Everything has gone very quiet on the M25 widening in the past few months. How likely is it to go ahead now, I wonder?
As it is a pfi, it is presumably proving hard to find the cash.
The official line is that it is certainly going ahead, and that Balfour Beatty's Connect Plus consortium will formally sign the contract next month.
Work did actually get under way during December - though that was mainly site clearance work. Some interpreted that as a show of faith by the Highways Agency that they were still committed to the project.
It is true that PFI projects are no longer finding it as easy to raise the cash. Birmingham's £2.2bn highways maintenance was recently delayed by another six months.
But I would be amazed if it didn't proceed as planned. It would be a big embarrassment for the government.
What would happen if they can't find all the cash and the government has to bail the job out?
That changes the contract. Would the reserve bidder be able to launch an appeal?
I don't know what happens if the M25 PFI goes tits up but I can't imagine that it will. The government needs projects like this to help the country build its way out of the recession. If it looked wobbly I am sure Brown would step in behind it and guarantee it - probably wouldn't be any need to actually bail it out.
There's been a couple of interesting bits about PFI contracts getting delayed in 2008 today though. Certainly the FT had quite a bit:
http://www.ft.com/cms/s/0/3d73dfda-e1ab-11dd-afa0-0000779fd2ac.html
Downturn takes toll on PFI dealsBy Nicholas Timmins, Public Policy EditorPublished: January 13 2009 22:43 | Last updated: January 13 2009 22:43Fewer deals were signed under the private finance initiative last year than at any point since the PFI took off a decade ago, according to an authoritative database.The credit crunch contributed heavily to just 34 PFI deals being signed last year, after at least 60 deals were signed every year over the past decade, according to Public Private Finance magazine. Hospital deals fell to just seven last year, against 20 in 2007, while just three waste management deals were signed.The economic conditions also mean big deals such as the £4.5bn M25 widening, the M80 in Scotland and Britain’s biggest waste management project in Greater Manchester are still struggling to raise the money needed, with some practitioners arguing that further government guarantees, or public sector funding, will be necessary.Analysis of last year’s deals comes as the National Audit Office warned on Tuesday that both central and local government faced potentially massive European Union fines for failing to reduce landfill if a string of PFI waste management schemes were not signed soon.Fines “could run into several hundred millions of pounds”, the NAO said. Projects currently in procurement “face difficulties in obtaining private finance”, it said, adding some schemes will have to be financed more conventionally.The Greater Manchester Waste Disposal Authority has already had to agree to find an additional £70m from its own borrowing in order to ensure its £600m waste scheme is fully funded. There are concerns that additional public sector cash may also be needed to finalise the M25 deal.One leading practitioner said that raising private finance remained “a nightmare” with banks still reluctant to lend.By contrast, Tim Byles, chief executive of Partnerships for Schools, said half a dozen or so banks were returning to the big schools market, where the projects were smaller, although they were limiting the amount each would lend on any given project.Deals were still being done, he said. But the Building Schools for the Future project was still “not out of the woods yet” despite an agreement from the European Investment Bank to put £300m into the scheme, and the insurer Norwich Union entering the schools market for the first time.David Metter, chairman of the PPP Forum, the trade body for the industry, said some additional Treasury guarantee might be needed to get funds flowing into infrastructure projects that the government wanted to see built to combat the downturn. “The risk to the government of doing that would be small,” he said. “In effect, it would be guaranteeing its own payments for the service charges, or unitary payments that it makes on projects.”The Treasury declined to discuss the idea of further public sector support, arguing it would take time for the measures it had already taken to take effect.But it added that it “will do what it takes” to ensure that projects late in procurement did reach financial close.
BumbleB: I don't know what happens if the M25 PFI goes tits up but I can't imagine that it will. The government needs projects like this to help the country build its way out of the recession. If it looked wobbly I am sure Brown would step in behind it and guarantee it - probably wouldn't be any need to actually bail it out.
But let's say the reserve bidder can raise the cash - even if the preferred bidder cannot - why would Brown then step in?
Wouldn't the preferred bidder lose the deal, with the reserve bidder stepping forward?
It's now looking like the government is going to fork out £400m to save the M25 widening, according to the FT:
It's a relief that major projects like these are being supported to keep the industry moving, but I can't help but shudder at the ever-increasing UK debt.