The closure of 17 Edinburgh Schools this Spring, built and financed under the Private Finance Initiative which pre-dated the Scottish Government's own NPD (non-profit distributing) model, has hit the UK headlines recently.
Inevitably, the problems have been used by some to add weight to long-standing criticism of the involvement of private finance in public infrastructure projects.
This is, however, totally misplaced. The issues that have arisen here could equally have been encountered under a traditional model of direct procurement funded by public money such as on the current Queensferry Crossing project. The ownership and funding structure of the Schools will have had no bearing on the construction issues that have arisen now.
The procuring authority, Edinburgh Council, seems to recognise this in announcing its proposed independent inquiry into the construction to be led, ideally, by someone who commands respect in the construction industry.
The issue that has arisen really does look like, from the outside, a construction issue. There will be an agreed design specification that the private sector entity that owns and maintains the schools (the ProjCo) would have had to implement. It will have done so by letting a construction contract to a builder, and passing down most if not all of the obligations it had on the construction work.
Now that work has been seen to be potentially faulty, as a result of a school wall collapse following a near-hurricane that prompted a review of other buildings. What remains is an assessment of where responsibility lies.
This does not seem like an unusual incident. Construction quality issues frequently arise, and are dealt with sensibly and in accordance with clear contractual responsibilities. Perhaps in this case the work was not done to the required standard, and/or it was not fully checked when being signed off as complete. But it's usually impossible to check every aspect of work quality.
The particular issue on the schools does not look like a massively expensive one to remedy, and it may be that the most sensible solution is for the ProjCo to go ahead and get the problems fixed as soon as possible, and then to work out where responsibility for the costs of remedy lie.
The contractual structure should lead to a ready answer there, once the 100s of pages have been re-examined. And ProjCo will be incentivised, by having its equity investment jeopardised, and by having both its funders and the Council on its back, into finding a solution.
The Council is quite rightly looking to recover its costs on this issue. Whether it can claim that its payments under the PFI contract should be reduced, as the Schools may have become unavailable for a period, will be one other issue to look at. Another will be to look at what limits on liability there may be sitting in the construction documents. Insurers will no doubt have a role in determining how claims for costs are approached.
None of this is any different to what may have been faced in the Holyrood Parliament building project and other projects, where publicly procured, owned and funded assets hit similar problems. The involvement of private sector debt if anything adds to the pressure to correct any mistakes made. The difference is that the onus is on the private sector to make things right, which is a clear demonstration of the value of risk transfer.
The downside from the Council's perspective may be that it does not feel in full control of events, as it is bound into a contractual structure, and cannot necessarily intervene directly other than by public demonstration of its concern and wish for a swift solution. It is of course in everyone's interests that the matter be speedily resolved and those responsible incur the cost of doing so.