Business

The Private Finance Initiative (PFI) is a way of providing financial support for Public-Private Partnerships (PPPs). These are partnerships between the public and private sectors. The initiative has an impact on facility management in the United Kingdom and other parts of the world where it has been adapted. It has increased efficiency and effectiveness in facility management and has provided economic benefits to the sector. In most of the countries where this initiative has been adapted it has succeeded and there are clear signs that the trend is likely to continue under good management and financial stability. Nevertheless, the initiative is likely to be affected by financial crisis due to the fact that it relies on banks and other financial institutions for finances. There are other factors that can affect the PFI sector but if they can be handled effectively, everything can work out well. They include proper handling of relationships and understanding each others objectives, establishment of incentive mechanisms and management of long-term commitments. The way forward for the sector is carrying out of more research to have sufficient information for better understanding. This will enable the two players to make informed decisions.

Methodology
In identifying the impacts, long term implications, and the future of private finance initiatives Public Private Partnerships on facilities management, available information from researches was analyzed. Extensive study was carried out from published materials such as books, journals and other papers containing information on the topic. The paper uses United Kingdom as the case study. This is because the United Kingdom is one of the most successful countries in the use of the initiative.

Background information
Many governments have adapted to the Private Finance Initiative (PFI) as a result of the increased pressure to be efficient and effective in financing the public sector. The Private Finance Initiative (PFI) is a way of providing financial support for Public-Private Partnerships (PPPs). These are partnerships between the public and private sectors. The initiative was initially developed in Australia and the United Kingdom (Atkinson 2004). The initiative has now been adapted in other countries as part of a program for privatization and deregulation. PFIPPP projects represent an alternative method of financing and procuring public sector facilities. The principle behind these initiatives is very simple. If the key capital expenditure is not financed by direct taxation, PFI offers a solution by making it possible for assets to be procured off  balance sheet on behalf of the public body through investments by the private sector. The private sector is repaid and earns profits by operating the facility for a specific period of time as agreed. The projects have been used to provide a variety of facilities, like bridges, tunnels, schools, hospitals and defence facilities (Zheng et al 2006).

This initiative is a procurement way for securing private financing for public facilities in return for part-privatization. The initiative is an operational structure that transfers responsibility, and not accountability for delivering public services to private investors. Under the PFI some employers of the public sector have their employment contracts transferred to the private investors through procedure known as TUPE. TUPE is the Transfer of Undertakings-Protection of Employment regulations of 2006. These laws protect employees when a business is being transferred to another. The major advantage of using the private finance initiative is that it would be more expensive for the government to borrow money to provide the services. Another advantage of this arrangement is the transfer of risks. This initiative is an efficient way of sharing risks and a truly innovative public management practice (Zheng et al 2006).

The impact on FM and support services of PFIPPP initiative
PFIPPP in the United Kingdom has ensured efficiency, effectiveness and economical benefits to facility management. This has been possible not only in the United Kingdom but also other parts of the world where the initiative has been employed. The facilities management sector in the United Kingdom began to grow out of the utilization of PFIPPP initiatives. FM made a tremendous change with the PFIPPPs, by becoming an essential part of large-scale projects to manage, replace and upgrade the countrys public sector facilities and infrastructure. PFIPPPs have enabled excellent facility management assisting in the delivery of effective management of assets, enhancing skills within the FM sector, enabling new working styles, and delivering business continuity and workforce protection. PFIPPPs have ensured that employees retain their jobs even in the face of an organisations financial difficulties.

In the United Kingdom, PFI has provided an answer to the problem of getting investments at the period of serious public expenditure restraint. The private sector has been able to finance build and manage facilities with a greater efficiency of use and cost. The public sector has been able to develop core services and ensure that they are of quality, leaving the design of the facilities, management and risk to the private sector to handle (Fisher 1998). This has enabled business continuity and a challenge to the private actors to show innovation, management and commercial skills that are needed to ensure stability of agreements and gain satisfaction for both client and user. The projects have been able to provide better value for money to the public sector in procuring modern and good quality services from the private sector. The public sector has been looking up to the private sector for risk management, expertise and innovation. The private sector on the other hand benefits by looking for business opportunities, a stable funding source and good returns for what is invested (Chung 2009).    

When this procurement method was first adapted in the United Kingdom, the services were not fully privatised in the normal way because the government did not want to relinquish the total control of the public assets and infrastructure to the private sector. There were limited funds for the improvement of public facilities in the United Kingdom after the years of decline, that is, from 1979 to 1997 (Fisher 1998). The initiative was introduced in 1992 by the United Kingdom government as a way of bringing to the procurement of public property and infrastructure greater discipline. Under the policy, the private sector was used to design, build, finance and control the operation of infrastructure operations. By March 2006, the Private Finance Initiative contracts for constructing schools, bridges, hospitals, prisons, military facilities and roads had increased to a capital value of 47.6 billion pounds (HM Treasury 2008). The health sector used the highest amount of the total United Kingdom PFI contracts. Up to date the health sector has signed off 149 projects, with a capital value of 6.5 billion pounds (HM Treasury 2008). The supposed aim of the Private Finance Initiative is to receive better value for money, that is, provide quality service at optimal cost and optimal risk allocated to both contracting parties, by raising contestability and diversity of service provision.  The United Kingdom was not the first to experiment with this initiative, but with the election of the Labor Government in 1997, it came up with a more comprehensive policy structure than any other country (Schambach and Duke 2003). The government applied it as a part of a major program of capital investment allowing the model to develop even further. The United Kingdom has therefore become the replica for other Public-Private Partnerships around the world. The Private Finance Initiative in the United Kingdom has been taken to mean the mechanisms for acquiring quality services on long-term basis therefore taking advantage of the management skills possessed by the private sector incentivised by having their finance at risk (Atkinson 2004). Thanks to the projects, 50 new hospitals have been established in the last 10 years. The most recent building schools future programme is aiming at reconstructing and renewing all the secondary schools in England over the next 10-15 years (Forrer, Kee and Zhang 2002).

The long-term implications for the FM sector
The private sector service delivery has continued to produce large amount of profits, and there is evidence that it will continue to generate even more in the coming days because the United Kingdom businesses makes use of the skills earned in the emerging home markets as well as to transform public service markets in other nations (Broadbent and Loughlin1999). This means that facilities management through PFIs will continue to increase throughout the world where they are adapted. The facilities management sector is becoming larger and more complex comprising of in-house departments, large multi-service companies, specialist contractors, and consortium, delivering the full range of design, build, finance and management. This means that to be able to handle this sector, facilities management initiatives like PFIPPPs have to grow and expand with the expanding sector. Looking at the trend since inception, PFIPPPs initiatives have been delivering to the FM sector. If this does not change, it is likely that the sector will continue to grow. This coupled with available information from research and media, the initiatives are likely to continue progressing. However, there are other factors that are likely to affect the progress of the FM sector under PFIPPPS.

The financial crisis may have long-tem impact on PFIPPP projects. Bank liquidity due to the financial crisis is the threat. Banks and other financial institutions are loosing confidence in lending resulting to what is refereed to as rationing by banks on financial support available for PFIs. Due to this, it looks as if until the liquidity issue is handled many of the projects by PFI will have to remain on hold. The current economic crisis is also causing delays to closing of deals between the public and the private sectors. Many private actors are afraid of acquiring projects without the certainly of the economic situation. It is not clear if positive trend that was taking place as far as the projects are concerned will continue, or will take the backward course. The economic crisis coupled with the uncertainty in the public sector finances worldwide, means that the private sector may be unwilling to commit their finances to long-term deals (Walzer and Jacobs 1998).

The global financial crisis has brought another problem for the success of the private finance initiative. Many commercial providers of public services are experiencing a lot of problems. This is because most of the operations by the private sector rely on borrowing and loans instead of equity. Loans are becoming more and more expensive on the money markets and more difficult to get. This becomes a threat to the continuation and success of many public services. Where the borrowers are unable to service debts at the time when the government is experiencing its own financial difficulties, the public services will end up costing the exchequer a lot than it can afford in an effort to save failed service sector service providers (Chung 2009).      

The private finance initiative has not been without some controversies (Pint et al 2001). The controversial nature of the policy has attracted concerns by practitioners and academicians. This has sparked the need for in-depth investigations. Having had evolved drastically over the last decade, there was need for more research on the managerial implications of the policy, something that has not been done. Many of the managerial problems that are associated with the policy still remain relatively under-researched. It is evident that the PFI projects that are in use in the present time have not been fully satisfying (Chung 2009).    

A lot of political, legal, social and ideological factors affect the selection of governance schemes as far as public-private procurement arrangements are done. Alternative governance mechanisms ranges from market to hierarchy, that is, vertical integration, and are determined by the degree of bounded rationality, asset specificity, opportunism and switching costs. The Public-Finance Initiatives are a hybrid between market and hierarchy (Zheng et al 2006). Even if it is argued that the strategic significance and specificity of individual products and services influences the specific selection of contractual arrangements, there is no much experimental proof linked to the appropriate conditions for various types of supplier interactions. It is evident that under certain circumstances, coming up with a complex contract can be very expensive and ineffective as a result of asymmetric information. This can result to potential inefficiencies in a relationship. There is also the possibility of the relationship failing to kick off. Most problems with the PFI contacting in management of risks come up a result of incompleteness in drafting contracts. There are further problems linked to the contacting for a combined product and service package (Looney 2007). This is because the contracts involve the combining of the design, building, finance and operation of the entire project in a single contact and for a long time period. The whole process tends to increase asset specificity and uncertainty. Such contracts call for the quality of services to be very well specified, or the presence of quality performance measures that compensate or penalize service providers (OLooney 1998). The nature of financing and payment mechanism by PFI projects does not make it possible to compare the market size of this scheme of procurement with the traditional procurement methods. In some projects the expense may be higher than what would have cost if the traditional methods of procurement were used. The costs of using the PFI procurement method are uncertain because of two major reasons. The first one could be inadequacy in accounting and the second one the risk of contract defaults (Looney 2007).

The central supply chain management logic boosts a relational approach that is very different from the impersonal separate and short-term transaction-based market approach. The relational approach promoted by the supply chain management logic, puts emphasis on the role of establishing trust in supply relationships therefore realizing mutually successful results. It is suggested by the IMP network model that organisations are inter-dependent (Walzer and Jacobs 1998). It is evident that different approaches have different repercussions for specific coordination mechanisms. The rational approach has the highest probability of being self-enforcing, while the transactional approach requiring additional enforcement and more active monitoring (Froud 2003). With reference to PFI, the utter multiplicity of shareholders, with their multiplicity and major contradictory perceptions, strategies and interests, makes it necessary to have active consideration of interactions as co-ordinating mechanisms for intra- and inter-organisational networks. From research, some additional complexities that inter-dependent interactions between public and private sectors could face are highlighted. It is always possible for the commercial contact discussions between the public and private sectors are affected by their different values and strategies. The public sector has been driven by politics and emphasis on transparency in delivering services, while the private sector on the other hand has been driven by financial value creation. These differences and difficulties also portray some imbalance of power. The vibrant nature of political decision making also contributes to problems with the implementation of the PFIs. For example, the choice of PFI procurement procedure tends to be more linked to political factors than economic factors when the choice is based on PFI or nothing option. Experimental results from studies have revealed that majority of PFIPPP projects are non-collaborative partnerships making it hard to establish trust in Public Private Partnerships. This lack of inter-dependence has serious effects on the process of risk transfer and facility management in PFI (Atkinson 2004).            

There are a number problems that arise in the coming up with incentive mechanisms in the PFIs (Chung 2009). One of them is that much documentation in risk management of PFIs, tend to tackle risk assessment and risk allocation from the perspective of the public sector instead of incentive issues like risk and benefit sharing. It is therefore important to look at the appropriate procedures of sharing gains from re-financing. The lack of innovation in PFI may be associated with unrealistic expectations on the part of the public sector. Another problem is that as firm are only compensated for successful provision of services, their implied incentives focus on cutting costs instead of service enhancing actions (Forrer, Kee and Zhang 2002). The components of the incentives to be developed may depend to some extent on the nature of the service contact that is difficult to construct in advance. It is also hard to specify the quality of services expected, on the contract. It is also possible for the incentives to change over time due to renegotiations and changes happening over the extended time frames. It is an undeniable fact that when services and facilities are operated for private profit, their quality tends to reduce, and the public service cultures replaced by profit reason. Privatisation and under funding has left many public service provisions in a very poor state. For the sake of earning profit and recovering the finances used in the development of facilities, the private sector increases the costs of services, making the poor to be disadvantaged (Zheng et al 2006).

One of the key features of PFIs is the long-term commitment. Such arrangements have proven to be both opportunities and challenges. Its advantage can be associated with the combination and synergy between design, build and operate together with the innovative solution as well as the cost of the whole life-cycle of using the assets. This is advantageous to the private sector because if they have calculated their value for money properly, they are able to reap the benefits within the long-time framework (Walzer and Jacobs 1998). However, there are challenges with the management of long-term contracts. The challenges include uncertainty, inflexibility and resource requirement for the management of the contracts. The lack of flexibility in the PFI contracts has been a major concern. This is because times, periods and circumstances changes. For anything to be successful in a changing environment, it needs to be flexible enough to accommodate the changes. There is also the probability of the public sector being unable to work out strategic planning with the private sector (Froud 2003).

In the management of the long-term contracts, there is little understanding of the costs-benefits of the long-term contracts, for example supplier behaviour and the management of human resource. There is some evidence in construction supply chains that a change in procurement form caused a change in supplier attitudes in handling tender, design and construction (Schambach and Duke 2003). The willingness of a supplier to take risk and be innovative can be hampered by a contact with inflexible specifications. It is argued that long-term interactions may create trust, but conflicts are inevitable on most long-term relationships. Other issues on the long-term contacts are associated with knowledge and information management over the complete lifecycle of the contract. There could be problems of lack of reliable, complete and consistent data causing a problem to the successful completion and the complete lifecycle costing (Essig and Peck 2006). Learning has also proven to be one of the most important issues for successful completion of the contact and also for better results. Continuity of employees is very difficult in a 30-year contact. This creates an issue in the management of human resource. The cost of human resource for the project increases because of the need to continually hire and train new staff (Froud 2003).

The way forward for the development of the initiatives is research. These projects cannot be successful without information. Governments need to invest in studies on this field to ensure effectiveness, efficiency and cost effectiveness in service delivery. Facilities management is a field that is growing so fast. There is need for more courses on this field, in order to have more expertise, skills and experience.

Conclusion            
What is evident is that PFIPPPs are here for the long-term. In the future governments in short of finances and in need to provide services to the public will rely on the private sector for funding and provision. If well managed, long-term relationships like PFIPPP are innovative and can deliver great benefits. It is evident that without proper information about the projects they can easily collapse leading to loss of a lot of finances. Despite being in use for many years, there are few empirical researches carried out especially in the field of organisation and management of these projects.

Recommendations
 There is need for wider research on the exact viability of these projects enabling both the private and public sectors to make informed decisions. In order for any partnership to succeed, there must be a proper understanding of each others objectives. Before going into partnership, the public and private sectors need to study and understand each others objective and goals so as to earn each others respect and understanding. There are relations that are established when two organisations establish activity links, resource associations, and actor bonds. Coordination is therefore realized through effective management of these inter-dependent activities.

In the PFI contracts there is need for appropriate incentive mechanisms to guide the public and private sectors behaviour in their inter-organisational relationships across boundaries. Any differences in interests and values of the players affect their strategies for collaborating.

It is important to come up with better understanding of the outcome of value for money measurement and valuation of transfer of risks on the behaviour of the private sector.