William Eichler 29 January 2020

Auditors call for ‘clarity’ of privately financed contracts

Auditors in Scotland have called for ‘more clarity’ when it comes to financing public infrastructure projects.

A £3.3bn investment programme in Scotland's infrastructure has enabled more public buildings and new roads to be built.

However, a new report by Audit Scotland has warned that the Scottish Government needs to be clearer about how and when they use privately financed contracts.

The report, entitled Privately financed infrastructure investment, says that greater transparency is needed over decision making to show projects represent value for money.

The auditors recognise that private finance enables infrastructure investment. However, they warn that it comes at a cost.

Over the lifetime of active PFI, NPD and hub contracts, the public sector makes annual payments to cover the cost of financing, building and maintaining the assets, as well as other services the private sector is providing.

Currently, assets worth £9bn are under contract and the Scottish public sector will make payments worth over four times the capital value of the assets built (over £40bn) with £27bn still to be paid between now and 2047/48.

‘The Scottish Government has accepted the costs of using these contracts to increase total infrastructure investment. But the impact on future budgets is significant, as is the overall amount of money that will be repaid,’ said Caroline Gardner, Auditor General for Scotland.

‘With the introduction of the Mutual Investment Model, the Scottish government has an opportunity to be clearer about the additional costs of investment associated with using privately financed contracts for specific projects.

‘This will enable better reporting of how the overall combination of project funding is being used to maximise the benefits of investment across the whole public sector.’

The Mutual Investment Model is where private partners build and maintain public assets. In return, the government pays a fee to the partner, which will cover the cost of construction, maintenance and financing the project. At the end of the contract the asset is transferred into public ownership.

Graham Sharp, chair of the Accounts Commission commented: ‘We've found that local councils have been left with limited options other than to construct new and replacement public buildings through private finance deals. The main consideration for councils has been the affordability of repayments, with little focus on the wider implications of using private finance.

‘With a new mechanism for funding Scotland's schools infrastructure, local councils must be fully aware of the benefits and risks of funding the entire construction costs with a mix of capital grants, borrowing powers and other resources.’

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