Project management and the private finance initiative

Project management
and the private finance
initiative

Acknowledgements
This research report has been produced independently by the authors and the views expressed
are our own.
The research team would like to thank the following for their help and support:
• The project sponsors, the RICS Project Management Faculty;
• Members of the project steering group:
• Barrie Tankel
• Stephen Neale
• Martin Russell-Croucher
• T Trevis
• David Hosken: and
• Gavin Beveridge
• Staff at RICS, especially Jenny MacDonnell and Ratija Chitnavis
• The 18 interviewees from central government, local government, NHS and the private sector,
and all respondents to our online surveys.
For confidentiality reasons anonymity has been preserved and therefore only summary details
are provided in interviews and case studies.
Abbreviations
4Ps Public Private Partnerships Programme
CBI Confederation of British Industry
CCT Compulsory Competitive Tendering
DBFO Design, Build, Finance and Operate
DfES Department for Education and Skills
DoH Department of Health
DSS Department of Social Security
DWP Department of Work and Pensions
EU European Union
FM Facilities Management
ITN Invitation to Negotiate
ITT Invitation to Tender
MOD Ministry of Defence
NAO National Audit Office
1 Formerly OJEC (Official Journal of the European Communities)
NHS National Health Service
NPV Net Present Value
OBC Outline Business Case
OGC Office of Government Commerce
2 PRINCE® is a Registered Trade Mark of the Office of Government Commerce and Registered in U.S. Patent and Trademark Office.
OJEU 1 Official Journal of the European Union
PFI Private Finance Initiative
PPP Public Private Partnership
PRIME Private sector Resource Initiative for the Management
of the Estate
PRINCE Projects IN a Controlled Environment 2
PSC Public Sector Comparator
PV Present Value
SPV Special Purpose Vehicle
VFM Value for Money

The Private Finance Initiative (PFI) is a method of procurement in
which private sector finance and management skills are used to
deliver public infrastructure and services in the UK. Research by
the College of Estate Management, sponsored by the RICS Project
Management Faculty, examined the extent to which Faculty
members were involved in the PFI process and in what capacity.
The research was commissioned to help increase awareness of
PFI among the surveying profession, as well as developing and
expanding project management skills and competencies. Based
on an online survey and telephone interviews, the research
shows that:
• PFI is an important part of RICS Project Management Faculty
members’ work, and there are clear opportunities for further
growth. Some 64% of Faculty member respondents work for
organisations involved in PFI, and 48% of members have
personally been involved in one or more PFI projects.
• Project managers fulfil a variety of roles in PFI but they are
principally involved in the inception, bidding and construction
stages of a project.
• Only a small proportion of those Faculty members actively
involved in PFI (less than 8%) currently have formal project
management qualifications.
• Key barriers to the more active involvement of Faculty members
in PFI include the fact that many practices are still not involved
or interested in PFI work and that individuals do not specialise
in PFI. This is exacerbated by lack of opportunities to acquire
PFI skills.
• PFI is increasingly seen as a partnership which should marry
the best skills from the public and private sectors, and project
management skills have a key role to play in this.
• Understanding the client, risk appreciation and process skills
are seen as key PFI skills. But project managers are frequently
not adequately skilled at driving projects forward.
• Public sector project management in PFI does well when it comes
to client understanding, process understanding and political
skills but is relatively weak in negotiating and management
skills. The public sector also lacks skills in whole life cycle
costing (including FM), construction, financial modelling,
stakeholder management, and people skills.
executive summary
Project management and the private finance initiative
• Private sector project management in PFI does well when it comes
to PFI and construction experience, financial modelling and
technical and legal advice, but is relatively weak in specialist
knowledge such as healthcare. Skills are also lacking in whole life
cycle costing (which includes FM), client understanding, and
people skills.
• Training and education uptake by Faculty members in key
project management skills is needed to bridge the gap between
the public and private PFI sectors. This should be underpinned
by learning from experience and improved skills transfer in the
public sector to recycle and retain the PFI knowledge base.
The importance of PFI in the UK
According to the latest figures (April 2003) from the Office of
Government Commerce statistics, 569 PFI contracts have been signed
in the UK, 418 of which are already operational. The combined capital
value of these contracts is £53 billion, although the value of
individual projects ranges from under £1 million to over £1 billion.
In the construction and property sector, the scope of PFI has been
wide-ranging, including roads, bridges, sewage treatment plants, waste
incinerators, hospitals, schools, prisons and office accommodation.
But despite the large number of projects procured to date, the
effectiveness of PFI is still subject to considerable debate.
There is evidence to suggest that, when applied correctly, PFI has
delivered benefits over traditional forms of public sector procurement.
But applied in the wrong way, PFI can also be inefficient and
wasteful of resources. Given the scale of PFI, it is therefore
imperative that both the public and private sectors should look
to manage PFI more effectively, by refining policy and processes
and adapting culturally with the acquisition of new skills.
Project management skills
are key to PFI
Reports and research from various bodies since the Bates’
Reviews of 1997 and 1999 have highlighted the importance
of skills within PFI in such areas as:
• Project management;
• Strategic planning;

• Negotiating;
• Financial disciplines; and
• Contract management.
Project management, involving a variety of tasks, is key to the PFI
process, and also has to come to terms with complex issues such
as the nature of the construction industry; reconciling the
objectives of stakeholders; the sheer scale of some projects; the
relative immaturity of PFI market; and the need to maintain
knowledge and skills. Numerous studies have also shown that
good project management is a prerequisite to achieving value for
money in PFI.
However, the public sector in particular has often been criticised
for a lack of skills in key areas, heightened by staff ‘churn’, lack of
transparency and consistency in practice, as well as a lack of best
practice models. Research by the National Audit Office’s report
on ‘Successful Partnerships in PFI Projects’ in 2001 pointed out
that, in order to manage a long-term PFI contract effectively,
contract authorities need to have staff well-versed in skills
which include:
• Thorough understanding of the project;
• Familiarity with the contractual terms and how they
are supposed to operate;
• Good communication skills; and
• Good relationship skills.
Therefore, the UK government has underpinned PFI with a series
of initiatives designed to address criticisms of skills shortages in
the public sector. These include Partnerships UK, the Gateway
Review Process and the Successful Delivery Services Programme.
In addition, the government has sought to address criticisms at
the local government level with the formation of 4Ps and the
Project Review Group. However, there is also an increasingly held
view that both the private and public sectors have skills to offer
and that PFI is a ‘partnership’ process.
Opportunities in PFI for project
management
The starting point for examining how project managers can contribute
to PFI is a better understanding of those who are active and not yet
active in PFI. An online survey of Project Management Faculty members
was conducted to determine the level and type of involvement of
Faculty members in PFI, and their background, skills and experience.
Results from this part of the research reveal not only that PFI
work is an important part of Faculty members’ work, but also
that there are opportunities for further growth in the field. The
online survey showed that:
Nearly two-thirds of Faculty member respondents (64%) work for
organisations that have been involved in PFI projects. More than
a quarter (26%) of respondents who are active in PFI devote a
significant proportion of their time (over 80%) on PFI project
work. However, nearly half of those who are PFI-active (45%)
spend less than 20% of their time working on PFI projects. Some
57% of this group of respondents have worked on three projects
or less, although some 16% have worked on 10 different projects
in their careers to date.
Respondents were asked which PFI stakeholders they worked for
when they were involved in projects. Nearly half (45%) have
worked for the awarding authority and just over a third (34%)
have worked for the project company or Special Purpose Vehicle
(SPV). Those respondents who are active in PFI tend to be
working as consultants and executives, and are likely to be older.
Hospitals (44% of the PFI-active group have been involved in
hospitals) and schools (48%) dominated in PFI work. London and
the South East are the most dominant areas of PFI work. Scotland
is also important, with lower involvement in Wales and Northern
Ireland. Substantial projects are also often involved. For example,
more than 50% of respondents have worked on projects valued
at between £25m and £100m.
The interviews also suggest that those involved in managing PFI
projects in both the public and private sectors are drawn from a
variety of professional and educational backgrounds, and none of
the interviewees have formal project management qualifications.
This is borne out in the online survey, which shows that overall
only 7% of respondents have a formal project management
qualification. The figure for PFI-active respondents is less than 8%.
Project-managing the PFI process
Interviews were also conducted as part of the research to
examine the involvement of practitioners in PFI and their role
in managing projects, together with their perceptions of the
differences in process between the public and private sectors.
In terms of management structures in PFI the interviews showed
that all six case study projects have similar management
structures that follow the conventional PFI model comprising
the awarding authority, the Special Purpose Vehicle (SPV) that
employs various specialist consultants and funders. All the
organisations have a project sponsor and this tends to be the
Chief Executive in the NHS and a Project Board or Steering Group
in the public sector. The project director oversees the project
manager who heads up the day-to-day detail and is directly
accountable to the project sponsor. However, the traditional
boundaries between in-house and external consultants are
becoming blurred within PFI structures.
The interviews also showed that the project manager’s role is changing
within PFI. The interviews found that traditionally four separate
project management roles existed and were performed by
different people: that is, the employer’s agent and the independent
certifier, both of whom work for the client; and the technical
adviser and the SPV representative, both working for the SPV.
However, these roles now tend to be combined into one function,
because of the emergence of holistic or integrated PFI service
providers. This has also become feasible because of an open book
approach to reporting operated by the PFI parties and the
protection available from warrantees.
These changes mean that project managers are being required
to take on activities for which they have not previously been
responsible and which require different skills that are not ‘core’
skills for project managers.

The project manager’s role also varies considerably from project
to project. In some instances the project manager will be
involved from the initial stage of invitation to tender (ITT),
bidding and preferred bidder through to the operational phase,
and in other cases the project manager will just be brought in
for the construction phase.
Where the project management role is formally recognised, the
title is ‘project manager’. However, when the awarding authority
does not want a formal project manager because of available
in-house project management, a ‘lead consultant’ is required to
fulfil a ‘project support role’.
As far as internal and external project management is concerned,
the interviews showed that within local authorities internal
project managers are ranked as the best option, providing that
the person is competent. Key benefits of using internal project
managers include:
• Their generally lower cost;
• Project management skills are developed and honed in-house; and
• Control over decision-making is kept within awarding authority.
From the project sponsor’s perspective, the interviews suggested
that one of the dangers of using an external project manager is
that ‘loyalty’ is often missing. Moreover, the project manager for
the client side is required to ensure that every deadline is met
during the course of the project, and if deadlines overrun there
will be cost implications. Consequently, an internal project
manager is frequently deemed more appropriate to protect the
interests of the client.
Chartered surveyors / project managers also tend to be
principally involved in the inception, bidding and construction
stages of a project. These are the stages at which project
managers from a construction and property background can
provide the most valuable input to projects based on their
specialist skills. The operation stage of projects involves far fewer
Faculty members.
As far as responsibility and drive in PFI projects is concerned,
driving forward PFI projects varies by project stage. For example,
at the ITT stage the client is the driver; at bidding stage it
varies between the public sector client and the private sector;
at pre-contract and preferred bidder stage it is all three parties;
at post-contract construction stage it is the SPV; at occupation
it is the SPV and Client. But opinion is split as to where overall
responsibility lies, whether with the public sector, private sector
or the partnership. Also project managers are frequently not
adequately skilled at driving projects forward.
Funders’ influence starts only at the preferred bidder stage and
is focused primarily on risk management, although funders also
bring discipline in terms of due diligence to PFI.
Project management knowledge
and expertise
Building a successful and thriving skills base in appropriate areas
is vital if project managers are to become active in PFI. To bridge
the gap between PFI-active and non-PFI-active Faculty members,
several barriers must be overcome. There is a need to involve
more firms and individuals in PFI and increase the opportunities
to acquire skills on the job. Many respondents reported that their
companies do not participate in the PFI market or individual
specialisations do not relate well to PFI, which often rules out
PFI work. Other respondents feel that they cannot get appropriate
skills in their current working environment (about 17% of
non-active respondents), supported by the result that nearly
half of the non-active respondents (48%) did not believe they
would become involved in PFI in the next two years.
Overall the research from the interviews and survey highlight
(Figure 1) various weaknesses and strengths in each sector.
The public sector needs people with negotiating and
management skills. The public sector also lacks skills in whole life
cycle costing (including FM); construction, financial modelling,
stakeholder management, and people skills.
The private sector needs people with specialist understanding,
such as those with detailed knowledge of healthcare culture and
background. Skills are also lacking here in whole life cycle costing
(which includes FM), client understanding, and people skills.
This view is supported from the online survey, which found that
understanding the client, risk appreciation and process skills
were key PFI skills.
Strengths
The public sector has a better understanding of the client
than the private sector in terms of understanding processes,
chains of command and decision-making processes. The
public sector is also more adept at political skills than the
private sector.
The private sector has more specialist expertise in terms of
financial modelling, technical and legal advice than the public
sector. The private sector’s strength is also their experience and
familiarity with construction and PFI.
The research also found that people with PFI experience are in
short supply, which has resulted in widespread headhunting in
both sectors.
The interviews suggested that the most successful projects are
ones in which the project manager understands the project and
the type of project being undertaken. Moreover, a project
manager who has been involved from the outset will understand
the importance and the evolution of all the various facets of the
project. Less successful projects tend to be those where nonspecialists
attempt to undertake unfamiliar tasks and come late
into projects. So the more technically demanding the project, the
more specialist the skills, and success depends on matching the
right projects with the right project managers. Very often,
however, particularly in the local authority sector, people are
appointed who have to fulfil a project management PFI role
but are relatively inexperienced.
Critical success factors for PFI projects highlighted by the online
survey therefore include a well-drafted output specification,
supported by a robust business case and committed senior
management, and full consultation with end users.

Figure 1: Project management / PFI skills balance sheet
Weaknesses
Strong
Skills
Weak
The future
Public
sector
• Client understanding
• Process understanding
• Political skills
• Specialist sector
knowledge (ie healthcare)
• Negotiating skills
• Management skills
• Whole life costing
• Construction skills
• Financial modelling
• Stakeholder management
• People skills
The research supports findings from other studies but also
suggests that it is not just in the public sector that there are
skills shortcomings in relation to project management within PFI.
To some extent complementing skills rather than duplicating
skills is desirable between the public and private sectors, but
nonetheless skills weaknesses are an important barrier to
successful PFI.
Skills shortages in PFI must also be seen as part of the wider
issue of skills shortages in the UK economy as a whole. A simple
lack of information on training can cause organisations to
provide less training than they require, and evidence from other
research has also shown that lower-skilled individuals are less
likely to demand training than higher-skilled colleagues.
Despite government initiatives to address skills deficiencies,
problems clearly remain in PFI, and the RICS Project Management
Faculty has a major role to play in encouraging its members to
undertake training and education in the skills which underpin
Private
sector
• PFI experience
• Construction experience
• Financial modelling
• Technical advice
• Legal advice
• Risk appreciation
• Specialist sector
knowledge (ie healthcare)
• Whole life costing
• Client understanding
• People skills
+ve
-ve
project management work in PFI. This applies, however, to both
the public and private sectors. The government’s Successful
Delivery Skills Programme could serve as a useful matrix to help
the Faculty promote skills uptake in key PFI areas. This could also
be underpinned by improved PFI guidance for members;
promotion of CPD and future consideration given to making
knowledge and understanding of PFI a ‘core’ competency in the
Project Management APC.
But there is also an onus on the private and public sectors to
support training and education in key areas. In the public sector,
retaining the knowledge base and expertise in PFI is difficult,
particularly where transfer of staff between sectors is common.
The public sector often tends to try to identify one person to
cover every aspect of project management, whereas the private
sector draws on a pool of expertise.
There also needs to be improved public sector understanding of
project management roles and the expertise available. Moreover,
project management needs to be involved early in the PFI
process, both from the public sector and private sector’s points of

view. This means that project managers need to develop targeted
skills especially in PFI and negotiation, and there needs to be
better skills transfer within the public sector which can be
founded on learning from experience.
Finally, there needs to be greater standardisation in terms
of streamlining processes and agreeing standard contract
documents to make the PFI process more efficient and effective.
About the Research
This research was carried out between April 2003 and August
2003. The study is based on a literature review; an online survey
of all RICS Project Management Faculty members (701 responses
received); and 18 telephone interviews (which incorporated six
case studies) with clients, SPVs and consultants based around PFI
projects in central and local government and the NHS. This is the
first detailed analysis of PFI carried out within the Faculty.
Further information
The full report is available from the RICS Project Management
Faculty at www.rics.org/projectmanagement or email
pm.faculty@rics.org

contents
Project management and the private finance initiative
1 Introduction
1.1 Background to the research 1
1.2 Research objectives 1
1.3 Research method 1
1.4 Report structure 2
2 Managing the Private Finance Initiative
2.1 Introduction 3
2.2 The Private Finance Initiative 3
2.3 The importance of project management skills in PFI 5
2.4 Problems in managing PFI projects 6
2.5 Improving the management of PFI projects 7
2.6 Conclusions 8
3 Interviews with PFI practitioners
3.1 Introduction 9
3.2 Background and PFI experience of respondents 9
3.3 Project management and PFI 11
3.3.1 Management structure 11
3.3.2 The project manager’s role 12
3.3.3 Internal versus external project management 13
3.3.4 Differences in project management appointments 13
3.3.5 The influence of funding bodies on PFI 14
3.4 Project management knowledge and expertise 14
3.4.1 Overview 14
3.4.2 Project management skills 14
3.4.3 Other skills shortages 15
3.5 Responsibility and drive for PFI projects 16
3.5.1 Overview 16
3.5.2 Responsibility 16
3.5.3 Driving forward PFI projects 16
3.6 Understanding PFI success 17
3.7 Future changes 17
3.8 Conclusions 17
4 Survey of RICS Project Management Faculty Members
4.1 Introduction 19
4.2 Background of respondents 19
4.3 Involvement in PFI and privately funded projects 22
4.4 PFI-active project managers 23
4.5 Project managers not active in PFI 26
4.6 Continuous professional development 28
4.7 Conclusions 28

5 Conclusions and Recommendations
5.1 Introduction 29
5.2 Project management opportunities in PFI 29
5.3 Managing the PFI process 29
5.4 Barriers, critical success factors and key skills in PFI 31
5.5 Project management knowledge and expertise 32
5.6 The way forward 33
6 References 34
7 Appendices
Appendix A: Glossary of terms 36
Appendix B: Useful websites 38
Appendix C: Gateway Review Process (sourced from www.ogc.gov.uk) 39
Appendix D Successful Delivery Skills Matrix 40
Appendix E: Interview schedule 41
Appendix F: Questionnaire 44
Tables and Figures
Table 3.1 Matrix of interviewees 10
Table 3.2 Job Descriptions 10
Table 4.1 Involvement in PFI 22
Table 4.2 Reasons for not being involved in PFI projects 27
Figure 2.1 PFI project structure 3
Figure 2.2 PFI contracts awarded by government department (1992-2002) 5
Figure 3.1 Management Structure within Awarding Bodies 11
Figure 4.1 Type of organisation 20
Figure 4.2 Size of office and organisation 20
Figure 4.3 Level of responsibility 21
Figure 4.4 Role of project managers 21
Figure 4.5 PFI activity by job role 22
Figure 4.6 Location of privately financed infrastructure projects 23
Figure 4.7 Number of PFI project worked on by respondents 23
Figure 4.8 Type of PFI project 23
Figure 4.9 Location of PFI-active respondents 23
Figure 4.10 Approximate value of PFI projects including the construction element 24
Figure 4.11 Employers of PFI project participants 24
Figure 4.12 PFI stages work on by PFI active members 24
Figure 4.13 Critical success factors for PFI 25
Figure 4.14 Most important skills for successful PFI project management 25
Figure 4.15 Most important PFI skills, by employer type 26
Figure 4.16 Reasons for not being involved in PFI projects 27
Figure 5.1 Barriers, critical success factors and key skills for PFI 31
Figure 5.2 Project management / PFI skills balance sheet 32

1.1 Background to the research
The Private Finance Initiative (PFI) was introduced by the
UK government in 1992 as a way of procuring public sector
infrastructure using private sector finance, design innovation
and project management expertise. Under PFI, private sector
consortia finance, build and operate infrastructure on behalf of
the public sector. The private sector may also provide associated
services direct to the public (Ball et al., 2002). In return the public
sector client pays the private sector service provider a stream of
unitary payments to use the infrastructure and services over the
contract period, usually in the region of 25–30 years. At the end
of this period, ownership of the infrastructure either remains
with the private sector or reverts to the public sector, depending
on the terms of the contract (Allen, 2001).
As of April 2003, 569 PFI contracts had been signed in the UK,
418 of which were operational. A considerable number of
projects were construction and property related, including
hospitals, prisons, schools and office accommodation (OGC,
2003a). It follows that many Chartered Surveyors are likely to
be involved in the delivery of such projects in some capacity.
However, there is no information about the number of Chartered
Surveyors involved in PFI, their roles and responsibilities, and
their background, skills and experience. The aim of this research
was to acquire a better understanding of these issues, as a
prerequisite to engendering increased awareness among the
surveying profession about PFI, as well as developing and
expanding project management skills and competencies.
Good project management has repeatedly been shown to
be a critical success factor in PFI projects (CBI, 1996; Treasury
Taskforce, 2000; Salter et al., 2000; Audit Commission, 2001;
National Audit Office; 2001; Dixon et al., forthcoming). Project
managers are involved in all stages of the PFI process, and act
on behalf of the public and private sectors. However, there is a
perception that project management skills in the public sector
are, on the whole, inadequate to support the delivery of PFI,
particularly in relatively immature markets such as local
1 chapter one Introduction Project management and the private finance initiative
chapter one
Introduction
government. Moreover, this problem appears to be exacerbated
by the failure of the public sector to recycle and retain expertise
(Dixon et al., forthcoming). The aim of this research was to
examine the degree to which these problems are evident
in practice.
1.2 Research objectives
In order to satisfy the aims of this research, it was necessary to:
• Review the background to PFI and its implications for project
management in the UK construction industry;
• Examine the role of project managers in the PFI process;
• Determine the extent to which Chartered Surveyors are
involved in PFI and in what capacity;
• Review the background, skills and experience of Chartered
Surveyors involved in PFI projects;
• Identify instances of best practice project management in
PFI projects; and
• Make recommendations as to how the management of
PFI projects can be improved and the scope for increased
involvement by Chartered Surveyors in the PFI process.
1.3 Research method
This research comprised the following elements:
• A review of existing published literature on PFI, government
procurement and project management;
• Semi-structured telephone interviews with 18 practitioners
involved in the PFI process; and
• An online questionnaire survey of the RICS Project
Management Faculty membership to ascertain what
proportion of members are involved in PFI projects and
their role, background, skills and experience.

1.4 Report structure
This report consists of five sections. Following on from this
introductory section:
• Section 2 reviews the background theory and rationale behind
PFI in the UK, the way in which PFI projects have performed in
practice, and the means by which the management of the PFI
process could be improved;
• Section 3 discusses the results of interviews with practitioners
involved in the PFI process;
• Section 4 examines the results from the online survey of
the RICS Project Management Faculty membership; and
• Section 5 contains conclusions and recommendations.
A glossary of terms is included in Appendix A and a list of useful
websites in Appendix B. Copies of the interview schedule and
online questionnaire are also provided in the Appendices.
Project management and the private finance initiative chapter one Introduction
2

2.1 Introduction
chapter two
Managing the private finance initiative
The Private Finance Initiative (PFI) is a method of procurement in
which private sector finance and management skills are used to
deliver public infrastructure and services. There is evidence to
suggest that, when applied correctly, PFI has delivered benefits
over traditional forms of public sector procurement (Arthur
Anderson and Enterprise LSE, 2000; Ive et al., 2000). However,
when it has been used incorrectly PFI has resulted in inefficiency
and wasted resources (CBI, 1996). Given the scale of PFI, it is
imperative that both the public and private sectors should look
to manage PFI better, by (CBI, 1996):
• Refining policy and processes;
• Adapting culturally; and
• Acquiring new skills.
This section focuses on the last of these issues. Specifically, it
examines the role of project management skills in the PFI process
and the ways in which the management of PFI projects could be
improved. In doing so, it discusses the background theory and
rationale behind PFI, and the way in which PFI has performed in
practice. It also examines the role of project management in the
PFI process.
2.2 The Private Finance Initiative
Originally conceived as a means of reducing government
borrowing and increasing investment in public infrastructure,
PFI has increasingly come to be seen as a way of achieving better
value for money from government procurement. Public sector
construction and infrastructure projects have traditionally had a
reputation for being poorly managed, leading to cost and time
overruns and long-term technical problems (Graves and Rowe,
1999; Hobson, 1999; Allen, 2001; Mott MacDonald, 2002). For
instance, a survey of public sector procurement by Graves and
Rowe (1999) revealed that two-thirds of projects exceeded their
programme and 75% of projects finished over budget.
Under PFI, private sector consortia bid to design, finance, build
and operate infrastructure on behalf of the public sector for
3 chapter two Managing the private finance initiative Project management and the private finance initiative
periods of around 30 years. Consortia may also be asked to
provide ancillary services or services direct to the public as part
of the contract. In return, the public sector pays the private
sector consortium a unitary payment for using the infrastructure
and services. Unitary payments are usually structured so that the
public sector can incentivise the consortium to perform by
making deductions for late completion, poor quality infrastructure
or poor service provision. This way PFI projects are supposed to
avoid many of the problems normally associated with conventional
public sector procurement. PFI construction projects typically
comprise three main parties (Figure 2.1). These are:
• The awarding authority;
• The special purpose vehicle (SPV); and
• Third party funders.
The awarding authority is the public sector client responsible for
procuring the project. An awarding authority may be a central
government department, local authority or government agency.
The objective of the awarding authority is to achieve value from
public money by transferring to the private sector the risks
associated with providing infrastructure and services (Fox and
Tott, 1999). It does this by specifying the output required from
the project. The output specification is intended to be non-prescriptive,
since responsibility for designing and delivering the desired
outcomes lie with the SPV.
Figure 2.1: PFI project structure
Consultants
and advisors
Awarding
authority
Funders SPV
Construction
contractor
Consortium
Consultants
and advisors
Facility management
contractor
Sub-contractor(s) Investors Sub-contractor(s)
Dixon et al, forthcoming

The SPV is a limited company that is set up for the sole purpose
of delivering the PFI project. It comprises parties from the
winning consortium, which will typically include a construction
contractor, facility management provider, investors and other
specialist contractors. The objectives of the SPV are to minimise
the risks of delivering the project and to generate profits. In
doing so it will pass down risks to sub-contractors, thereby
limiting risk in the SPV. Limiting risk in the SPV is particularly
important because consortia usually require access to third party
funding, such as equity, bank loans or bonds. The objective of the
third party funders is to make a profit from their investment (Fox
and Tott, 1999).
Although many of the risks associated with PFI projects lie with
the SPV, the awarding authority still has a critical role to play in
managing the procurement process. Amongst other things, the
awarding authority is responsible for:
• Establishing the business case;
• Developing the public sector comparator 3 ;
• Devising the output specification;
• Inviting and evaluating bids; and
• Awarding and managing the contract (Treasury Taskforce, 1998).
In doing so the awarding authority may call on the expertise of
external consultants and advisors. This is particularly important
in projects where awarding authorities have little or no
experience of the PFI process.
As of April 2003, 569 PFI contracts had been signed, 418 of which
were already operational (OGC, 2003a). The combined capital
value of these contracts was £53 billion, although the value of
individual projects ranged from under £1 million to over £1
billion (OGC, 2003a). In the construction and property sector, the
scope of PFI has been wide-ranging, including roads, bridges,
sewage treatment plants, waste incinerators, hospitals, schools,
prisons and office accommodation.
Research for Foundation for the Built Environment (Dixon et al,
forthcoming) showed that in the early years of PFI (1992–1994)
only 8 deals were signed, with a combined value of £630 million.
PFI has grown in importance, however, with a peak in 2000,
when 102 PFI contracts worth £4.3 billion were awarded. The
research also showed that more than a third of PFI contracts
awarded since 1992 were in the education or health sectors,
comprising 19% of the total capital expenditure through PFI.
A large number of PFI contracts have been awarded by the
Ministry of Defence (MoD) and the Home Office (mainly prisons)
(Figure 2.2). Although fewer in number than health and
education projects, MoD and Home Office projects still comprise
17% of total PFI capital expenditure since 1992. The most
valuable PFI contracts have been awarded by the Department for
Transport, its 31 PFI projects comprising 39% of total capital
expenditure on PFI. In contrast, more than half of all other
departments have procured less than 10 PFI projects,
constituting just 12% of total PFI spending, and five of these
have procured only one project 4 .
Despite the large number of projects procured to date, however,
the effectiveness of PFI is still subject to considerable debate.
A number of studies have suggested that PFI has delivered
benefits over conventional public sector procurement (Arthur
Andersen / Enterprise LSE, 2000; Ive et al., 2000; NAO, 2003a).
For instance, a study of PFI projects by the National Audit Office
revealed that only 22% of projects experienced increasing
construction costs after the contract had been awarded (NAO,
2003a). Ive et al. (2000) found average total cost savings of
between 5% and 10% compared with conventionally procured
projects, and Arthur Anderson and Enterprise LSE (2000)
identified average cost savings of 17%.
Nevertheless, the use of PFI has not been without problems (Audit
Commission, 2003; NAO, 2003b; Ive et al., 2000). A survey of PFI
schools by the Audit Commission (2003) suggested that the quality
of PFI schools was lower than those that had been procured
conventionally. Similarly, a National Audit Office study of PFI
prisons concluded that the operational performance of projects,
as measured against the terms of contracts, had been mixed
(NAO, 2003b). PFI has also been criticised for its high transaction
costs, reflecting the complexity of the procurement process. For
example, legal and advisory fees have, on average, been 10% to
20% higher than under conventional procurement (Ive et al., 2000).
3 The public sector comparator (PSC) is the benchmark project against which the PFI option and private sector bids are evaluated (Treasury Taskforce, 1998).
4 There have also been a number of large PFI IT projects, which have produced mixed results. Recent high profile cases which have run into problems include new IT systems for the child
support agency and the criminal records bureau (Denny, 2003). The Government has decided to restrict PFI to large projects because in their view (HM Treasury, 2003), high legal and
financial costs make projects less than £20m poor value. A more detailed review and analysis of such projects is expected from the Treasury in autumn 2003.
Project management and the private finance initiative chapter two Managing the private finance initiative
4

Figure 2.2: PFI contracts awarded by government department (1992-2002)
Frequency
45
40
35
30
25
20
15
10
5
0
Although existing evidence of the success of PFI is contradictory
and inconclusive, it is evident that there is considerable variation
between the performance of different projects. Clearly, the use of
PFI guarantees neither success nor failure, since, as with any
other form of procurement, the performance of any given project
is dependent on a range of factors (NAO, 2003b). These factors
are discussed in further detail below.
2.3 The importance of project
management skills in PFI
A number of reports have focused on the most important factors
which lead to successful PFI outcomes. For example, a recent
National Audit Office report (NAO, 2001) highlighted the key
issues which awarding authorities needed to bear in mind when
developing and managing relationships with private sector PFI
contractors. Based on an analysis of 121 PFI projects let prior to
2000, the study focused on how awarding authorities and
contractors were managing the PFI process. The research
revealed that PFI projects should be approached in the spirit of
partnership, in terms of business understanding and establishing
a common vision of working together. Such a partnership must
Customs & Excise
DCMS
DEFRA
Dept for Transport
DFES
DoH
DTI
DWP
FCO
GCHQ
HM Treasury
Home Office
Inland Revenue
LCD
MOD
Northern Ireland
NS&I
ODPM
OGC
Public Records Office
Scotland
Wales
Department
5 chapter two Managing the private finance initiative Project management and the private finance initiative
Frequency Percentage capital value
adapted from Dixon et al( forthcoming), and based on OGC data: November 2002
120
100
be established from the start before contracts are let. Moreover,
having staff with the right skills is critical to good contract
management.
Similarly, given that value for money (VFM) is used as a measure
of the success of a PFI project, it makes sense to try to
understand better what are the key drivers for VFM. Research by
Arthur Andersen and Enterprise LSE (2000) for the HM Treasury
Taskforce on PFI was undertaken in 1999 to determine what
these were, and found that they included:
• Risk transfer;
• Long-term nature of contracts (including whole life cycle costing);
• Use of an output-based specification;
• Competition;
• Performance measures and incentives; and
• Private sector management skills.
As a result, the report recommended a greater sharing of
experience within the public sector; improved project
monitoring; better public sector comparators; and improved
80
60
40
20
0
Percentage capital value

guidance on risk management. By implication, the report also
suggested that project management expertise was at the heart
of the PFI process. A key issue is that senior management needs
to buy into the process. PFI projects are increasingly the norm,
but they are also frequently the largest contracts an awarding
authority will enter into, and so resources and time need to be
made available to handle the process. This was found to be a
problem in the report, just as continuity of experience frequently
led to lack of planning for future deals 5 . As the report notes
(Arthur Andersen/Enterprise LSE 2000; p.39):
‘The size of the market and the ongoing requirement to manage
contracts long after signature mean that a critical mass of
contract and project management skills and knowledge needs
to be retained and utilised in the public sector.’
Ultimately, therefore, the PFI process poses a key project
management challenge. This is as a result of issues that include:
• The nature of the construction industry. For example, research
by Pinder et al. (2003) highlighted the lack of skills to support
supply chain management. But, in theory at least, supply chain
management should be an important part of the PFI process.
• Reconciling the objectives of stakeholders. Different parties
within the PFI process will naturally have different, sometimes
conflicting objectives. For example, risk will be viewed
differently by the public and private sectors.
• Scale of projects. The sheer size of some PFI schemes poses
problems in terms of people and resource management, and
project planning. For example, since 1997 the average value has
been between £29 and £43 million (OGC, 2003a).
• Relatively immaturity of the PFI market. PFI was introduced in
1992 and as such is still an emerging market. Although it can
be argued that the private and public sector skills base has
developed, there are key skills deficiencies in the public sector
because of skills shortages, ‘churn’ and transfer of staff (NAO, 2001).
• Managing relationships. A cornerstone of current thinking on
PFI is the idea of a partnership (Arthur Andersen/Enterprise LSE,
2000). This means that managing contractual arrangements
and procurement are vital and underpin project management
skills generally.
• Maintaining and enhancing knowledge and skills. Finally, as
mentioned above, the relative immaturity of the market,
combined with skills shortages in key areas, also poses project
management issues. Mechanisms to retain staff, promote best
practice, and train and educate in project management and PFI
skills are therefore vital elements in success (HM Treasury, 2003).
2.4 Problems in managing PFI projects
The Second Bates Review 6 (Bates, 1999) highlighted the following
fundamental areas of weakness in PFI:
• Strategic planning;
• Project management;
• Negotiating (or ‘deal-making’) skills;
• Financial disciplines; and
• Management of long-term contracts.
More particularly, there was a view that staff responsible for
managing PFI projects must be equipped with the right skills. For
example, currently over £100 billion of public funds is committed
to PFI projects, yet the Office of Government Commerce
recognises that there are still gaps in the guidance and training
on how to manage PFI projects, as distinct from how to negotiate
them at the outset (NAO, 2001).
Research by Arthur Andersen/Enterprise LSE (2000) also
suggested that using private sector skills in PFI was appropriate
when there were benefits to be obtained from economies of
scale; where the delivery of the service requires non-core skills;
and where the private sector is at the cutting edge of service
innovation. In a similar vein, a National Audit Office (NAO, 2001)
report on successful PFI partnerships pointed out that, in order to
manage a long-term PFI contract effectively, contract authorities
need to have staff well-versed in skills which include:
• Thorough understanding of the project;
• Familiarity with the contractual terms and how they are
supposed to operate;
• Good communication skills; and
• Good relationship skills.
The report also suggested that:
• Authorities need to maintain continuity of staffing between
contract procurement and contract management. Moreover,
the skills required will differ during the two distinct phases of
the project after letting (i.e. design and build and the provision
of services).
• The project manager needs to have clearly delegated authority
and be supported by other staff with the necessary skills to
manage the relationship. The number of such staff will depend
on the size of the deal. Additionally the authority may choose
to establish a distinct contract management unit responsible
for all its PFI contracts.
• Most authorities considered that their staff in the contract
management teams had sufficient skills and experience. But
awarding authorities’ responses to the survey also suggested
that there was considerable variation in training provided in
contract management skills, with some authorities providing
little or no training. The report cited two exceptions (out of 121
projects) to the lack of training issue: PRIME and Newcastle Estate.
• Staff continuity was also found to be difficult to achieve. In an
ideal world the project manager who procures the deal should
also manage the contract. Staff transfers can deplete the
knowledge store of organisations. The NAO survey showed that
47% of authorities transferred less than a quarter of staff
employed on the contract procurement team to the contract
management team. Only 14% of authorities transferred more
than three-quarters of staff with experience of the project.
5 This problem of continuity was also highlighted in a recent House of Commons Select Committee report (House of Commons Committee on Public Accounts, 2002) which showed in
evidence that for the PRIME contract (within both the Department of Works and Pensions and private sector) no-one in the management team was involved in the original deal.
6 This followed the First Review of 1997, which focused on reinvigorating and streamlining the PFI process to speed the implementation of PFI/PPP (Bates, 1997).
Project management and the private finance initiative chapter two Managing the private finance initiative
6

• Where in-house skills are lacking, authorities may need
to seek advice from external consultants on areas such
as legal and financial issues, contract management, and
performance monitoring.
• Authorities considered that the Office of Government
Commerce would be the best central body to provide
best practice guidance on managing relationships with
PFI contractors.
• Generally authorities believed that commercial awareness
skills needed to be increased, perhaps even with secondment
to commercial organisations. Learning from best practice,
which could be disseminated more effectively in many
instances, would also benefit authorities. Examples included:
commercial partnership issues; trust; developing business
cases for new IT spend; monitoring procedures; use of
technical, legal and financial advisers; and production of
output specifications. The report also noted that HM Prison
Service and Highways Agency were in a better position to
disseminate best practice than the NHS because contract
managers are co-located rather than dispersed.
To some extent these criticisms have been tempered by a more
sceptical view of affairs in the NHS and the true value of private
sector skills base. For example, the report from the House of
Commons Select Committee on Health (2002) was quite critical
in its review of private sector skills:
‘We were … disappointed at the lack of evidence backing many of
the claims made. Despite numerous requests to the private sector
for examples of innovation in management we received few. We
are not convinced that there is a vast pool of more talented people
in the private sector compared with the public, and any
implication that there is undermines the public sector. Whilst
always inviting new ideas we recommend the Government accepts
there are skills in both sectors and amends its stance in this light.’
Similarly criticisms were voiced on design skills. One of the
benefits sometimes attributed to PFI is that of innovation in
design, but evidence to the Committee from UNISON 7 was
unimpressed with the standard of design in the PFI projects
it had studied, complaining of faults which it attributed to
cost-cutting and sheer bad design. The Commission for
Architecture and the Built Environment (CABE) also questioned
the delivery of better design. CABE’s design review committee
and enabling panel had advised its clients working on PFI
projects and therefore had close experience of them. It concluded
that to date:
‘Many PFI hospitals have failed to deliver the step-change in
the quality of the built environment – in terms of functionality,
overall appearance and comfort – that is clearly desired by
the Government.’
However, more recently, the view of private sector dominance in
skills was highlighted by the HM Treasury Report (2003, p.2):
‘Evidence to date suggests PFI is appropriate where there are
major and complex capital projects with significant ongoing
maintenance requirements. Here the private sector can offer
7 Public sector trade union.
8 Website at http://www.partnershipsuk.org.uk/
9 Based on information at http://www.partnershipsuk.org.uk/
7 chapter two Managing the private finance initiative Project management and the private finance initiative
project management skills, more innovative design and risk
management expertise that can bring substantial benefits.’
Also in the same report (op.cit. p.34):
‘The public sector needs the skills, at all levels, to identify the true
benefits of good design and quality construction and maintenance,
and take into account all the costs associated with major
investment projects.’
The Treasury (HM Treasury, 2003) highlighted the importance
of strong procurement skills in order to secure value for money
for the project sponsor. Indeed, this had already led to the
development of Partnerships UK 8 , launched in June 2000, which
provides procurement expertise across the public sector. The
Treasury proposed introducing a single information resource
listing accredited advisors with specialist skills for PFI advice.
Similarly, the HM Treasury (2003) Report findings echoed those
from the NAO (2001), namely:
• Delivery skills and procurement skills in the public sector were
insufficiently valued, frequently caused by a culture of loss of
talent to the private sector and disbanding of teams; and
• Small, one-off projects simply do not create enough critical
mass of expertise to be able to handle larger projects on a
regular basis.
However, perhaps the view that has gained most ground is the
one that sees PFI as a partnership process with private sector
skills as critical to success. As the Arthur Andersen/Enterprise LSE
(2000:31) report points out:
‘In the early days of the PFI it was a familiar part of the rhetoric
that private sector management skills would deliver efficiency
improvements, which would more than compensate for the
perceived additional cost of private sector finance. There is now a
greater emphasis on recognising and exploiting the respective
skills of the public and private sectors and combining the two in
effective partnerships.… The ability of the private sector to deliver
management and operational efficiencies remains crucial to the
success of PFI.’
2.5 Improving the management of
PFI projects
It is clear that as a result of previous research and guidance, the
public sector, and in particular central government, has been
keen to provide fundamental measures intended to correct
deficiencies in the relevant skills base of employees undertaking
PFI. The importance of value for money (VFM) has clearly been
important in underpinning this process of evolutionary change,
in conjunction with the powerful driver of transparency of
operation. Key cornerstones of this shift in the public sector
include the following initiatives.
• Treasury Taskforce and Partnerships UK (PUK) 9 . The formation
of the Treasury Taskforce and its successor, PUK, is seen by
the government as being instrumental in helping to seek to
promote an environment in which PFI/PPP experience and skills

can be shared and disseminated across the public sector (HM
Treasury, 2003). The intention of PUK is to provide a central unit,
through the vehicle of a PPP developer, to assist the Treasury,
government departments and the Office of Government
Commerce. PUK works with the government in the development
of PPP policy and contract standardisation, helps with project
evaluation and implementation, and supports PPPs in difficulty.
It also collaborates with 4Ps on local authority projects.
• Gateway Review Process (GRP) 10 . This was introduced by the
Office of Government Commerce in 2001 in order to deliver
VFM improvements and improve central government
procurement processes. GRP enables the systematic review
of a procurement project carried out at key decision points
(or ‘gates’) by a team of experienced people, independent of
the project team. Details are shown in Appendix C. There are
six gateways during the lifecycle of the project, four before
contract award and two which relate to service implementation
and confirmation of the operational benefits. Initiatives such as
the NHS Local Improvement Finance Trust (LIFT) scheme have
also sought to improvement the procurement process (HM
Treasury, 2003).
• Successful Delivery Skills Programme (SDSP) 11 . To underpin
the GRP, OGC also introduced SDSP, which built on the 2002
government-wide reform of the Civil Service. The SDSP
framework (see Appendix D) comprises:
• Skills Framework – details the skills and subject content
required as minimum benchmark.
• Maturity Matrix – simple structure setting out benchmark level
for each skill area.
• Skills Analysis Tool – to establish current skills levels of staff.
• Supporting Training and Development Scheme –
use of best-in-class trainers to provide training.
• Successful Delivery Skills Passport Scheme – for participants to
maintain a record.
• Programme of Continuous Professional Development –
ensuring skills are kept up to date and expanded.
• Achieving Excellence in Construction Initiative 12 . This was
launched in 1999 to set out a ‘route map’ with targets for
government performance anchored against management,
measurement, standardisation and integration measures (as
described in OGC, 2003b). The OGC followed up the Initiative
with a report entitled Building on Success (OGC, 2003b), which
sought to provide exemplars of best practice in construction
procurement from Highways Agency, Environment Agency and
NHS Estates.
• 4Ps and Project Review Group. The government recognised
the importance of providing a tailored solution for the PFI/PPP
needs of local authorities dealing with ‘one-off’ schemes.
This principle underpinned the formation of 4Ps (HM Treasury,
2003). This provides support to local authorities through the
provision of centralised advice and guidance notes on PFI
projects. 4Ps is working with the government to increase
the standardisation of local authority contracts (HM Treasury,
2003). The government also introduced the interdepartmental
Project Review Group (PRG) to review the progress of local
authority projects so that best practice can be shared more
effectively and quality can be assessed before final
procurement. The PRG enables VFM to be more clearly
identified and its input can be brought to bear on schools,
and other public sector schemes. Recent treasury guidance
has sought to extend the role of PRG to ensure increased
standardisation of contracts (HM Treasury, 2003).
In short, there has been a range of initiatives set up mainly in
central government, but increasingly focusing on local government,
to address concerns over skills shortages and related issues.
To give some idea of the resultant increase in VFM, the OGC
expects to deliver £3 billion worth of VFM gains in civil
procurement through better public sector skills, VFM testing
and other efficiency savings, by 2005–06 (HM Treasury, 2003).
2.6 Conclusions
Project management skills have been shown to be a critical
success factor in the PFI process. Numerous studies have shown
that good project management is a prerequisite to achieving
VFM in PFI. However, despite a series of government initiatives,
it still appears that awarding authorities all too often lack
many of the skills required to adequately manage PFI projects.
Moreover, this problem is being exacerbated by a failure to
retain staff and recycle expertise.
The next section in the report examines the degree to which
these problems are evident in practice, through interviews
with practitioners involved in PFI projects. The results from
the complementary online survey are examined in Section 4.
10 Based on information at http://www.ogc.gov.uk/
11 Sourced from http://www.ogc.gov.uk/sdtoolkit/
12 See http://www.ogc.gov.uk/ for further information
Project management and the private finance initiative chapter two Managing the private finance initiative
8

3.1 Introduction
This part of the report presents the results from 18 telephone
interviews with practitioners involved in the PFI process. The aim
of the interviews was to examine practitioners’ involvement and
role in managing PFI projects and their perception of the way
project management is undertaken by public and private sector
organisations. In particular, the interviews explored the different
management arrangements of PFI projects and whether project
managers need additional skills.
The research included six PFI projects in three sectors, comparing
central government, local government and the National Health
Service (NHS). In terms of project types, the central government
projects fell into judicial and custodial categories, while the local
authority projects were in education and community services,
supported by NHS projects. The research included
representatives from the client side, the special purpose vehicle
(SPV), and internal and external consultants to the projects, as
shown in Table 3.1. The remainder of this section outlines the
main findings of this part of the research, and Appendix E shows
the interview schedule used.
There is a large amount of information presented here, so
summaries are included at the start of each section and an
overall summary included at the end of the section.
3.2 Background and PFI experience
of respondents
The interviews showed that those involved in managing PFI
projects in the private and public sector operate within relatively
complex management structures, and are drawn from a variety
of professional and educational backgrounds, with various job
titles combining different roles (see Table 3.2).
None of the interviewees held formal project management
qualifications, all gaining their project management experience
through on-going professional practice.
The practitioners representing SPVs had a variety of professional
backgrounds. Two were RICS members, one a chartered builder
chapter three
Interviews with PFI practitioners
9 chapter three Interviews with PFI practitioners Project management and the private finance initiative
(CIOB), and one was a general practice chartered surveyor. Two
respondents had a background in facilities management and
one was a civil engineer. One held a degree in economics and
one was a lawyer. All of the SPV representatives had considerable
experience of PFI projects ranging from seven to nine years.
Public sector practitioners acting for the awarding authority
came from a variety of backgrounds including architecture,
accounting, business management, and civil service. Three
interviewees were actively involved in the day-to-day
management of PFI projects and two were project directors
tasked with overseeing the project for the client. The three
project managers had no prior experience of PFI projects but had
considerable experience in managing conventional projects, and
two of them reported to project directors who had undertaken a
number of PFI projects in the past. Of the project directors, one
was a civil servant with no formal construction industry
qualifications while the other was an architect.
Job roles were most varied amongst interviewees working for
SPVs in accordance with the type of company for which they
worked, and the phases of projects on which they were engaged.
Three interviewees represented the SPV during the operational
phase and they were titled general managers. One was a project
manager representing the SPV during construction phase. There
were two companies specialising in PFI work. One provided
management functions and oversaw the project from start to
finish. The other was employed directly by a PFI investment fund
and was tasked with identifying potential PFI projects, engaged
in preparing and submitting bids, securing PFI contracts, and
managing the whole process from construction through
to operation.
The two directors and the consultant to local government were
involved in all stages of the PFI process.
The consultants to the PFI projects tended to be more specialised
in nature. Four came from an engineering background, one was a
Chartered Building Surveyor and the other was a Chartered
Accountant. Two respondents were termed ‘project managers’,
one specifically employed as employer’s agent and independent
certifier. The other three consultants provided specific advice
including financial and technical.

Table 3.1: Matrix of interviewees
Central Government Local Government NHS
Awarding authority 2 2 1
SPV 2 1 4
Consultant 2 2 2
Table 3.2: Job Descriptions
Awarding Authority
NHS Project Director – Inception through Construction
Central Project Sponsor – Co-ordinate involvement of stakeholders
Central Project Manager – In-house PM reporting to Project Director
LG Project Manager – In-house PM reporting to Project Director
LG Project Manager – In-house PM reporting to LA Project Board
SPV
NHS Project Manager representing SPV through Construction General Manager
NHS of SPV – Operational phase
NHS General Manager of SPV – Operational phase
NHS Director of Development
Central Director of SPV
Central General Manager of SPV – specialist company – Operational
LG Consultant to SPV – specialist company
Consultants
NHS Internal Project Manager
NHS External Consultant – Technical Advice
Central External Project Manager and technical Advisor
Central External Consultant – Financial Advice
LG External Consultant – Employer’s Agent & Independent Certifier
LG External Consultant – Financial Advice
Project management and the private finance initiative chapter three Interviews with PFI practitioners
10

3.3 Project management and PFI
3.3.1 Management structure
The interviews revealed that:
• All six case study projects had similar management structures
that followed the conventional PFI model, comprising the
awarding authority, the SPV that employed various specialist
consultants, and the funders;
• All the organisations had a project sponsor, and this tended to
be the Chief Executive in the NHS and a Project Board or
Steering Group in the public sector;
• The project director oversaw the project manager who headed
up the day-to-day detail and was directly accountable to the
project sponsor; and,
• The traditional boundaries between in-house and external
consultants were becoming blurred within PFI structures.
Figure 3.1 outlines the management framework for each project.
Case 2 was the exception in that the preferred bidder was an
holistic PFI provider integrating a wide range of expertise in one
package, including finance, design, construction, project
management and facilities management. For example, in Case 1
the project manager was internal to the NHS, whereas in Case 2
the project manager was working on behalf of the NHS but was
Figure 3.1: Management Structure within Awarding Bodies
1
2
3
4
5
6
NHS
(Health)
NHS
(Health)
Central Gov.
(Custodial)
Central Gov.
(Judicial)
Local Gov.
(Education)
Local Gov.
(Community
Services)
Chief
Executive
Chief
Executive
Project
Board
Project
Owner
Steering
Group
Project
Board
11 chapter three Interviews with PFI practitioners Project management and the private finance initiative
1
Project
Director
Project
Director
Project
Director
Project
Sponsor
Project
Director
Project
Manager
supplied by the construction arm of the provider and therefore
described as ‘internal’. The SPV employed its own representatives
at various stages during the project.
In terms of the central government projects, the custodial project
had an internal project manager whereas the judicial project
employed an external project manager because they lacked the
appropriate skills in-house, including ‘project management and
technical advice’. With regard to the projects in local government,
each had a slightly different set-up. The project in education had
a project director who had experience of three PFI projects, and
an in-house project manager who gave the project full-time
commitment. The project manager had no prior experience of PFI
but had experience of conventional project management. In
comparison, the other local government project had an in-house
project manager overseeing the project, who employed external
project managers for various aspects of the project.
In terms of the skills required at the project director level, the role
is to co-ordinate the involvement of the various stakeholders and
bring in the requested skills at appropriate stages of the project.
One respondent (project sponsor in the central government
judicial sector) described the key skill as ‘stakeholder
management’, because the project director is the co-ordinator
and the buffer between the end users, contractors and SPV.
Moreover, the project director must ensure that the people on
both sides ‘… are being consulted … are having an input’ (project
sponsor in the central government judicial sector).
In-house
PM
In-house
PM
In-house
PM
External
PM 2
In-house
PM
External
PM 3
External
Consultants
External
Consultants
External
Consultants
External
Consultants
External
Consultants
Technical
Legal
Financial
Legal
Financial
Financial
Legal
Financial
Technical
Legal
1 Chief Executive’s title in terms of the PFI project was Key Investment Decision-Maker
2 Project Management and Technical
3 Employer’s agent and independent certifier

Other key aspects identified as part of the project director’s
role included:
• Representing the client in negotiations with the preferred
bidder, following involvement in the whole of the procurement
process – shortlisting consortia down to three and eventually
to preferred bidder, going through negotiation and getting to
financial close;
• Overseeing the adding to or implementation of the PFI contract
through an amending agreement;
• Overseeing the construction, making sure the timing was going
to plan and picking up any problems along the way;
• Overseeing that the project came in on budget;
• Controlling changes, making sure that the number of changes
were kept to a minimum as the construction went ahead, and
keeping the costs down; and
• Acting as the point of contact for the client and seeking
decisions from the project sponsor when required.
Clearly there was always a project manager, project director
and project sponsor. In terms of the technical side, the project
sponsor relies heavily on its technical team. The project
director relies on input from a team including personnel from
business development, finance and estates. The various roles
undertaken by the project manager are described in detail in
the following subsection.
3.3.2 The project manager’s role
The interviews found that traditionally four separate project
management roles existed and were performed by different
people:
• Employer’s agent and independent certifier, both traditionally
working for the client; and
• Technical adviser and SPV representative, both working for
the SPV.
However, more recently these roles have been combined into one
function, which is possible because of the emergence of holistic
or integrated PFI service providers. Furthermore, the merging of
roles has become feasible because of open book approach to
reporting operated by the PFI parties and the protection available
from warrantees.
Project managers’ roles were therefore changing. Project
managers were being required to take on activities for which
they had not previously been responsible and required different
skills that were not ‘core’ skills for project managers. The
interviews also highlighted:
• The different roles played by project managers at different
stages in projects;
• A lack of skills within public sector bodies, leading them to buy
in consultants; and
• The importance of early involvement in projects by project managers.
The project manager’s role varied considerably from project
to project. In some instances the project manager would be
involved from the initial stage of invitation to tender (ITT),
bidding and preferred bidder, through to the operational
phase; and in other cases the project manager would just
be brought in for the construction phase.
Where the project management role was recognised as a formal
role, the title would be ‘project manager’. However, when the
sponsor did not want a formal project manager because they
had in-house project management, they tended to require a
‘project support role’, referred to as a ‘lead consultant’. In this
capacity the role included technical advice, helping to co-ordinate
and programme the workload, and getting the detailed elements
of the output specification finalised. One respondent (external
consultant in the NHS) described the lead consultancy role as
‘… an overarching strategic role where the requirement is to
provide all kinds of advice except legal and financial, as these
would normally be under separate contracts.’
All the parties involved in PFI require a variety of aspects of
project management, and the roles that project managers
accordingly undertake vary tremendously. For example, in
some cases a project manager is employed by the sponsor to
assist with developing the outline business case, advertising
the PFI project, and helping during the bidding process, with
the project manager perhaps being retained post-contract.
In other circumstances the appointment is post-contract,
where the project manager is required to comment on design
and check variation costs, or is simply employed to certify the
building on completion. That can vary between a hands-on
inspecting role similar to a clerk of works, to merely checking
on a monthly basis that the contractor’s quality assurance
and checks and balances are being carried out, or providing an
opinion at the end of the project as to whether the building is
ready for occupation by the public sector.
Four distinct project management roles were described by the
respondents, including employer’s agent, technical advisor,
independent certifier, and the SPV’s representative. Both the
employer’s agent and independent certifier sit on the awarding
authority side, whereas the role of technical advisor is on the
SPV side, in essence the fund’s monitoring surveyor. Project
management for the SPV was to assist in a technical and
financial capacity, and where the consortium has very little
input from the construction company a project manager may
be appointed to prepare a cost plan and programme of works.
It was also noted during the interviews that the most
successful projects were ones where the project manager
understood the project and the type of project being
undertaken. Moreover, a project manager who was involved
from the outset would understand the importance and the
evolution of all the various different facets of the project.
The less successful projects tended to be where non-specialists
attempted to undertake unfamiliar tasks and came late into
projects. In other words, the more technically demanding the
project, the more specialist the skills, and success depends on
matching the right projects with the right project managers.
Project management and the private finance initiative chapter three Interviews with PFI practitioners
12

3.3.3 Internal versus external project management
The interviews suggested that:
• Within local authorities internal project managers are ranked as
the best option providing that the person is competent;
• The benefits of using internal project managers include:
• Their generally lower cost;
• Project management skills are developed in-house; and
• Control over decision-making is kept within awarding body;
• Small unitary authorities struggle to find the requisite skills
in-house and do not field the most appropriate person; and
• Where a NHS Trust is undertaking one large PFI project
it is more appropriate to use external project managers.
From the project sponsor’s perspective, it was highlighted that
one of the dangers of using an external project manager is that
‘loyalty’ is often missing. Moreover, the project manager for the
client side is required to ensure that every deadline is met during
the course of the project, and if deadlines overrun there will be
cost implications. Consequently, an internal project manager was
frequently deemed more appropriate to protect the interests of
the client. As one respondent (director of SPV, central
government judicial sector) suggested:
‘Externals are often a little bit remote from the way the project has
perhaps been put together and the concept behind the project,
which is sometimes bad.’
In general it was accepted by interviewees that the PFI process
works better if the project management is in-house, but a lot
of public sector clients simply do not have the requisite skills
in-house. It was noted that project managers with internal
knowledge are better placed if a decision is required urgently
because of the bureaucracy of public sector organisations.
An internal project manager representing the client will know
whether to refer particular issues to the project director, to
consult a colleague or refer to an external advisor.
A number of respondents stated that more benefit is gained
from an in-house project manager because they are on-site and
are familiar with the organisation. According to one respondent
(external consultant, central government judicial sector):
‘… It’s got to work best where the project manager is actually sat
{sic} physically in the same location as the people he needs to deal
with: the organisation.’
However, it was accepted that many clients do not have the
capacity in-house to field either the expertise or the sheer
number of hours that are needed to project manage PFI projects.
However, the real benefit accruing to the client side is in the skills
transfer, and in developing in-house expertise in PFI.
Also it was highlighted that the role of project management may
be ‘taken more seriously’ if it has been outsourced. The
importance of the role is recognised, which results in more
resources being made available, procedures being more
13 chapter three Interviews with PFI practitioners Project management and the private finance initiative
rigorously set down, and protocols being followed. The clear
drawback is that it will generally cost more and external
consultants may find it difficult to exert authority. However, as
one respondent (director of SPV, central government judicial
sector) put it:
‘There can be a tendency when you use internal consultants to
paper over cracks because it’s all in-house if you like, which you
wouldn’t get if you had external advisors; they would give you the
cold facts and that’s a positive to using externals.’
3.3.4 Differences in project management
appointments
Overall the interview findings suggest that:
• The private sector is perceived as being more commercially
focused than the public sector, with greater accountability to
shareholders, an enhanced profit motivation, and a desire to
enhance and build relationships;
• The public sector tends to try to identify one person to cover
every aspect of project management, whereas the private
sector draws on a pool of expertise;
• Public sector project managers frequently lack experience,
especially those based in local government; and
• There is widespread ‘headhunting’ and ‘churn’ of project
managers with PFI experience, which in turn suggests that
there is a lack of suitably qualified personnel in both the public
and private sector.
In general, on the client side, in-house project managers have a
public sector background which is distinct from the private
sector. The private sector tends to be geared towards
accountability to shareholders, and the aim is generally to
maximise profitability and enhance ongoing relationships with
clients. By comparison, public sector side project managers are
not geared to profit enhancement or the building of ongoing
long-term relationships. An awareness of what is going on in the
market (supply and demand side) is essential to build lasting
relationships with consortium members and funders.
Furthermore, many of the personnel within the public sector do
not possess professional qualifications and are coming to PFI for
the first time. In particular, within local authorities they often
have internal project managers as opposed to external. As one
respondent (director of SPV, central government judicial sector)
put it:
‘In the public sector you get a mix, some do it in-house and some
obviously get externals in. When it’s in-house it often doesn’t work
too well because they are too inexperienced and that’s on the
education side anyway within local authorities.’
One respondent (external consultant, local government
education sector) ranked the options commonly found in local
authorities. In the respondent’s view, the best option is where
the project manager is internal and competent; the second is
where the project manager is external and competent; and the
worst is where the project manager is internal and incompetent.

External project managers tend to be to a very high standard, but
three disadvantages were identified with using externals:
• the cost that the authority has to bear;
• because they are paying someone else to do it and not
developing internal capability; and
• they lose control over decision-making because some other
person is making the decision or the client just never gets in
the habit of taking responsibility and making decisions.
The perception of interviewees was that some of the public sector
clients are quite well informed and intelligent on the project
management of PFI. However, this appears to vary from project to
project, and often there is clearly a lack of knowledge on the part
of the public sector concerning the options available, the best way
to approach project management and what is best value for money.
3.3.5 The influence of funding bodies on PFI
The research found that:
• Funders’ influence starts only at the preferred bidder stage;
• Funders are focused primarily on risk management; and
• Funders bring discipline in terms of due diligence to PFI.
The SPV only comes into being as a legal entity at financial close,
but prior to that the SPV is effectively a lead consortium or
preferred bidder. The SPV has a representative to administer the
loan agreement and, during the construction phase, a project
manager to interface as technical advisor. According to one
respondent (director of development for SPV, NHS):
‘… Funders who have seen a variety of project structures … would
undoubtedly prefer a project manager to be appointed directly by
the consortium…. That’s the absolute tops as far as they’re concerned.’
It was generally believed amongst SPV representatives that the
fund has a direct influence on the management of the project.
A ‘controls matrix’ was described, which basically stipulates the
activities where the representative has to obtain consent from
the SPV, such as variations, or changes to contracts.
Others thought that the funders do not exert influence until the
preferred bidder stage. They have virtually no influence on the
management during the bidding stages; as it proceeds through
the preferred bidder stage they have more influence; and when
construction begins they will have technical advisors during the
construction stage advising on surveys. During the preferred bidder
stage the funding bodies’ influence is mainly to ensure that due
diligence is working out, which is in essence the technical advisor role.
The funds tend to get involved only if a decision relates to their
relationship with the private sector organisation or major project
risks. In addition, the fund’s influence manifests itself particularly
through ‘soft services’, or the FM services that are being provided.
Here there is the potential for deductions either for non-availability
or for levels of service. Therefore they are very interested in
the risk management of the contract, risks to the long-term
maintenance and the facility management side.
3.4 Project management
knowledge and expertise
3.4.1 Overview
Overall the research highlighted that:
• The public sector needs people with negotiating and
management skills;
• The private sector needs people with specialist understanding,
such as those with detailed knowledge of healthcare culture
and background;
• The public sector has a better understanding of the client than
the private sector in terms of overall processes which include
chains of command and decision-making;
• The public sector is more adept in political skills than the
private sector;
• The private sector has more specialist expertise in terms
of financial modelling, technical and legal advice than the
private sector;
• The private sector’s strength is also their experience and
familiarity with construction and PFI; and
• People with PFI experience are in short supply, which has
resulted in widespread headhunting in both sectors;
Furthermore, other key PFI skills (many relating to project
management) perceived as being in short supply were identified as:
• Whole life costing – ability to think / plan ahead (both public
and private sectors);
• Communication and networking (both public and private sectors);
• Understanding the client’s business (private sector)
• Understanding interdependencies (private sector);
• Facilities management and whole life costing (private sector);
• Experience and familiarity with construction under PFI
(public sector);
• Stakeholder management (public sector);
• Experience and in-depth knowledge of PFI (public sector); and
• People skills – interpersonal skills (private and public sectors).
These findings are based around the interviews and differ
according to the varying perceptions of respondents and
their background. 13
3.4.2 Project management skills
Overall it was evident from the interview data that the private
sector brings more specialised skills to PFI projects. However,
this is coupled with broad-based skills which are prevalent in
the public sector and a far greater understanding of the client’s
business, especially in the health and education sectors.
13 A schematic skills ‘balance sheet’ representing the public and private sectors is provided in the
final section of the report (Figure 5.2), and is based on the findings from the interviews and survey.
Project management and the private finance initiative chapter three Interviews with PFI practitioners
14

For example, very few clients would have the same level of
construction skill and knowledge as the construction arm of
an SPV. According to a project manager acting on the client
side (central government custodial sector):
‘The funding providers, the private sector, the management are
much more specialised. They’re specialised in their area whereas
I think that the project manager from our side (i.e.) myself and
my predecessors have had much broader based skills because
we multi-task.’
However, the current research also found that the private sector,
and the SPV in particular, is accustomed to conducting
commercial negotiations, whereas in general the public sector
lacks these skills. Fundamentally the public sector needs to be
able to match the skills found in the private sector in order to
lead them through the complexities of the PFI process. In the
private sector there also needs to be an awareness of the political
processes that underpin all decision-making because there is
always a chain of command to follow. It was noted that the skill
that is most beneficial is actual ‘first-hand knowledge’ of how
PFI works, how the project is structured, and the way in which
the relationships are arranged, particularly within public
sector organisations.
In essence the PFI contract is a partnering type contract that is in
place for many years, and therefore building up relationships that
will be maintained is a crucial aspect of the success of PFI.
According to an external consultant project manager (central
government judicial sector), both sectors need to be aware of the
roles and responsibilities of their counterparts. On the
commercial side there needs to be an awareness of what makes
the public sector ‘tick’, and what can slow down the process.
Conversely a public sector project manager needs to understand
the commercial nature of PFI, especially the impact of time.
To be able to agree an extremely complex contract such as a PFI
scheme, irrespective of size, building relationships that are going
to last and be effective is absolutely essential. Thus, the PFI
process requires:
‘… Project managers who can negotiate and persuade and
influence rather than just express an opinion.’
With regard to risk appreciation, a Director of Development for
SPV (NHS) stated that risk appreciation is considered very
important. Allied with understanding the client’s business and
understanding the other party’s business, it was suggested that:
‘…If you understand the client then you’ve got a very good handle
on understanding his risks.’
On the whole the private sector generally has a greater
awareness of risk and is better at assessing risk, but not
exclusively. According to one external consultant (local
government education sector), the public sector tends to
comprise ‘safety first’ people who take a more conservative view
and often look at risk in quite an advanced way.
A number of respondents in both the public and private sector
stated that there is a lack of personnel with adequate
15 chapter three Interviews with PFI practitioners Project management and the private finance initiative
negotiation skills, and that this is an area where people need
training because they are not skills that come naturally.
Furthermore, the ability to communicate effectively was
highlighted as an important factor in PFI. Generally there is a
lack of project managers with adequate ‘people skills’, yet project
managers need to be able to manage their consultants in an
efficient way and communicate effectively. In terms of the public
sector, it was suggested that the two key skills that are required
for managing PFI are people skills and organisational skills.
Specifically with regard to project management skills, a project
manager on the client side (central government custodial sector)
stated that training in PRINCE and project finance is essential for
working in PFI, and commented that:
‘… What I’ve ended up is being a sort of "Liquorice Allsorts" of PFI…’
In addition, it is the private sector’s experience and familiarity
with construction and PFI projects that is their real strength.
Private sector project managers also need to have a wider ‘all-round
knowledge’ of the PFI sector because they are more heavily
involved in managing the financial advisors, the legal advisors,
the technical side and operational elements. The research found
that the private sector provides the skill of managing large
construction contracts, but the different stages of a PFI project
require different management qualities. For example, during
the bidding stages an all-round project manager/salesman is
required, and at the preferred bidder stage commercial and legal
skills are needed to finalise the contract.
It was suggested by a Director of an SPV (NHS) that the private
sector side brings more added value to PFI because it goes that
‘extra bit further’. Specifically, in the private sector it is about
focusing on the outcome of the resource resulting to a degree
more speed and skill in arriving at the solution. A consultant
project manager to an NHS project articulated that:
‘The private sector brings a lot of commercial skills. That is often
married by the public sector skills in terms of consultations
through very large and unwieldy client organisations with lots
of layers, lots of stakeholders and lots of management decisions
being made.’
3.4.3 Other skills shortages
According to one external consultant (local government
education sector) many project management skills are in short
supply in the public sector. Clearly the public sector is at a
disadvantage because it is inexperienced in the type and extent
of commercial negotiations involved in PFI. One project sponsor
(central government custodial sector) stated that expertise in
financial modelling is in very short supply and considerable
savings could be made if this skill was developed.
People who are more conversant in the language of PFI on the
public sector side are still in comparatively short supply. In
particular, there is a shortage of people familiar with the
commercial and financial issues associated with PFI. However,
those in the public sector very often only undertake one PFI
project in their career and consequently, according to one

espondent on the SPV side, they tend to be inexperienced, naïve
and, on occasion, ‘semi-disinterested’. What is in short supply are
people with rounded experience who can appreciate the other
party’s point of view and can effectively negotiate.
A Director of an SPV (NHS) noted that on occasion there was a
lack of project management skills on the client side in terms of
setting programmes, breaking the work down, and monitoring
progress. It was suggested that all parties in PFI should involve
project management as early as possible to help mitigate the
problem. However, experienced project managers on the client
side are in short supply. It was highlighted that personnel within
an authority or trust with PFI experience are highly marketable in
the industry and tend to be headhunted. This results in a lack of
continuity. According to one external consultant (local
government education sector):
‘On one of my projects … I’ve only been involved with the job 21
months, I’m on my fourth PFI project manager for the authority
so there is definitely a skills shortage in the public sector.’
Traditionally FM providers were employed once a building, facility
or infrastructure had been constructed and was ready for
occupation. Because of the nature of PFI, FM providers are being
consulted pre-construction or during the construction process
with regard to design, programming replacement costs and
on-going maintenance. According to one Director of an SPV
(NHS project), FM providers are currently not good at responding
to requests to comment on designs for a building because
historically they inherit the building on completion rather than
inputting into its design. Clearly, the input required from facilities
managers will increase as the PFI market expands, and the skill of
whole life costing needs to be developed.
A General Manager for an SPV (NHS project) pointed out that to
truly understand the client’s business and what it means is in
itself a complex skill and one that is in short supply. This is
particularly true for the health sector, where the complexities
of the clinical nature of hospitals has an enormous impact on
provision under PFI. Overall the private sector tends to be slightly
more commercial than the public sector technical advisors, who
tend to be more politically adept at finding their way through
the administrative maze of the public sector side. On the SPV
side people with the diversity of property and FM skills are in
short supply.
3.5 Responsibility and drive
for PFI projects
3.5.1 Overview
Overall the interviews highlighted that:
• Driving forward PFI projects varies by project stage. At:
• ITT, the client is the driver;
• bidding stage, it varies between the public and private sector;
• pre-contract and preferred bidder stage, it is all three parties;
• post-contract construction stage, it is the SPV;
• occupation, it is the SPV and Client; and
• Opinion was split as to where overall responsibility
lies, whether with the public, sector, private sector or
the partnership.
It was also clear from the interviews that:
• Different drivers arise at different stages of the PFI process;
• Project managers are frequently not adequately skilled at
driving projects forward; and
• From the SPV and the client’s perspective they both thought
that they were the overall driver of PFI projects – the response
depended on who was asked.
3.5.2 Responsibility
Successful PFI projects require all sides working towards a
satisfactory conclusion. Not only should the consortium and
client work together, but also each party is dependent on the
other party aiming for success.
In general, opinion was split with regard to overall responsibility
for achieving successful PFI projects. Furthermore, a project
sponsor (custodial) suggested that responsibility has to lie with
the public sector because they are responsible for spending
public money.
A project sponsor involved in a health project stated that the
private sector side tends to be more concerned with profit,
whereas the client requires value for money, quality, and a
scheme delivered on time; and although both sides aim for a
successful project, the aspirations of the organisation differ.
However, overall the public sector client has most responsibility.
On the other hand, a number of respondents considered it the
responsibility of the partnership. According to an SPV
representative in the custodial sector:
‘The private sector has the responsibility to deliver the facility, if
you like, which includes both the building and the services, but
unless the public sector is working in partnership with them then
it’s not necessarily going to be an effective project.’
3.5.3 Driving forward PFI projects
There were some contradictory views in relation to the driver in
PFI projects. Overall the consensus was that it fluctuates during
the course of the project, but generally the pressure from the SPV
and the client is equal. The dynamics tend to flow from one to
another; for example, when the SPV pressures the client with
regard to a particular financial aspect of the deal, the client in
return will pressure the SPV to agree a price.
According to an external consultant employed on a health
project during the negotiation period, the public sector client
drives the PFI process forward. Then when it gets to preferred
bidder stage, both sectors drive it forward, with slightly more
pressure coming from the private sector because they are keen
Project management and the private finance initiative chapter three Interviews with PFI practitioners
16

to secure the contract. In the early stages of procurement it is
more closely related to what the public sector do, and as it
progresses to preferred bidder stage the pendulum swings
towards the private sector.
In contrast, an external consultant involved in a public sector
education project stated that in getting to preferred bidder:
‘The bidders are always on the front foot, they are always pushing
to win, they are pushing to show themselves off, and they’re
pushing to get the deal moved along.’
Thus, overall it appears to vary between the public and private
sector. However, in terms of project management it is therefore
less important for the public sector to have a project manager
because the deal would be pushed along regardless by the
bidder’s motivation. At preferred bidder stage the tables turn,
because the public sector has selected one contractor and there
is pressure to agree a deal. This is a difficult stage for the public
sector because it comes down to negotiations, and in general the
private sector will try to obtain concessions after they are made
preferred bidder prior to financial close.
On the client-side, one project sponsor involved in a judicial
project suggested that pre-contract all parties drive forward the
PFI project because there is a mutual interest to try to reach a
satisfactory conclusion. Post-contract, during the construction
phase, the driver is very much on the SPV side because they want
to get the building operational and income-producing. However,
during construction the public sector side will be pushing things
such as design development.
Overall the view was that there are different drivers from the
various parties, but in general the drive to get the building ready
for use comes from the SPV construction side. However, a
Director of an SPV in the health sector pointed out that although
the private sector has a vested interest in driving the PFI forward,
whether in the bidding process or post-contract, project
managers are not well skilled at driving things forward.
3.6 Understanding PFI success
Success is measured at different levels, depending on the project
stage being measured. In general, success is dependent on
understanding the other party’s needs and drivers for success. An
SPV representative for a health project suggested that the long
period of the relationship and how to maximise benefit is not
necessarily understood:
‘A client doesn’t always latch on to it because they can’t quite get
out of the more conventional way of thinking about "I’m going to
get as much as I can out of this contractor" and it’s a problem for
the contractor because they don’t realise how much they need to
do to make a relationship work.’
Success is measured at several levels within PFI schemes. The
main contractor is responsible for completing the construction
stage, which is one measurable outcome, but performance of the
contract once the building is ready for occupation and use is as
important in terms of gauging success.
17 chapter three Interviews with PFI practitioners Project management and the private finance initiative
One external consultant to a health project stated that there is
an attitude in the public sector that contractors should be denied
access to profitability, and in the private sector there are still
contractors that just want to throw buildings up with no
thought for the clients’ changing needs.
Although success priorities might be different, a project must be
fit for purpose and commercially viable. According to an external
consultant for an education project:
‘What constitutes success is an innovative arrangement that
seems to work, and it has a pragmatic and balanced approach to
the payment mechanism.’
3.7 Future changes
The interviews showed that:
• There needs to be improved public sector understanding of
project management roles and expertise available;
• Project management needs to be involved early in the PFI process,
both from the public sector and private sector points of view;
• There needs to be greater standardisation in terms of streamlining
processes and agreeing standard contract documents; and
• There needs to be better skills transfer within the public sector
which can be founded on learning from experience.
Very often public sector organisations do not provide adequate
resources to manage PFI schemes. They need to provide the right
level of administrative support for PFI projects. One respondent
stated that a culture change is required in terms of the public
sector informing staff about what is involved in PFI and
accepting that it is a huge drain on resources and time. Proper
training for project managers in the public sector should also be
undertaken in the future.
According to one respondent, the PFI process is long drawn out
and wasteful in resources, because five or six companies might
bid for a project, with each company employing different teams
and project managers. More standardisation and greater control
at senior level of how contract risks are apportioned, so that
control is kept at the principal level, not at the legal level, will
clearly make a difference.
One respondent suggested that the Private Finance Unit (PFU)
should produce guidelines about the services of project
management for hospital trusts, and advise trusts on the PFI
process by producing a central knowledge base that can be
bought into schemes to set them up or help them along.
3.8 Conclusions
The main findings from the interviews are summarised as follows:
Management structures and the project manager’s role
• All six case study projects had similar management structures
that followed the conventional PFI model, comprising the
project sponsor, the SPV and the fund, which employed various
specialist consultants.

• All the organisations had a project sponsor, and this tended to
be the Chief Executive in the NHS and a Project Board/Steering
Group in the public sector.
• The Project Director oversaw the project manager who headed
up the day-to-day detail and was directly accountable to the
project sponsor.
• Although (within local authorities) internal project managers
were seen as the best option, the traditional boundaries
between in-house and external consultants were becoming
blurred within PFI structures.
• One of the dangers of using an external project manager was
that ‘loyalty’ may be missing.
• Members also tended to be principally involved in the
inception, bidding and construction stages of a project, where
project managers from a construction and property background
could provide the most valuable input.
Project management knowledge and expertise
• Public sector project management in PFI does well when it
comes to client understanding, process understanding and
political skills, but is relatively weak in negotiating and
management skills. The public sector also lacks skills in whole
life cycle costing (including FM); construction, financial
modelling, stakeholder management, and people skills.
• Private sector project management in PFI does well when it
comes to PFI and construction experience, financial modelling
and technical and legal advice, but is relatively weak in
specialist knowledge such as healthcare. Skills are also lacking
here in whole life cycle costing (which includes FM), client
understanding, and people skills.
• PFI is increasingly seen as a partnership which should marry the
best skills from the public and private sectors, and project
management skills have a key role to play in this.
Responsibility and drive in PFI Projects
• Driving forward PFI projects varies by project stage. For
example, at ITN the client is the driver; at bidding stage it is the
public sector client; at pre-contract and preferred bidder stage
it is all three parties; at post-contract construction stage it is
the SPV; at occupation it is the SPV and Client.
• Opinion is split as to where overall responsibility lies, whether
with the public sector, private sector or the partnership.
• From the SPV and the client’s perspective, both think that they
are the overall driver of PFI projects and the response depended
on who was asked.
• Funders’ influence starts only at the preferred bidder stage.
Funders are focused primarily on risk management, although
they also bring discipline in terms of due diligence to PFI.
• Understanding PFI success
• Different drivers arise at different stages of the PFI process.
• The public sector is more concerned with getting the right mix
and ensuring that their positions are protected.
• Project managers are frequently not adequately skilled at
driving projects forward.
• Future changes
• There needs to be improved public sector understanding of
project management roles and expertise available.
• Project management needs to be involved early in the PFI
process, both from the public sector and private sector’s
points of view.
• There needs to be greater standardisation in terms of streamlining
processes and agreeing standard contract documents.
• There needs to be better skills transfer within the public sector
which can be founded on learning from experience.
Project management and the private finance initiative chapter three Interviews with PFI practitioners
18

chapter four
Survey of RICS Project Management Faculty Members
4.1 Introduction
A questionnaire was developed in parallel with the interviews
to ascertain what proportion of Project Management Faculty
members are involved in PFI projects, in what capacity, and
their background, skills and experience. The questionnaire was
designed to be completed over the Internet and the research
population comprised those Faculty members for whom the
RICS had an email address.
The survey was undertaken by sending an email (containing a
hyperlink to the questionnaire) to each member of the research
population. Recipients were given two weeks in which to
complete the questionnaire, a copy of which is included in
Appendix F.
A total of 701 responses were received, representing a response
rate of just over 4% 14 . Although this is relatively low, it should be
remembered that PFI is a specialist subject area and may therefore
be of interest to only a small proportion of the Faculty membership.
In order to elicit further information on the skills issue, a follow-up
online questionnaire was developed for non-PFI-active respondents.
This survey received 83 responses, and so care should be taken in
interpreting the results from the follow-up survey.
4.2 Background of respondents
The majority of respondents were male (90%). This is comparable
to the figure for the RICS membership (88%), but lower than the
figure for the Faculty Membership (95%) (Pottinger et al., 2001).
Some 43% of respondents were aged between 36 and 49, but
only 6% were under 26 years of age. Female respondents were
most represented in the lower age groups. Some 29% of those
under the age of 26 were females. However, in the 36–49 and
50–64 age groups the proportion of female respondents dropped
to 7% and 3% respectively.
Nearly two-thirds of respondents (64%) held a first degree (BA or
BSc). Additionally, 10% of respondents held a masters’ degree
(MA or MSc), 7% a Diploma in Project Management and 4% a Master
in Business Administration (MBA). First degrees were most common
amongst the younger age groups. Of the 21–25 year olds, 81%
held a first degree, compared with only 59% of 36–49 year olds.
Female respondents were more likely to hold a first degree (80%
compared with 63% of males). Female respondents were also
more likely to hold a masters’ degree (12% compared to 9%), but
were less likely to hold a MBA (1% compared to 4%).
All respondents were members of the RICS. Some 18% were
members of the Chartered Institute of Building (CIOB) and 10%
were members of the Association of Project Managers (APM).
Very few respondents belonged to other organisations, such as
the RIBA (1%), CoreNet (0.6%) or the Chartered Institute of
Arbitrators (6.5%). Professional memberships tended to be more
common amongst the older age groups. Taking the CIOB as an
example, 20% of 36–64-year-olds were members, compared to
just 7% of those under 26 years of age.
The majority of respondents were from one of four different
types of organisation (Figure 4.1). The largest proportion was
from multi-disciplinary surveying practices (20%) and quantity
surveying practices (16%), but there were also substantial
numbers from construction companies (14%) and local
government (14%). Only 7% of respondents worked for a project
management practice. The data can be compared to those
collected in a previous survey of Faculty members (Pottinger et al.
(2001), the data from which are also shown in Figure 4.1. In the
present survey there was a lower proportion of multi-disciplinary,
quantity and other surveying practice employees as well those
working for corporates / Plcs. In contrast there was a higher
proportion of individuals from construction companies, local
government and project management practices. This is likely to
reflect the subject area of the questionnaire rather than a shift in
the characteristics of the Faculty’s membership over the last two
years. Overall the data shows that 73% respondents were based
in the public sector and 20% in the private sector (for 7% of
respondents their background was unknown) 15 .
14 Although this is a relatively low response rate we are confident that the sample is a representative view of the Faculty members and the profile approximately matches the previous
2001 survey. It was not possible to examine the reasons for non-response.
15 Similar figures were found for the PFI active and non-active groups.
19 chapter four Survey of RICS Project Management Faculty Members Project management and the private finance initiative

Figure 4.1: Type of organisation
Multi-discipline practice
Quantity surveying practice
Construction company
Local government
Other
Project management practice
Central government
Developer
Not for profit organisation
Other surveying practice
Facilities management provider*
Corporate/plc (client)
Education and research
* only provided as an option in the 2003 survey
Figure 4.2 shows respondents by the size of the office they
worked in and also by the size of the organisation they worked
for. The number of respondents declines as the office size
increases. One quarter of respondents work in offices of 10
people or less with a further 19% working in offices of 25 people
of less. However, nearly one quarter work in an office of more
than 100 people, with 6% of all respondents in very large offices
occupied by more than 500 people. This perhaps reflects the
major representation of very large organisations amongst the
respondents’ employers. Over half of the respondents (53%) work
for an organisation employing more than 500 people. At the
opposite end of the scale, 12% work for a small organisation
employing 10 people of less.
0 5 10 15 20 25
% of respondents
2001 Survey 2003 Survey
Figure 4.2: Size of office and organisation
Number of people
1-10
11-25
26-50
51-100
101=200
201-500
500+
0 10 20 30 40 50 60
% of respondents
Organisation population
Office population
Project management and the private finance initiative chapter four Survey of RICS Project Management Faculty Members
20

Figure 4.3: Level of responsibility
Executive (strategic
decision making)
Consultant
Management
(managing others)
Technical-Surveyor
with 3+ years PQE
Technical-Surveyor
with 0-3 years PQE
Other
Figure 4.4 Role of project managers
0 5 10 15 20 25 30 35 40
% of respondents
Professional work includes project management activities
In-house project manager for a corporate organisation
Work in project teams with project managers
External consultant project manager
Work for a contractor and managing building contracts
Not an active project manager
In-house corporate real estate manager commission project managers
Education and research associated with project management
0 5 10 15 20 25 30 35
21 chapter four Survey of RICS Project Management Faculty Members Project management and the private finance initiative
Other
Respondents to the survey tended to share one of two levels of
responsibility (Figure 4.3). This was either a management role
(36%) or an executive (strategic decision-making) role (28%).
Consultants made up 10% of the sample and those with
technical responsibilities represented 21%. Of the latter group,
two-thirds were surveyors with three or more years of postqualification
experience (PQE) and one-third had less than three
years PQE. The distribution of responsibilities amongst
respondents was broadly similar to those in the 2001 survey,
with managerial and executive functions both being the
principal responsibilities.
One-third of respondents had a professional role that included
project management activities (Figure 4.4) \* MERGEFORMAT .
A further 25% had roles that were explicitly project management,
either in-house within a corporate organisation (13% of all respondents)
or as an external consultant (12%). The remaining respondents
had close links to project management. Some 12% worked in project
teams with project managers, 7% were working for contractors
and managing building contracts and 4% were in-house corporate
real estate managers commissioning project managers.
% of respondents

Table 4.1: Involvement in PFI
Organisation involved in PFI Individual involved in PFI Individual involved in other privately
financed infrastructure projects
Number of Percentage Number of Percentage Number of Percentage
respondents respondents respondents
Yes 442 63.5% 336 47.9% 257 36.9%
No 254 36.5% 365 52.1% 439 63.1%
Total 696 100% 701 100% 696 100%
No response 5 - 0 - 5 -
4.3 Involvement in PFI and
privately funded projects
Respondents were asked about their personal involvement in PFI
projects as well as the involvement of the organisation they work
for (Table 4.1). Some 64% of respondents worked for organisations
that had been involved in PFI projects. However, a smaller proportion
had actually been personally involved in one or more PFI projects
(48%). Some 19% of respondents worked for an organisation that
had been involved in PFI, but they themselves had no personal
involvement in PFI. The majority of these individuals were either
in a managerial role or were surveyors with more than three
years’ post-qualification experience. In addition, 4% of respondents
worked for organisations that had not been involved in PFI, but
they themselves had, presumably in a previous job.
Figure 4.5: PFI activity by job role
All respondents
Other privately financed
projects
PFI active
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
% of respondents
Consultant Executive
Management Other
Technical - Surveyor with 0-3 years PQE Technical - Surveyor with 3+ years PQE
For all those personally involved in PFI, in comparison with the
whole sample there was a slightly lower proportion amongst the
managerial and technical roles. This disparity was most apparent
amongst the most experienced (three+ years PQE) surveyors.
There was also a slightly higher proportion of consultants and
executives. The data also suggests that younger Faculty members tend
not to be as involved in PFI as much as their older colleagues. Only 34%
of respondents under the age of 26 had been involved in PFI, whereas
48% of those older than 26 had been. There was also a gender divide in
PFI participation amongst members. Only 36% of female respondents
had worked on a PFI project, compared to 49% of men.
Only 37% of respondents had been personally involved in other
privately financed infrastructure projects. Individuals with
managerial or technical roles were under-represented amongst
those active in such projects (Figure 4.5). Consultants and those
Project management and the private finance initiative chapter four Survey of RICS Project Management Faculty Members
22

in executive roles were over-represented. The link between
individual involvement and job role was most prominent for
those that had been involved in other privately financed projects.
The majority of privately financed infrastructure projects were in
England and Wales (71%), with a further 22% based in Scotland
and 7% based in Northern Ireland (Figure 4.6). Outside the UK,
projects in Asia and the Republic of Ireland had the highest levels
of involvement by respondents (10% and 8% respectively). This
pattern echoes the findings in the 2001 survey regarding project
management commissions generally.
Figure 4.6: Location of privately financed infrastructure projects
England and Wales
Scotland
Asia
Ireland
Northern Ireland
Mainland Europe
America
Africa
Oceania
0 10 20 30 40 50 60 70 80
% of respondents
4.4 PFI-active project managers
The analysis in this section concerns questions that were
answered only by Faculty members who had been personally
involved in PFI projects 16 . Only 7.9% of these respondents had a
formal project management qualification (compared with 7%
for all respondents and 5.4% for non-PFI-active respondents).
However, 89% of these respondents had some form of
qualification compared with 84% of non-PFI-active respondents.
Almost a quarter of those active in PFI had only worked on one
project (Figure 4.7). A further 32% had been involved in two or
three projects, meaning that over half of those involved in PFI
(57%) had worked on three projects or less. As would be
expected, the proportion of individuals fell with an increase in
the number of projects. However, 16% had worked on more than
10 different projects in their career to date, indicating a small
subset of individuals specialising in PFI.
Two types of PFI project dominated those that members had
worked on (Figure 4.8). Some 44% of those active in PFI had
worked on hospital projects. Additionally, 48% had worked on
schools projects. Other types of projects involved smaller
proportions of respondents. For example 12% had worked on a
housing PFI project, a less well-developed PFI sector, and 9% had
worked on a PFI court. These are all in areas which have tended
to make up a smaller proportion of total PFI schemes across
the country, compared to the extensive use of PFI within the
healthcare and education sectors. This compares closely with
data from OGC which attributes 22% of all PFI projects across
the UK to the Department of Health, and 16% to the Department
for Education and Skills, making these the two most active
government departments in PFI. In addition, 14% of projects
originated from the Scottish Executive and therefore covered a
range of sectors, including education and healthcare.
16 Again, some 73% of respondents were in the public sector and 20% in the private sector.
17 The Scottish government has vigorously used the PFI for new public service developments, whereas in Wales enthusiasm for PFI
has been low, principally due to a poor economic case for using PFI and the relatively small size of projects (Greer, 2003; Osmond, 2003).
Geographically the PFI projects worked on by members were
spread around the country (Figure 4.9). The most popular
location was London (32%). The South East was also an
important area, with 29% of respondents having worked on
projects there, as were the North West and West Midlands (27%
and 22% respectively). Scotland emerged as an important
location for PFI (25%). This contrasts sharply with Wales (9%) and
Northern Ireland (5%) and reflects the divergence of PFI adoption
by the devolved institutions 17 .
Figure 4.7: Number of PFI projects worked on by respondents
23 chapter four Survey of RICS Project Management Faculty Members Project management and the private finance initiative
% of PFI active respondents
30
25
20
15
10
5
0
Other health care
Other education
1 2 3 4 5 6 7 8 9 10 More
Number of PFI projects
than
10
Figure 4.8: Type of PFI project
School
Hospital
Other
Office
Housing
Court
Transport
Prison
London
South East
North West
Scotland
West Midlands
South West
North East
Yorkshire and the Humber
East Midlands
East of England
Wales
Northern Ireland
0 5 10 15 20 25 30 35 40 45 50
%of PFi active respondents
Figure 4.9: Location of PFI-active respondents
0 5 10 15 20 25 30 35
% of PFI-active respondents

Figure 4.10: Approximate value of PFI projects including the construction element
% of PFI active respondents
60
50
40
30
20
10
0
£0 - 5 million £5 - 25 million £25 - 100
million
This is supported by data from the Office of Government
Commerce (OGC) 18 , which demonstrates that Scotland, London
and the South East all take a greater share of PFI projects
compared with other regions.
In terms of the value of projects worked on by Faculty members,
the questionnaire responses show a fairly normal distribution
(Figure 4.10). Over 50% of respondents have worked on projects
valued at between £25 and £100 million. The proportion of
respondents declines for lower and higher valued projects, so
that 15% have worked on projects valued at more than £1 billion.
A similar pattern can be seen with respect to the capital value
of the construction element of the projects. However, these
proportions are boosted for lower value projects and decline for
higher value projects. For instance, only 3% of respondents have
worked on projects for which the capital value of the
construction element exceeds £1 billion.
Respondents were asked which PFI stakeholders they had worked
for when they had been involved in projects. Figure 4.11 shows
the profile of the responses. Nearly half (45%) had worked for the
awarding authority and just over a third (34%) had worked for
the project company or SPV. Respondents were involved in a
number of different stages of the PFI process. A high proportion
had worked on either the inception, bid (pre- and post-preferred
bidder) and construction stages. Two-thirds of the respondents
had worked on each of these four stages. However, this
continuity ends when a scheme becomes operational. Only
30% of respondents had worked on fully operational projects.
Only a quarter of respondents (26%) devoted a significant
proportion of their time (over 80%) on PFI project work. Nearly
half of those who were PFI-active (45%) spend less than 20% of
their time working on PFI projects. It seems that PFI is a minor
part of the day-to-day work of these respondents.
Approximate value
Indivual projects Capital Value of construction element
£100 - 500
million
Figure 4.11: Employers of PFI project participants
Awarding authority / client
Project company / SPV
Construction company
Private practice consultancy
Investor / funder
Facilities management provider
Inception
Bid (pre preferred
bidder stage)
Bid (post preferred
bidder stage)
Construction
Operation
£500 - 1000
million
0 5 10 15 20 25 30 35 40 45 50
18 www.pfi.ogc.gov.uk
Project management and the private finance initiative chapter four Survey of RICS Project Management Faculty Members
Other
£1 billion and
over
% of PFI active respondents
Figure 4.12: EPFI stages work on by PFI active members
0 10 20 30 40 50 60 70 80
% of PFI active respondents
24

Figure 4.13: Critical success factors for PFI
Critical success factors
Well drafted output specification
Robust business case
Commitment of senior management in awarding authorities
Consultation with end-users
Alignment of public and private sector interests
Resources available to awarding authorities
Private sector project management skills
Quality of advice to awarding authorities
Public sector project management skills
Transparency of procurement process
Early involvement of financiers
Performance measurement and incentives
Respondents were asked about the factors for success in PFI projects.
Figure 4.13 shows the weighted score for each factor 19 . Two factors
were judged to be the most important. The first was a well-drafted
output specification. Some 23% of respondents ranked this as
their most important success factor and collectively over half
(57%) selected it as one of their three most important success
factors. A robust business case was also seen to be the most
important factor by 22% of respondents (43% selected it as one
of their three most important factors). Other factors that scored
well were the commitment of senior management in awarding
authorities (26% had this as one of their three important factors),
consultation with end-users (36%) and the alignment of public
and private sector interests (27%). Transparency of the
procurement process, early involvement by financiers,
performance measurement and competition all scored poorly.
The questionnaire went on to examine the skills required by
project management surveyors working in the PFI sector
(Figure 4.14). For 39% of PFI-active respondents a good
understanding of the client was considered to be the most
important skill requirement by a successful project manager.
An appreciation for the risks involved was also considered to
be important by a further 28% of PFI-active respondents.
Interestingly, technical knowledge was seen to be the most
important factor for only 7% of respondents.
Cost of capital
Competition
0 50 100 150 200 250 300 350 400 450
Weighted score
Figure 4.14: Most important skills for successful PFI project
management
Understanding the client
Risk appreciation
Process skills
Political skills
Technical knowledge
19 This was calculated by assigning three points to the factor ranked the most important by a respondent, two points for the second placed factor and
one point for the third placed factor. The remainder all received a score of zero. These scores were then totalled for all respondents to produce the weighted score.
25 chapter four Survey of RICS Project Management Faculty Members Project management and the private finance initiative
0 5 10 15 20 25 30 35 40 45
% of PFI active respondents
The importance of skills varied between different groups
(Figure 4.15). Risk appreciation is considered to be the most
important skill by 39% of those who have worked for a facilities
management provider and by 35% of those who have worked
for an investor. This is higher than amongst awarding authority
employees (27%), SPV employees (26%) and private practice
consultants (26%). For those employed by investors a very low
proportion (21%) consider a good understanding of the client to
be the most important skill. This compares to between 34% and
38% for all other groups. However, employees of investors did
rank political skills higher than other groups. Some 19% said this
was the most important skill compared, for example, to just 5%
of those employed by awarding authorities.

Figure 4.15: Most important PFI skills, by employer type
Awarding authority / client
Project company / SPV
Construction company
Facilities management provider
Investor / funder
Private practice consultancy
Other
4.5 Project managers not active
in PFI
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Faculty members that had not been involved in a PFI project were
asked a series of questions about why they had not worked on such
a project, and what skills they may need in order to do PFI work.
Figure 4.16 shows the mean responses to seven possible reasons for
a lack of involvement in PFI. The data is shown on a Likert scale of
1 to 7, where 1 represents ‘not true’ and 7 represents ‘very true’.
Only two of the reasons have mean scores greater than 4,
suggesting that the majority of respondents considered them to
be true. These were the fact that the companies employing
respondents were not involved in PFI, and the fact that
respondents’ specialisations did not relate to PFI. This suggests
that many are not involved in PFI for reasons broadly out of their
control. Indeed, 53% of respondents gave the reason that their
company was not involved in PFI a score of 7 – ‘very true’ (Table
4.2). Generally a lack of involvement is not due to a lack of
interest in PFI or even an ideological opposition to the policy.
Some 47% gave a score of 1 (not true) to the statement that they
were not personally interested in PFI. A further 15% gave this a
score of 2. Similarly 57% gave a score of 1 to the fact that they
are ideologically opposed to PFI.
% of PFI active respondents
Political skills Process skills Risk appreciation
Technical knowledge Understanding the client
With regard to skills, the picture is more mixed. For nearly one
third (32%) the inability to acquire PFI-related skills in their
current job is not an issue at all. However, for at least 24% it is an
issue. Age does not appear to be a deciding factor. For all age
groups this reason produces the similar mean score of between
3.0 and 3.1. Indeed, for all the seven reasons, views do not differ
widely across age groups, except for a slight tendency for older
respondents to be more ideologically opposed to PFI. Gender,
however, shows more difference between responses. Women
assigned high scores (meaning the reasons were more applicable
to their circumstances) for the following reasons:
• Their specialisations do not relate to PFI;
• They are not interested in PFI;
• They cannot get PFI skills in their current job; and
• They are ideologically opposed to PFI.
Respondents were also asked when they envisaged that they and
their company might become involved in PFI. Views were very mixed,
with 42% disagreeing that their company would become involved in
PFI in the next two years, and 35% agreeing. Similarly, 47% disagreed
that they would personally become involved in PFI in the next two
years and 26% agreed that they would become involved.
Project management and the private finance initiative chapter four Survey of RICS Project Management Faculty Members
26

Figure 4.16 Reasons for not being involved in PFI projects
Reasons for not being involved in PFI projects
Company not currently involved in PFI projects
Specialisations do not relate to PFI projects
Company is not currently interested in PFI projects
Cannot get the skills needed in current job
Company is too small
Not interested in PFI projects
Ideologically opposed to PFI
Table 4.2: Reasons for not being involved in PFI projects
1 2 3 4 5 6 7
Not true Mean response (Likert scale)
Very true
Company not Company is not
Specialisations do Not currently currently Cannot get the Ideologically
Likert not relate to PFI interested in involved in PFI interested in PFI Company is skills needed in opposed to
Score* projects PFI projects projects projects too small current job PFI
1 18% 47% 21% 43% 57% 32% 57%
2 8% 15% 3% 10% 9% 17% 15%
3 7% 10% 3% 6% 3% 12% 6%
4 11% 15% 6% 13% 11% 15% 13%
5 11% 5% 4% 5% 7% 7% 3%
6 11% 3% 9% 7% 3% 7% 3%
7 34% 6% 53% 16% 11% 10% 3%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
* 1 = not true; 7 = very true
In order to elicit further information on the skills issue, a follow-up
online questionnaire was developed for non-PFI-active respondents.
This survey received 83 responses, of which 71% had been involved
in PFI and 29% had not. As this is a much lower response than
the main survey, the results should be interpreted with some
degree of caution.
Very few respondents in the follow-up survey felt they needed
additional skills to work on PFI projects, confirming the views of
the main online survey. Fewer still said that those skills were not
27 chapter four Survey of RICS Project Management Faculty Members Project management and the private finance initiative
Y
Y
Y
Y
Y
Y
available in their current job (4% of non-active respondents from
the follow-up survey). Amongst this group there were mixed
views about specific skill requirements. However, risk
appreciation, process and political skills were judged to be more
important than understanding client needs and technical
knowledge, although the differences were slight. There were also
mixed views regarding the need for learning more about PFI for
respondents’ career progression. Some 21% said that PFI would
not be important for their future career and 33% said that it
would be very important.
Y

4.6 Continuous professional
development
The questionnaire briefly examined the CPD requirements of
respondents. Some 75% preferred in-house training and 72%
reading to meet CPD requirements. Seminars were also popular,
with 46% attending RICS seminars and 66% attending seminars
organised by other organisations. RICS seminars were the most
popular for the youngest age group (21–25-year-olds) with
61% preferring this form of CPD. This is likely to reflect the high
proportion of individuals undertaking their Assessment of
Professional Competence (APC) within this age group. Other
forms of CPD were favoured by similar proportions of
respondents across age groups. In terms of where people go
to undertake CPD, London and South East England were the
most popular for 32% and 22% of responses respectively.
4.7 Conclusions
The survey has provided the first opportunity to consult the
membership of the RICS Project Management Faculty about their
involvement in PFI. The survey showed that almost half of those
that responded have been involved in a PFI project. The main
findings from these PFI-active individuals are as follows.
• Members tend to be principally involved in the inception,
bidding and construction stages of a project. These are the
stages at which project managers from a construction and
property background can provide the most valuable input to
project based on their specialist skills. The operation stage of
projects involves far fewer Faculty members.
• A well-drafted output specification and a robust business case
are considered to be the most important success factors for PFI
projects. The commitment of senior management in awarding
authorities is also important, as is effective consultation with
the end-users of the projects. Project management skills (in
both the public and private sectors) are perceived as being less
important, in contrast to the interview findings.
• Different stakeholders within the PFI process have different
perceptions about what constitutes the important project
management skills. Investors and FM providers consider risk
appreciation to be the most important skill. Investors also put
more emphasis on political skills than other stakeholder groups.
• For PFI a good understanding of the client is regarded as the
most important skill for the project manager to possess. An
appreciation of the risks involved is also vital.
The responses from those individuals who have not been active
in PFI suggest that their key reasons for not being involved are
broadly out of their direct control. Many of their companies do
not participate in the PFI market, or their specialisations do not
relate well to PFI. For these respondents, the latter reason rules
out PFI work for many. Fewer still feel that they cannot get
appropriate skills in their current working environment (about
17% of non-active respondents), supported by the result that
nearly half of the non-active respondents do not think they will
become involved in PFI in the next two years.
Project management and the private finance initiative chapter four Survey of RICS Project Management Faculty Members
28

5.1 Introduction
chapter five
Conclusions and recommendations
This research was undertaken to determine for the first time the
number of Project Management Faculty members involved in PFI,
their roles and responsibilities, and their background, skills and
experience. The aim of the research was to acquire a better
understanding of these issues, as a prerequisite to engendering
increased awareness of PFI within the surveying profession, as
well as developing and expanding project management skills
and competencies.
In order to satisfy the aims of this research, the research has:
• Reviewed the background to PFI and its implications for project
management in the UK construction industry.
• Examined the role of project managers in the PFI process.
• Determined the extent to which Project Management Faculty
members are involved in PFI and in what capacity.
• Reviewed the background, skills and experience of Chartered
Surveyors involved in PFI projects.
• Identified instances of best practice project management in
PFI projects.
This final section of the report therefore draws together the
main findings of the research, identifies key themes and makes
recommendations as to how the management of PFI projects can
be improved, and how the scope for more Chartered Surveyors to
become involved the PFI process can be increased.
5.2 Project management
opportunities in PFI
Results from the online questionnaire survey showed not only
that PFI work is an important part of Project Management
Faculty members’ work, but also that there are opportunities
for further growth in the field.
For example, some 64% of respondents (the majority of whom
are based in the public sector) worked for organisations that
29 chapter five Conclusions and recommendations Project management and the private finance initiative
have been involved in PFI projects. However, a smaller proportion
have actually been personally involved in one or more PFI projects
(48%). Those respondents who are active in PFI tend to be working
as consultants and executives, and also tend to be older.
Similarly, the interviews revealed that those involved in
managing PFI projects in both the public and private sectors
were often drawn from a variety of professional and educational
backgrounds, and none of the interviewees had formal project
management qualifications. This was borne out in the online
survey where, surprisingly, overall only 7% of respondents had a
formal project management qualification. The figure for PFIactive
respondents was less than 8%.
5.3 Managing the PFI process
In terms of management structures in PFI, the interviews showed that:
• All six case study projects have similar management structures
which follow the conventional PFI model comprising the
awarding authority, the SPV and funders;
• All the organisations have a project sponsor, and this tends to
be the Chief Executive in the NHS and a Project Board/Steering
Group in the other public sector projects;
• The Project Director oversees the project manager who is
responsible for the day-to-day detail and is directly accountable
to the project sponsor; and
• The traditional boundaries between in-house and external
consultants are becoming blurred within PFI structures.
In terms of the skills required at the project director level, the role
is to co-ordinate the involvement of the various stakeholders and
bring in the requested skills at appropriate stages of the project.
One respondent (project sponsor in the central government
judicial sector) described the key skill as ‘Stakeholder
Management’, because the project director is the co-ordinator
and the buffer between the end users, contractors and the SPV.
The interviews also showed that the project manager’s role is
changing within PFI. Traditionally four separate project

management roles existed and were performed by different
people, that is:
• Employer’s agent and independent certifier, both traditionally
working for the client; and
• Technical adviser and SPV representative, both working for the SPV.
However, more recently these roles have been combined into one
function, which is possible because of the emergence of holistic
or integrated PFI service providers. Furthermore, the merging of
roles has become feasible because of an open book approach to
reporting operated by the PFI parties and the protection available
from warrantees. These changes mean that project managers are
being required to take on activities for which they have not
previously been responsible, and may require different skills that
are not ‘core’ skills for project managers (see below).
The project manager’s role also varied considerably from project
to project. In some instances the project manager would be
involved from the initial stage of invitation to tender (ITT),
bidding and preferred bidder through to the operational phase;
in other cases the project manager would just be brought in for
the construction phase.
Where the project management role is recognised as a formal
role, the title will be ‘project manager’. However, when the
awarding authority does not want a formal project manager
because they have in-house project management, they tend to
require a ‘project support role’, referred to as a ‘lead consultant’.
The research shows that members also tend to be principally
involved in the inception, bidding and construction stages of
a project. These are the stages at which project managers’
specialist skills in construction and property can provide
the most valuable input to projects based on their specialist
skills. The operational stage of projects involved far fewer
Faculty members.
As far as internal and external project management was
concerned the interviews showed that:
• Within local authorities internal project managers were ranked
as the best option providing that the person is competent;
• The benefits of using internal project managers include:
• they are generally lower in cost;
• project management skills are developed and honed in-house;
and
• control over decision-making is kept within awarding body;
• Small unitary authorities struggle to find the requisite skills
in-house and do not field the most appropriate person; and
• Where a NHS Trust is undertaking one large PFI project it is
more appropriate to use external project managers.
From the project sponsor’s perspective it was highlighted that
one of the dangers of using an external project manager is that
‘loyalty’ is often missing. Moreover, the project manager for the
client side is required to ensure that every deadline is met during
the course of the project, and if deadlines overrun there will be
cost implications. Consequently, an internal project manager was
frequently deemed more appropriate to protect the interests of
the client.
As far as responsibility and drive in PFI projects was concerned,
driving forward PFI projects varies by project stage. For example,
at ITT the client is the driver; at bidding stage it varies between
the public and private sector; at pre-contract and preferred
bidder stage it is all three parties; at post-contract construction
stage it is the SPV; at occupation it is the SPV and client. But
opinion was split as to where overall responsibility lies, whether
with the public sector, private sector or the partnership.
Moreover, project managers are often not adequately skilled at
driving projects forward. From the SPV and the client’s
perspective, they both thought that they were the overall driver
of PFI projects (i.e. the response depended on who was asked).
Ultimately, all successful PFI projects require all sides working
towards a satisfactory conclusion. Not only should the
consortium and client work together, but also each party is
dependent on the other party to aim for success. The influence
of funding bodies starts only at the preferred bidder stage and
is focused primarily on risk management, although funders also
bring discipline in terms of due diligence to PFI.
Project management and the private finance initiative chapter five Conclusions and recommendations
30

5.4 Barriers, critical success factors
and key skills in PFI
Bridging the gap between PFI-active and non-PFI-active Faculty
members must overcome hurdles which include a resistance to
becoming involved in PFI work, or a lack of awareness of project
management opportunities. For many, as the online survey
showed, their companies do not participate in the PFI market or
their individual specialisations do not relate well to PFI. For these
respondents, the latter reason rules out PFI work for many. Fewer
still feel that they cannot get appropriate skills in their current
working environment (about 17% of non-active respondents),
supported by the result that nearly half of the non-active
respondents do not think they will become involved in PFI
in the next two years.
Figure 5.1 shows that, although important, ‘skills limitations’
alone do not appear to be the only barrier to enabling
non-PFI-active members to become involved in PFI work.
For nearly one third (32%) the inability to acquire PFI-related
skills in their current job is not an issue at all. However, for
at least 24% it is an issue. Indeed, the limited findings from
the follow-up survey (see Section 4) suggest that very few
Figure 5.1 Barriers, critical success factors and key skills for PFI
Non
PFI
Active
Barriers to PFI
involvement:
• Company not involved in PFI
• Employees not specialising in PFI
• Lack of skills in current job
PFI
Active
31 chapter five Conclusions and recommendations Project management and the private finance initiative
non-PFI-active respondents felt they needed additional skills to
work on PFI projects. Fewer still said that the availability of those
skills was not present in their current job (4% of non-active
respondents from the follow-up survey).
Amongst this group there were mixed views about specific skill
requirements. However, risk appreciation, process and political
skills were judged to be more important than understanding
client needs and technical knowledge, although the differences
were slight. There were also mixed views regarding the need for
learning more about PFI for respondents’ career progression.
Some 21% said that PFI would not be important for their future
career and 33% said that it would be very important.
Critical success factors for PFI projects therefore include:
• Well-drafted output specification;
• A robust business case;
• Committed senior management; and
• Full consultation with end users.
This supports findings from recent research carried out for the
Foundation for the Built Environment (Dixon et al, forthcoming).
Critical Success Factors
for PFI:
• Well drafted output
specification
• Robust business case
• Committed senior management
• Consultation
Key Skills for PFI:
• Understanding the client
• Risk appreciation
• Process skills

5.5 Project management
knowledge and expertise
Despite the findings from the follow-up online survey, the
interviews showed that building a successful and thriving
skills base in appropriate areas is vital if project managers
are to become active in PFI.
Overall the research from the interviews and survey highlighted
(Figure 5.2) a number of important strengths and weaknesses.
The key weaknesses are that:
• The public sector needs people with negotiating and
management skills. The public sector also lacks skills in
whole life cycle costing (including FM); construction, financial
modelling, stakeholder management, and people skills.
Figure 5.2: Project management / PFI skills balance sheet
Strong
Skills
Weak
Public
sector
• Client understanding
• Process understanding
• Political skills
• Specialist sector
knowledge (ie healthcare)
• Negotiating skills
• Management skills
• Whole life costing
• Construction skills
• Financial modelling
• Stakeholder management
• People skills
• The private sector needs people with specialist understanding,
such as those with detailed knowledge of healthcare culture and
background. Skills are also lacking here in whole life cycle costing
(which includes FM), client understanding and people skills.
However, the strengths were found to be of particular importance:
• The public sector has a better understanding of the client than
the private sector in terms of understanding processes, chains
of command and decision-making processes.
• The public sector is more adept in political skills than the private sector.
• The private sector has more specialist expertise in terms of financial
modelling, technical and legal advice than the public sector.
• The private sector’s strength is also their experience and
familiarity with construction and PFI.
Private
sector
• PFI experience
• Construction experience
• Financial modelling
• Technical advice
• Legal advice
• Risk appreciation
• Specialist sector
knowledge (ie healthcare)
• Whole life costing
• Client understanding
• People skills
+ve
-ve
Project management and the private finance initiative chapter five Conclusions and recommendations
32

The research also found that people with PFI experience are in short
supply, which has resulted in widespread headhunting in both sectors.
The most successful projects are ones where the project
manager understands the project and the type of project being
undertaken. Additionally, a project manager who has been
involved from the outset will understand the importance and
the evolution of all the various different facets of the project.
Less successful projects tend to be where non-specialists attempt
to undertake unfamiliar tasks and come late into projects.
Therefore, the more technically demanding the project, the more
specialist the skills required, and success depends on matching
the right projects with the right project managers.
5.6 The way forward
The research has highlighted the importance of improving
PFI project management and increasing the involvement of
chartered surveyors. The research supports findings from other
studies identified in the literature review (see NAO (2001) and
other references in Section 2, for example) but also suggests
that it is not just in the public sector that there are skills
shortcomings in relation to project management within PFI.
The private sector also lacks key skills as well as each sector
having particular strengths.
Moreover, further research is needed to pinpoint why private
sector practices do not become involved in PFI: the current
research focused on employees but it would also be valuable for
further research to investigate why firms/practices resist PFI
involvement/specialisation.
Skills shortages in PFI must also be seen as part of the wider
issue of skills shortages in the UK economy as a whole (see, for
example, HM Treasury, 2002). A simple lack of information on
training (Stevens, 1999) can cause organisations to provide less
training than they require, and evidence has also shown that
lower skilled individuals are less likely to demand training than
higher skilled colleagues. The National Skills Task Force (2000)
found, for example, that two main reasons why adults did not
train in the UK were that they were not interested in learning,
or did not need the skills for the job, both of which indicate
that people may not be fully aware of the benefits of training.
This supports the findings in the current study.
33 chapter five Conclusions and recommendations Project management and the private finance initiative
Despite government initiatives to address skills deficiencies in
PFI, problems clearly remain, and the RICS Project Management
Faculty has a major role to play in encouraging its members to
undertake training and education in skills which underpin project
management work in PFI. This applies, however, to both the
public and private sectors. The government’s Successful Delivery
Skills Programme could serve as a useful matrix to help the
Faculty promote skills uptake in key PFI areas. This could also be
underpinned by improved PFI guidance for members and
promotion of CPD, and future consideration given to making
knowledge and understanding of PFI a ‘core’ competency in the
Project Management APC.
There also needs to be improved public sector understanding of
project management roles and expertise available. Moreover, project
management needs to be part of the early PFI process, both from
the public sector and private sector points of view. This means
that project managers need to develop targeted skills especially
in PFI and negotiation (including people skills and communication
skills), and there needs to be better skills transfer within the
public sector, which can be founded on learning from experience.
Finally, there needs to be greater standardisation in terms of
streamlining processes and agreeing standard contract documents.

chapter six
References
Allen, G. (2001) The Private Finance Initiative (PFI), House of Commons
Research Paper, 01/117, House of Commons Library.
Arthur Andersen/Enterprise LSE (2000) Value for Money Drivers
in the Private Finance Initiative.
Audit Commission (2001) Building for the Future: the
Management of Procurement Under the Private Finance
Initiative, Management Paper, Audit Commission, London.
Audit Commission (2003) PFI in schools: The Quality and cost
buildings and services provided by early Private Finance Initiative
schemes, Audit Commission London.
Baird, G. (1996) Building Evaluation Techniques, McGraw-Hill.
Ball, R., Heafey, M. and King, D. (2002) ‘The Private Finance
Initiative and public sector finance’, Environment and Planning C:
Government and Policy, vol. __, pp.57-74.
Bates (1997) First Review of the Private Finance Initiative.
Bates (1999) Second Review of the Private Finance Initiative
(Available from: www.hm-treasury.gov.uk).
CBI (1996) Private Skills in Public Service: Tuning the PFI,
Confederation of British Industry, London.
Denny, C. (2003) ‘Government abandons PFI for computer projects’,
Guardian, July 16.
Dixon, T., Jordan, A., Marston, A., Pottinger, G. and Pinder, J.
(forthcoming) Lessons from UK PFI and Real Estate Partnerships,
The Foundation for the Built Environment.
Fox, J. and Tott, N. (1999) The PFI Handbook, Jordan Publishing
Limited, Bristol.
Graves, A. and Rowe, D. (1999) Benchmarking the government
client – stage two study, Agile Construction Initiative, School of
Management, University of Bath.
Green, F. and James, D. (2003) ‘Assessing skills and autonomy:
the job holder versus the line manager’, Human Resource
Management Journal, Vol 13 No 1, 63-77.
Greer, S. (2003) ‘Policy divergence: will it change something in
Greenock?’ in Hazell, R. (ed.) The State of the Nations 2003:
The Third Year of Devolution in the United Kingdom, Imprint
Academic, London.
HM Treasury (2002) Developing Workforce Skills:
Piloting a New Approach, HM Treasury, London.
HM Treasury (2003) PFI: Meeting the Investment Challenge,
HM Treasury, London.
Hobson, D. (1999) The National Wealth, HarperCollins, London.
House of Commons Committee on Public Accounts (2002)
Managing the relationship to secure a successful partnership
in PFI projects: Forty-Second Report of Session, 2001-02.
House of Commons Select Committee on Health (2002) The Role
of the Private Sector in the NHS: First Report, Session 2001-2002.
IPFA (2002) PFI and PPPs Press and Media Information
(available at International Project Finance Association Website
www.ipfa.org).
IPPR (2002) Factsheet: The Private Finance Initiative, IPPR.
Ive, G., Edkins, A. and Millan, G. (2000) The role of cost saving
and innovation in PFI projects, Thomas Telford, London.
Jones Lang LaSalle (1999) Achieving Corporate Agility Through
Leasing Flexibility, Jones Lang LaSalle, London.
Mott Macdonald (2002) Review of large public procurement in
the UK, Mott Macdonald, Croydon.
NAO (2001) Managing the Relationship to Secure a Successful
Partnership in PFI Projects, National Audit Office (NAO)
Report No HC 375, The Stationery Office, London.
NAO (2003a) PFI: Construction Performance, Rep. No. HC 371,
The Stationery Office, London.
NAO (2003b) The Operational Performance of PFI prisons,
Rep. No. HC 700, The Stationery Office, London.
National Skills Task Force (2000) Third Report.
Project management and the private finance initiative chapter six References
34

OGC (2003a) Signed Deals List as of 4th April 2003, Office of
Government Commerce, http://pfi.ogc.gov.uk/stats.asp
OGC (2003b) Building on Success: The Future Strategy for
Achieving Excellence in Construction, Office of Government
Commerce, London.
Osmond, J. (2003) ‘From corporate body to virtual parliament:
the metamorphosis of the National Assembly for Wales’ in
Hazell, R. (ed.) The State of the Nations 2003: The Third Year of
Devolution in the United Kingdom, Imprint Academic: London.
Pinder, J., Smith, A., Pottinger, G. and Dixon, T. (2003)
Learning from Other Industries, RICS, London.
Pollitt, M. G. (2000) The Declining Role of the State in
Infrastructure Investments in the UK, Working Paper WP0001,
Department of Applied Economics, University of Cambridge.
Pottinger, G., Marston, A. and Dixon, T. (2001) Chartered Surveyors
in Project Management: The Survey of Project Management
Faculty Members, College of Estate Management, Reading.
Salter, B., Rich, T. and Bird, D. (2000) ‘Managing the Private
Finance Initiative’, Perspective, 4 (3), pp.68-73.
Stevens, M. (1999) ‘Human Capital Theory and UK Vocational
Training Policy’, Oxford Review of Economic Policy, Vol 15 No 1,
16-32.
Treasury Taskforce (1998) Step by Step Guide to the PFI
Procurement Process, HM Treasury, London.
Treasury Taskforce (2000) How to Manage the Delivery of Long
Term PFI Contracts, Rep. No. Technical Note No. 6, Technical Note,
HM Treasury, London.
35 chapter six References Project management and the private finance initiative

chapter seven
Appendices
Appendix A: Glossary of terms
4Ps The Public Private Partnerships Programme Ltd, a local government procurement
agency providing support and advice to local authorities in England and Wales
for large-scale procurement projects.
Awarding authority The public sector body which is procuring a service through PFI (e.g. government
department, agency, NHS trust, local authority).
Bates Review The review of PFI conducted by Sir Malcolm Bates. The review made 29
recommendations. A second Bates Review was reported in February 1999.
Benchmarking A method for testing whether the standard and price of services is consistent
with the market standard.
Bidders See ‘tenderers’.
Compulsory Competitive Tendering (CCT) Policy introduced by the Local Government Act 1988 that required local
authorities to put a percentage of their existing out to open competition
before being undertaken by their own staff. The policy has now largely been
replaced by Best Value.
Consortium A group of private sector organisations that has been formed in order to tender
for a PFI contract.
Construction company A company commissioned by the project company to construct or refurbish the
properties that form part of PFI project.
Debt funder A provider of debt finance for a PFI project, including third-party debt finance.
Design, Build, Finance and Operate contract A PFI contract that provides for the design, construction, financing and operation
of a building and its facilities.
Discount rate / discounting The rate, or rates, of interest selected when calculating the present value of
some future cost or benefit.
Equity funder An investor who purchases equity in the project company.
Facilities management The process that focuses on the interaction between the core business, the
support functions, and the facilities throughout all sections of industry,
commerce, and services (RICS definition).
Financiers A collective term for the debt and equity funders.
Invitation to Negotiate (ITN) An invitation issued by PFI awarding authority to negotiate and ultimately to
submit priced bids. Often used interchangeably with ITT.
Invitation to Tender (ITT) An innovation to tender by submitting priced bids. Often used interchangeably
with ITN.
NHS LIFT A Department of Health initiative with Partnerships UK to develop and
encourage a new market for investment in primary health care and
community-based facilities and services.
Project management and the private finance initiative chapter seven Appendices
36

Office of Government Commerce (OGC) An independent Office of HM Treasury, formed in 1999, that reports to the
Chief Secretary of the Treasury. Its principal concern is improving the efficiency
of central civil government procurement, including PFI.
Official Journal of the European Union (OJEU) The publication in which PFI projects are advertised, previously known as the
Office Journal of the European Communities (OJEC). Projects are also displayed
on TED (Tenders Electronic Daily – http://ted.publications.eu.int).
Outline business cases (OBC) A business case prepared by the awarding authority that details the need and
scope of the project. If accepted this will lead into the tendering process.
Output specification The specification on which tenders are invited to bid. It sets out the awarding
authority’s requirements in non-prescriptive terms, leaving the tenderers to
determine how to meet those requirements.
Partnerships UK Organisation formed from the Projects Group of the Treasury Taskforce in 1999
that works with government to develop PPP policy and acts as an evaluator of
PPP schemes.
Private Finance Initiative (PFI) The financing of long-term infrastructure and public services based upon a
non-recourse or limited recourse financial structure where project debt and
equity used to finance the project are paid back from the cashflow generated
by the project (IPFA definition).
ProCure21 An NHS programme, launched in July 2000, to improve the performance of
public sector clients in capital procurement. Emerged after the Egan Report,
‘Rethinking Construction’.
Project company The company set up by the preferred tenderer to be the contracting vehicle for
a project.
Public Private Partnership (PPP) A generic term for projects involving public and private sectors. PFI is one type
of PPP.
Public Sector Comparator (PSC) A benchmark used during the procurement process by the awarding authority
to assess the value for money of tenders received.
Ryrie Rules Rules established in 1981 that prescribed the limits of private sector involvement
in the financing of government projects. The rules were withdrawn in 1989.
Special purpose vehicle (SPV) The project company established by the sponsors whose only purpose is to
deliver the project.
Sub-contractor A contractor that undertakes part or parts of a contract that is the overall
responsibility of the main contractor.
Tenderers Those organisations (consortia) tendering for PFI contract. Tenderers are also
referred to a ‘bidders’.
Treasury Taskforce A unit of HM Treasury that was established following the Bates Review to
co-ordinate PFI policy across government. In 1999 its functions were spilt
between the Office for Government Commerce and Partnerships UK.
Unitary payment The payment made by the awarding authority to the project company for
the provision of the facility and related services.
37 chapter seven Appendices Project management and the private finance initiative

Appendix B: Useful websites
• 4Ps (www.4ps.co.uk) Body providing PFI guidance and advice to local government.
• Movement for innovation (www.m4i.org.uk) Body formed following the 1998 Egan report Rethinking
Construction. Includes case histories from PFI projects.
• National Audit Office (NAO) (www.nao.gov.uk) The NAO has been undertaking analysis of many major PFI
projects. Their website includes a PFI guidance database with
links to all NAO and House of Commons Select Committee
reports on PFI.
• Office of Government Commerce (OGC) (www.pfi.ogc.gov.uk) Government agency that overseas PFI.
• Operis (www.operis.com/pfi.htm) Provides specialist PFI Financial Advice & tender information
from the Official Journal of the European Union (OJEU).
• Partnerships UK (www.partnershipsuk.org.uk) Body formed by the government to drive the implementation
of PFI within the public sector.
• PFI Units in Central Government Below are links to PFI/PPP pages for key government
departments.
• Department for Education and Skills
www.dfes.gov.uk/ppppfi
• Department for Transport
www.dft.gov.uk/about
• Department of Health
www.doh.gov.uk/pfi
• Ministry of Defence
www.mod.uk/business/ppp
• PPP Forum (www.pppforum.com) Good gateway site into PFI related information.
Includes details of completed projects.
• Scottish Executive Financial Partnerships Unit (www.scotland.gov.uk/pfi) Information on PFI projects in Scotland,
including detailed factsheets on major projects.
• Tenders Electronic Daily (TED) (ted.publications.eu.int) Online database of tender notices that appear
in the Official Journal of the European Union.
• Welsh Assembly Government (www.pfu.wales.gov.uk) Details about PFI schemes that have taken place in Wales.
Project management and the private finance initiative chapter seven Appendices
38

Appendix C: Gateway Review Process (sourced from www.ogc.gov.uk)
Generic Procurement Project Process
GATE 0
Strategic Assessment
GATE 1
Business Case
GATE 2
Procurement Strategy
GATE 3
Contract Award
GATE 4
Implementation
GATE 5
Close out contract
Define Business Need
Prepare Business Case
Define Procurement Strategy
Invite, Evaluate and
Refine Tenders
Award Contract
Manage Implementation
of Contract
Manage and Operate Contract
39 chapter seven Appendices Project management and the private finance initiative

Appendix D: Successful Delivery Skills Matrix (sourced from www.ogc.gov.uk)
Framework Senior
Skill Areas Responsible
Investment Owner/ Project
Decision Programme Project Project Project Contract Team
Maker Manager Project Sponsor Manager Manager Member
General Skills
Leadership 1 3 3 2 3 2 1
Teamwork 2 3 2 2 3 3 3
Interpersonal Skills 3 3 3 3 3 3 3
Risk Management 2 3 2 2 3 2 2
Communication 2 2 2 3 3 2 3
Desk-top Skills 1 1 1 3 3 2 2
The Business Environment
Government Finance 3 2 3 3 3 2 1
The Business Case 3 2 3 3 3 3 2
Commercial Business & Finance 2 2 1 3 3 3 1
Disposal of Departmental Assets 1 1 1 1 1 1 1
Selling Government Services 1 1 1 1 1 1 1
Private Finance Initiative 3 2 2 2 2 1 1
Commercial Negotiation 2 3 3 3 3 3 1
Contractual Relationships
Managing the Contractual Relationship 3 2 3 3 3 3 2
Programme and Project Delivery
Programme management 1 3 2 2 3 2 2
Project Management 1 3 2 2 3 2 2
Managing Business Change 2 3 3 2 3 3 1
Benefits Management 2 3 3 2 3 3 2
Technical Skills
Procurement 1 1 1 2 3 2 1
Property & Construction 1 1 1 2 3 2 1
Information & Communication Technology 1 1 1 1 1 1 1
Legal Environment
Contract Law 1 2 1 1 2 3 1
Commercial Law 1 2 1 1 2 2 1
EC Procurement 1 1 1 1 3 2 1
Fraud 2 2 2 2 2 2 2
Gateway Process
Gateway Process 1 1 1 1 1 1 1
Level 1 AWARENESS
Able to understand the key issues and their implications for the client and able to ask relevant and
constructive questions on the subject
Level 2 KNOWLEDGE Detailed knowledge of the subject and capable of providing guidance and advice
Level 3 EXPERT Extensive and substantial practical experience and applied knowledge of the subject.
© Crown copyright. The OGC Successful Delivery Toolkit is a Value Added product and falls outside the scope of HMSO’s Core Licence.
40

Appendix E: Interview schedule
Project management and PFI Office use
This interview is part of research commissioned by the RICS into the way Private Finance Initiative (PFI) projects are managed.
The interview is designed to explore your involvement and role in managing PFI projects and your perception of the way project
management is undertaken by public and private sector organisations. The research is particularly concerned with understanding
how management arrangements aid or hinder PFI and whether project managers need additional skills.
Your employment
1. In what capacity are you currently employed in relation to PFI work?
• In-house project manager or project sponsor in the public sector
• Client consultant to public sector project sponsors
• Supply side consultant to SPV / contractor / funder
• Other
Project management and PFI experience
2. Please briefly outline your background and experience in relation to managing projects
• not just PFI
• any other large privately financed infrastructure projects
• years experience
• qualifications
• types of project / organisations
3. What PFI projects have you been involved with to date?
• since when
• nature of projects
• value
• the parties to the SPV
4. What stages of the PFI project(s) have you been involved with so far?
• inception
• bid
• construction
• operation
41 chapter seven Appendices Project management and the private finance initiative
Interviewee name __________________________________________________
Organisation ______________________________________________________
Interview scheme Date of interview __________________________________________________
Tape ____________________________________________________________

The project manager role and PFI
5. With the PFI project(s) has a project manager been appointed to oversee the project from inception to hand over, or are other
managers brought into the project?
• at what stage?
• for what reasons
• by whom?
6. What in your view are the benefits or drawbacks to this arrangement?
7. From your experience, what are the similarities or differences in project management appointments by the PFI parties, that is the
public sector client, the private sector supplier and the funding provider?
• in-house project manger appointments v external consultants
• stages project managers involved in
• level of decision making / freedom to act
• access / relationship to other advisors
8. How much influence does the fund representative have on the management of the PFI project(s)?
• how does influence manifest itself?
Project manager skills and PFI
9. Would you say there are differences in the skills brought to the PFI project(s) by project managers acting for the public sector client and
private sector supplier?
• technical knowledge
• process skills
• risk appreciation
• ‘political’ skills
• understanding the client
10. Would you say there are any project management skills in particular short supply, in the public or private sector in relation to PFI projects?
• which
• any suggestions why
Responsibility for PFI projects
11. Who in your view who is driving forward the PFI project(s)?
• the public sector client / his PM?
• the private sector supplier / his PM?
12. Has the initiative for driving forward the PFI project(s) shifted at all?
• when
• how
• why
Project management and the private finance initiative chapter seven Appendices
42

13. To what extent would you say that the public sector client and the private sector supplier have a shared understanding
of what constitutes success for the PFI project(s)?
• who has overall responsibility for achieving that success?
• has this understanding changed during the time you have been involved in PFI?
Future changes in project management of PFI
14. Do you believe that the project management of PFI projects could be improved – what changes would you like to see?
For example in:
• contract arrangements
• management structures
• training / education
15. Could you supply the names of other representatives involved in the project for our research
• Director of SPV
• Project Sponsor in Awarding Authority
• External Consultant(s)
43 chapter seven Appendices Project management and the private finance initiative

Appendix F: Questionnaire
Project Management Faculty
Project Management and the Private Finance Initiative
Introduction from the Chairman
At the RICS we know that many Chartered Surveyors will be engaged in Private Finance Initiative (PFI) projects that involve the construction
or refurbishment of facilities for health, education, transport and other public services. However, we need to understand more about the
extent of our members’ involvement, their awareness of PFI and the role they are playing in managing projects on behalf of public sector
clients and private sector suppliers. This will help the Project Management Faculty Board promote the services of Chartered Surveyors and
their crucial contribution to delivering essential public infrastructure.
This questionnaire survey is being undertaken as part of research commissioned from The College of Estate Management in Reading. It has
been sent to all members of the Project Management Faculty and should take about 5 minutes to complete. Please take a few moments to
reply to the questionnaire, even if you are not currently involved in managing PFI projects. The results of the research will be published in
September 2003.
Thank you for your participation
Barrie Tankel
RICS Project Management Faculty Chairman
Section A: You and your organisation
1. What type of organisation do you work in?
Project management practice ■ Corporate / plc (client) ■
Quantity surveying practice ■ Local government ■
Multi-discipline practice ■ Central government ■
Other surveying practice ■ Not for profit organisation ■
Construction company ■ Education and research ■
Facilities management provider ■ Other ■
Developer ■
2. How many people work at the office in which you are based?
1-10 ■ 101-200 ■
11-25 ■ 201-500 ■
26-50 ■ 500+ ■
51-100 ■
3. How many people work in your organisation?
1-10 ■ 101-200 ■
11-25 ■ 201-500 ■
26-50 ■ 500+ ■
51-100 ■
Project management and the private finance initiative chapter seven Appendices
44

4. What level of responsibility do you currently hold?
Executive (strategic decision making) ■
Consultant Management (managing others) ■
Technical - Surveyor with 3+ years PQE ■
Technical - Surveyor with 0-3 years PQE ■
Other ■
5. Which statement best fits your current role?
I’m an in-house project manager for a corporate organisation ■
I’m an in-house corporate real estate manager and I commission project managers ■
I work as an external consultant project manager ■
I work for a contractor and I manage building contracts ■
I work in project teams with project managers ■
My professional work includes project management activities ■
I work in education and research associated with project management ■
I am not an active project manager ■
Other ■
6. Has your organisation ever been involved in a Private Finance Initiative (PFI) project?
Yes ■ No ■
7. Have you ever been involved in a Private Finance Initiative project?
Yes ■ No ■
8. Have you ever been involved in any other privately financed infrastructure projects?
Yes ■ No ■
9. If yes, where was the project(s)?
Please select as many of the check boxes as are applicable
England & Wales ■ Asia ■
Northern Ireland ■ America ■
Scotland ■ Oceania ■
Ireland ■ Africa ■
Mainland Europe ■
IF YOU HAVE BEEN INVOLVED IN PFI PROJECTS GO TO SECTION B1, IF NOT GO TO SECTION B2
45 chapter seven Appendices Project management and the private finance initiative

Section B1: Your experience of the Private Finance Initiative
(TO BE ANSWERED BY INDIVIDUALS WHO HAVE BEEN INVOLVED IN A PFI PROJECT)
1. How many Private Finance Initiative projects have you been involved in?
1 ■ 2 ■ 3 ■ 4 ■ 5 ■ 6 ■ 7 ■ 8 ■ 9 ■ 10 ■ More than 10 ■
2. What type of Private Finance Initiative project(s) have you been involved in?
Please select as many of the check boxes as are applicable
Hospital ■ Other health care ■ School ■ Other education ■ Prison ■
Court ■ Housing ■ Office ■ Transport ■ Other ■
3. What region was the project(s) in?
Please select as many of the check boxes as are applicable
North East ■ North West ■ South West ■ South East ■ London ■ East of England ■
Yorkshire & ■ West Midlands ■ East Midlands ■ Scotland ■ Wales ■ Northern Ireland ■
the Humber
4. What was the approximate total value of the individual project(s)?
Please select as many of the check boxes as are applicable
£0 - 5 million ■ £100 - 500 million ■
£5 - 25 million ■ £500 - 1000 million ■
£25 - 100 million ■ £1 billion and over ■
5. What was the approximate capital value of the construction element of the individual project(s)?
Please select as many of the check boxes as are applicable
£0 - 5 million ■ £100 - 500 million ■
£5 - 25 million ■ £500 - 1000 million ■
£25 - 100 million ■ £1 billion and over ■
6. Who were you employed by when you were working on the project(s)?
Please select as many of the check boxes as are applicable
Awarding authority/client ■ Facilities management provider ■ Project company/SPV ■
Investor/funder ■ Construction company ■ Private practice consultancy ■
Other ■
Project management and the private finance initiative chapter seven Appendices
46

7. What job title(s) have you held in relation to the project(s) that you have worked on?
Please list in the space below
8. What stages of the project(s) were you involved in?
Please select as many of the check boxes as are applicable
Inception ■ Bid (pre preferred bidder stage) ■ Bid (post preferred bidder stage) ■
Construction ■ Operation ■
9. What proportion of your time have you spent working on Private Finance Initiative projects over the last year?
1 - 20% ■ 21 - 40% ■ 41 - 60% ■ 61 - 80% ■ 81 - 100% ■
10. What do you consider to be the three most important critical success factors in Private Finance Initiative projects?
47 chapter seven Appendices Project management and the private finance initiative
1st 2nd 3rd
Quality of advice to awarding authorities ■ ■ ■
Robust business case ■ ■ ■
Well drafted output specification ■ ■ ■
Commitment of senior management in awarding authorities ■ ■ ■
Resources available to awarding authorities ■ ■ ■
Consultation with end-users ■ ■ ■
Public sector project management skills ■ ■ ■
Private sector project development skills ■ ■ ■
Cost of capital ■ ■ ■
Transparency of procurement process ■ ■ ■
Performance measurement and incentives ■ ■ ■
Competition ■ ■ ■
Alignment of public and private sector interests ■ ■ ■
Early involvement of financiers ■ ■ ■

11. Which type of skill do you consider to be most important for successfully managing Private Finance Initiative projects?
Technical knowledge ■
Process skills ■
Risk appreciation ■
Political skills ■
Understanding the client ■
12. Would you be willing to be interviewed as part of this research?
If yes, please enter your email address below
PLEASE GO TO SECTION C.
Section B2: Your perceptions of the Private Finance Initiative
(TO BE ANSWERED BY INDIVDUALS WHO HAVE NOT BEEN INVOLVED IN A PFI PROJECT)
Please answer the following questions using the scales provided
1. The reason I am not currently involved in Private Finance Initiative projects is that
Not true Very true
1 2 3 4 5 6 7
My current specialisations do not relate to Private Finance Initiative projects ■ ■ ■ ■ ■ ■ ■
I am not interested in Private Finance Initiative projects ■ ■ ■ ■ ■ ■ ■
My company is not currently involved in Private Finance Initiative projects ■ ■ ■ ■ ■ ■ ■
My company is not currently interested in Private Finance Initiative projects ■ ■ ■ ■ ■ ■ ■
My company is too small to become involved in Private Finance Initiative projects ■ ■ ■ ■ ■ ■ ■
In need additional skills before I can become involved in Private Finance Initiative projects ■ ■ ■ ■ ■ ■ ■
I cannot get the skills I would need in my current job ■ ■ ■ ■ ■ ■ ■
I am ideologically opposed to the Private Finance Initiative ■ ■ ■ ■ ■ ■ ■
2. To what extent do you agree or disagree with the following statements?
Disagree Agree
1 2 3 4 5 6 7
For my future career it will be important that I learn more
about the Private Finance Initiative ■ ■ ■ ■ ■ ■ ■
My company is likely to become involved in Private Finance Initiative
projects during the next 2 years ■ ■ ■ ■ ■ ■ ■
I am likely to become involved in Private Finance Initiative
projects during the next 2 years ■ ■ ■ ■ ■ ■ ■
Project management and the private finance initiative chapter seven Appendices
48

Section C: Background information
1. What is your gender?
Male ■ Female ■
2. What is your age?
21-25 ■ 26-35 ■ 36-49 ■ 50-64 ■ 65+ ■
3. What academic qualifications have you obtained?
Please select as many of the check boxes as are applicable
BA/BSc ■ MA/MSc ■ PhD ■ MPhil ■ DipProjMan ■
MDip ■ MBA ■ LL.B ■ None ■ Other ■
4. What other professional bodies are you a member of?
Please select as many of the check boxes as are applicable
CIOB ■ RIBA ■ ICE ■ APM ■ CoreNetGlobal ■
CIArb ■ BIFM ■ None ■ Other ■
5. Which forms of continuing professional development (CPD) do you use most?
Please select as many of the check boxes as are applicable
In-house training ■ Part-time academic course ■ RICS seminars ■ Other seminars ■
Distance learning ■ Audio/Visual study pack ■ Reading ■ On-line learning ■
6. In which areas would you attend regional events?
Please select as many of the check boxes as are applicable
North East ■ North West ■ Yorkshire & ■ West Midlands
the Humber
■ East Midlands ■
Eastern Region ■ South East ■ South West ■ London ■ Scotland ■
Wales ■ Northern Ireland ■ Ireland ■ Mainland Europe ■ Asia ■
The Americas ■ Oceania ■ Africa ■
Thank you for taking the time to complete this questionnaire
Please fax back on 0118 921 2423
Or post to:
The College of Estate Management
Whiteknights
Reading
Berkshire
RG6 3BA
49 chapter seven Appendices Project management and the private finance initiative

www.rics.org
RICS is one of the leading organisations for professionals in property,
land, construction and related environmental issues worldwide.
We promote best practice, regulation and consumer protection to
business and the public. With over 110 000 members, RICS is the
source of property related knowledge, providing independent,
impartial advice to governments and global organisations.
Prepared for
RICS Project Management Faculty
August 2003
Disclaimer
No responsibility for any loss occasioned to any person acting or
refraining from action as a result of any material included in this
publication can be accepted by the authors or the publishers.
Copyright
The copyright in this report is vested in the RICS
with all rights reserved.
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of Chartered Surveyors
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United Kingdom
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contactrics@rics.org
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ISBN:
May 2004/job No/RICS Project Management Faculty/Qty//Turners