF TERMS | 134 | |
Tables & Charts |
||
| TABLE1 | PFI PROGRAMMES IN LOCAL GOVERNMENT - VALUE BY SECTOR 2001-2004 | 10 |
| TABLE 2 | GDP percentAGE CHANGE PER ANNUM 1980-2004 | 15 |
| CHART 3 | NUMBER OF EMPLOYEES IN EMPLOYMENT GB - JUNE 1981-01 (MILLIONS) | 16 |
| CHART 4 | INTEREST RATES AND INFLATION (RPI) FROM 1990-2003 | 17 |
| CHART 5 | PDI & SAVINGS RATIO | 18 |
| TABLE 6 | LOCAL GOVERNMENT EXPENDITURE IN ENGLAND AND WALES 2001-2002 | 27 |
| TABLE 7 | GROWTH IN LOCAL AUTHORITY EXPENDITURE LEVELS, 1994-2001 | 28 |
| TABLE 8 | CENTRAL GOVERNMENT SUPPORT FOR LOCAL AUTHORITY CAPITAL EXPENDITURE 1994-2001 | 29 |
| TABLE 9 | DEPARTMENT FOR TRANSPORT LOCAL GOVERNMENT AND THE REGIONS FUNDING OF REVENUE EXPENDITURE1997-2002 | 30 |
| TABLE 10 | ANALYSIS OF PROJECTS ENDORSED 2002 | 39 |
| TABLE 11 | PFI CAPITAL EXPENDITURE 2000 -2002 (£MILLION) | 40 |
| TABLE 12 | PFI AND TOTAL PUBLIC CAPITAL EXPENDITURE 1995-2004 | 42 |
| TABLE 13 | PFI PROGRAMMES IN LOCAL GOVERNMENT 2001-2004 | 46 |
| TABLE 14 | HOUSING AND CONSTRUCTION ADDITIONAL & NEW SPENDING 1999-2002 | 50 |
| TABLE 15 | HOUSING AND CONSTRUCTION ADDITIONAL & NEW SPENDING 1999-2002 | 51 |
| TABLE 16 | REGENERATION PROGRAMMES | 52 |
| TABLE 17 | REGENERATION PROGRAMMES | 53 |
| CHART 18 | UK MUNICIPAL WASTE ARISINGS BY SECTOR - 1999/2000 | 55 |
| TABLE 19 | UK CONTROLLED WASTE MANAGEMENT MARKET BY VALUE 1996 - 2004 | 56 |
| CHART 20 | ENGLAND & WALES MUNICIPAL WASTE BY METHOD OF COLLECTION 1999/2000 | 57 |
| TABLE 21 | ENGLAND & WALES WCA REVENUE EXPENDITURE ON WASTE COLLECTION SERVICES £M 1995/6 - 1998/9 | 58 |
| TABLE 22 | ENGLAND & WALES LOCAL AUTHORITY REFUSE COLLECTION CONTRACTS - CHANGE IN THE MIX OF SERVICE PROVIDERS 1988/89 TO 1991/92 AND 1995/96 TO 1998/99 | 59 |
| CHART 23 | ENGLAND & WALES MUNICIPAL REFUSE COLLECTION SERVICES BY TYPE OF SERVICE PROVIDER 1999/2000 (BY VALUE AND VOLUME) | 61 |
| TABLE 24 | OUTPUT SPECIFICATION | 73 |
| TABLE 25 | TRANSFER OF RISK. | 79 |
| CHART 26 | LEADING FM COMPANIES WITH ORIGINS IN CONSTRUCTION OR REFURBISHMENT | 82 |
| CHART 27 | LEADING FM COMPANIES WITH ORIGINS IN THE ENGINEERING & ENGINEERING CONSULTANCY SECTORS | 83 |
| CHART 28 | LEADING FM COMPANIES WITH ORIGINS IN 'SOFT' SERVICES | 85 |
| CHART 29 | LEADING FM COMPANIES WITH ORIGINS IN PROPERTY SERVICES | 86 |
INTRODUCTION
PFI and Local Authority Market Report 2002AMA Research have published the first review of "PFI and Local Authority Market Report 2002". This report is a review of the UK Local Authority market, which includes an analysis of the evolution and development of Local Authorities, current procurement practice, and provides an insight into the future prospects for Local Authority purchasing and procurement - Best Value, PFI and PPP. This report is part of a series of reports reviewing the growing role of PFI/PPP in the public sector and other published reviews include Social Housing, Defence, Healthcare and a general overview of the role of PFI. In addition, specific sectors of outsourcing have been reviewed including Contract Facilities Management, Waste Management and Contract Cleaning. The Local Authority Market is large and
diverse, with wide ranging responsibilities. The sector has political as well
as economic influences which are reviewed, though we have retained a focus on
the commercial and economic aspects of the sector.The report reviews market
size, key trends, the role of the Private Finance Initiative and Public Private
Partnerships, the changing role of social landlords and their sources of
finance, as well as Buying and Specification Processes for Housing
Associations. Local Authorities in England and Wales employ over 2.1 million staff and spend £70 bn a year, which accounts for around 25 percent of public spending. There are over 21,000 elected councilors serving on 410 local authorities. Education is the largest service in expenditure and number employed, accounting for £20 bn in England and £1.2 bn in Wales. Education employs 360,000 staff. Social Services account for nearly £12 bn of expenditure in England and Wales and employ 200,000 staff. Social Service Departments administer children's and old peoples homes and support people in their own homes. Local Authorities raise their income in a number of different ways; council tax raised from council taxpayers and around 48 percent of expenditure comes from central government grants. The non-domestic rate, which is set by local government account, is 25 percent and the rest from local charges for services. There has been a steady change from direct provision by the Local Authority to the private sector controlled by the local authority, while many functions have been taken away from Local Authorities and are now controlled by central government bodies. PFI has not achieved the growth that has been expected of it and government expectations of the contribution towards the public services have yet to be met. CCT has been replaced with Best Value, which requires the Authority to ensure that they are delivering services in an efficient and effective manner. The Government has required each Local Authority to undertake a review using the following principles
The Government is experimenting with a new pilot scheme - local public service agreements - which are negotiated between the authority and the Government. It will identify the extra contribution the authority is prepared to make over and above its requirements under Best Value to achieve key national and local priorities. In return, the Authority will receive greater freedom in the means of delivery. The process is designed to encourage the Local Authority to constantly raise its standing with some limited pump priming funding, which means that the authority can receive extra money from the Government. PPPs are promoted by government to take advantage of private sector expertise to manage complex investment programmes. The intention is to introduce private sector investors who put their own skills and capital into the project - the public sector gets the benefits of commercial efficiencies and innovations and the public should receive better value for money. There are upwards of 38 signed PFI projects involving almost 500 schools with a value of more than £1 billion. A further £1 billion has been allocated to projects in various stages of development. The Government has increased the amount of PFI credits for schools from £35 million in 1997-98 to a planned £850 million in 2003-04, with education by far the largest sector of PFI funding in the local authority sector. An increase in housing investment has also been announced and by 2003/04 annual capital investments in housing will be £4 billion compared with just over £1.5 billion in 1997/98. Highway Maintenance has experienced great changes over the last 30 years. CCT was introduced into Highways work in the early 1990s and local authorities were obliged to separate the client function from the direct labour organisations. Partnerships between the public and private sectors have been used extensively by Social Services Departments for many years. Local Authorities have used the private sector to deliver services, and have also used the voluntary sector. There has also been a progressive move in other areas like Planning and Leisure Services to seek partnership agreements with the private sector, and this has also been extended to the Fire and Rescue Service. The process for privatising services like refuse collection and highway services which are tangible, has moved ahead at a pace, and it would seem that all parties are comfortable with the working relationships. There have been also moves to involve the private sector in services like the management of housing benefits and some IT projects, which have generally been less successful. Participants in PFI projects complain about the length of time involved from the initial OJEC notice until financial close. Although moves have taken place which are designed to shorten the length of time e.g. standardisation of procedures and documentation - nonetheless the more complex projects are still requiring considerable amounts of time before financial close, for example over two years. The delays and uncertainties involved add to the costs involved and make it less attractive for constructors. Public Private Partnerships are at the heart of the government's attempts to revive Britain's public services and they are keen to expand the range of PPPs which are regarded as the best way to secure the improvements in public services within a relatively short timescale. There will be a continuing move to PPP/PFI schemes in both central and local government services, but the majority of public works will remain funded by central government funding and local taxes. This
report represents a comprehensive review of past, present and future
developments |
In the first three years since the local government PFI programme commenced in 1997/98, over £3 billion of capital investment has been approved, including council housing refurbishment, schools, police, fire, magistrates court services, care and respite homes, IT systems, leisure centres and waste management.
Local Authorities in England and Wales employ over 2.1 million staff and spend £70 bn a year, which accounts for around 25 percent of public spending. There are over 21,000 elected councilors serving on 410 local authorities. Education is the largest service in expenditure and number employed, accounting for £20 bn in England and £1.2 bn in Wales. Education employs 360,000 staff. Social Services account for nearly £12 bn of expenditure in England and Wales and employ 200,000 staff. Social Service Departments administer children's and old peoples homes and support to people in their own homes.
Local Authorities raise their income in a number of different ways; council tax raised from council taxpayers and around 48 percent of expenditure comes from central government grants. The non-domestic rate, which is set by local government account, is 25 percent and the rest from local charges for services.
There has been a steady change from direct
provision by the Local Authority to the private sector controlled by the local
authority, while many functions have been taken away from Local Authorities and
are now controlled by central government bodies.
PFI has not achieved the
growth that has been expected of it and government expectations of the
contribution towards the public services have yet to be met.
CCT has been replaced with Best Value, which requires the Authority to ensure that they are delivering services in an efficient and effective manner. The Government has required each Local Authority to undertake a review using the following principles
The Government is experimenting with a new
pilot scheme - local public service agreements - which are negotiated between
the authority and the Government. It will identify the extra contribution the
authority is prepared to make over and above its requirements under Best Value
to achieve key national and local priorities. In return, the Authority will
receive greater freedom in the means of delivery. The process is designed to
encourage the Local Authority to constantly raise its standing with some
limited pump priming funding, which means that the authority can receive extra
money from the Government.
PPPs are promoted by government to take advantage of private sector expertise to manage complex investment programmes. The intention is to introduce private sector investors who put their own skills and capital into the project - the public sector gets the benefits of commercial efficiencies and innovations and the public should receive better value for money.
There are upwards of 38 signed PFI projects involving almost 500 schools with a value of more than £1 billion. A further £1 billion has been allocated to projects in various stages of development. The Government has increased the amount of PFI credits for schools from £35 million in 1997-98 to a planned £850 million in 2003-04, with education by far the largest sector of PFI funding in the local authority sector.
An increase in housing investment has also been announced and by 2003/04 annual capital investments in housing will be £4 billion compared with just over £1.5 billion in 1997/98. Highway Maintenance has experienced great changes over the last 30 years. CCT was introduced into Highways work in the early 1990s and local authorities were obliged to separate the client function from the direct labour organisations.
Partnerships between the public and private sectors have been used extensively by Social Services Departments for many years. Local Authorities have used the private sector to deliver services, and have also used the voluntary sector. There has also been a progressive move in other areas like Planning and Leisure Services to seek partnership agreements with the private sector, and this has also been extended to the Fire and Rescue Service.
The process for privatising services like refuse collection and highway services which are tangible, has moved ahead at a pace, and it would seem that all parties are comfortable with the working relationships. There have been also moves to involve the private sector in services like the management of housing benefits and some IT projects, which have generally been less successful.
Participants in PFI projects complain about the length of time involved from the initial OJEC notice until financial close. Although moves have taken place which are designed to shorten the length of time e.g. standardisation of procedures and documentation - nonetheless the more complex projects are still requiring considerable amounts of time before financial close, for example over two years. The delays and uncertainties involved add to the costs involved and make it less attractive for constructors.
Public Private Partnerships are at the heart of the government's attempts to revive Britain's public services and they are keen to expand the range of PPPs which are regarded as the best way to secure the improvements in public services within a relatively short timescale.
There will be a continuing move to PPP/PFI schemes in both central and local government services, but the majority of public works will remain funded by central government funding and local taxes.
Text © 2002AMA Research
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