Feature Story

The right model for Newcastle

Councillor John Shipley, Leader of Newcastle City Council, and the Council's Head of Major Projects Alison Fellows explain how Newcastle upon Tyne has been transformed with the help of PPP and PFI funding.

Newcastle has benefited from PPP and PFI because there are now projects on the ground, open, and being used by people in the city that I am not sure we would have had any other way given the amounts of money involved.

If you look across that span of projects, we have new schools, street lighting, new libraries, a new tunnel, customer service centres and a LIFTco, many of which we would not have had without PFI. It has not been an easy journey to get where we are today – a lot of hard work has gone into developing the projects that have transformed Newcastle – but we have been very proactive in embracing the PFI concept and that has provided us with challenges along the way.

If we look at the example of the schools estate, we were ahead of the game when Building Schools for the Future came along. We already had our second PFI ready to go and there were six schools in that package, so when BSF was announced we had to wait. When BSF came along, instead of testing one PFI and one Design & Build (D&B) as many other authorities did, we ended up putting eight schools through in our first tranche. For our internal team and the design work, the schools and our successful bidder, that was a huge undertaking to get eight schools planned, designed, contracted for and then built.

It proved to be the right way to go because all those eight schools are now open. Now that we have those eight schools, we have moved to the next stage; we have just signed for another four D&Bs with four PFIs to start on the ground in October. If we had not had BSF, that programme of developing 16 schools just would not have happened for a very long time. It has been a huge effort from everybody concerned ­– and that includes the schools of course. The eight we have open are fantastic, the schools are happy and they are performing really well. Any programme that did not include PFI would have certainly taken longer to deliver.

We are very proud too of the new Central Library opened this summer. The old library had repeatedly been voted one of the least popular buildings in the city. It was a 1960s concrete monstrosity and it was not going to be suitable for library services in the 21st Century and the need for IT. It wasn't drawing in children and older people, it was not being used by the community and it was not really fit for what we wanted to do. But the new library, with its stunning design and in-built conference and performance spaces, is drawing people through the doors at an incredible rate.

And then there is the new Tyne Tunnel. It is not technically a Newcastle City Council project as it is being led by the passenger transport authority, Tyne and Wear Integrated Transport Authority, and it is a PPP, not a PFI. The interesting thing about this project is that there was no government money for it, so it is completely self-funded because it will be financed through the tolls. The project has been winning awards, not only because it is a really big, technically difficult project, but also in recognition of the innovative funding structure. It is a very exciting project.

Nerves
Taking the people of Newcastle along with us on PFI has not always been easy. People have questioned the method, particularly in the early days when they were a bit nervous of PFI, when it was hard to see what the benefits were, and they were worried about what would happen to the people employed on the projects. But when you go into the new library, for example, it is a fantastic building, people are flooding through the doors and it is very difficult to argue that that is not a success. When people see what is happening, when they see the new library and the new schools, they are brought along with it.

You have to sit down with your clients and their stakeholders and explain how complex these projects are but still bring people along with you. That approach manifests itself in the consultations that are undertaken with the public. With the library, we consulted with young people, with disabled people, with older people and all sorts of user groups. That then formed the vision for the building. We try very hard to do that and you do end up bringing people along with you when you go through that detailed process.

Another difficulty we faced was that in the early days of PFI we had a fairly unionised workforce and there was a suspicion nationally of what it was and what it meant. There were concerns that we were giving away our buildings, that we were selling the family silver. I think it has gradually become clear that that was not the case.

We also make sure our bidders talk to the unions as part of the discussions, and on the Tyne Tunnel, for example, the unions gave the bidders a hard time, rightly asking a lot of key questions.

But our transfers of staff on those projects have generally gone very smoothly because we have put in a lot of time and effort to work with the unions and they have worked with us in return.

The learning process
When we first started, people generally did not understand what a long, hard slog it is to do such a complicated procurement. In the beginning, the emphasis was very much on the building and the consortia were led by the building contractors. The FM was more of an afterthought.

The benefits of integrating the services and the design had not really been thought through.

That has now settled down and the procurement process means you have to do all your thinking in advance. We have got better at this. The temptation is to get out into the market quickly and get on with it, but then you bump up against problems you had not seen in advance. That happens much less now.

There is also more of an appreciation on the public sector side of the sheer amount of time, effort and money it takes a private sector bidder to bid for one of these enormous projects. I am always very aware of how much time and effort it is taking them to do that. There is no easy way round that particularly, but you have to be very aware of the constraints on the other side of the table.

If you look back at our projects, with LIFT, with our street lighting and with BSF and our schools, Newcastle was in the early waves of those and I think the downside of that is that you are learning as you go on the new types of projects. But it has also benefited Newcastle to be in the early waves because we now have our buildings up and that is having real benefits for the city.

The future
Will there be more procurement through these methods? It depends on the project. Pure PFI is a very definite thing and may not be the best use of money for all projects. It also depends on the size of your project but it might be that your project is too small to really put it through that mechanism.

Wider PPP, as demonstrated by the Tyne Tunnel, is slightly more flexible and you can come up with a number of different models. At one end of the spectrum, you have a partnering arrangement; at the other end you have a very formal, complex corporate vehicle. It depends on the project.

For Newcastle the particular challenges are going to be around housing, which is our next big focus.

We now have the new Homes and Communities Agency and, in common with other people, we need to see how that develops. We do have a number of big housing projects on the go but there is a huge need for more of that in the future.

The change in Newcastle in such a short period of time has been phenomenal and that is in no small part due to the funding that PPP and PFI bring to the table. It is certainly something that we will be considering on future projects but, as with everything, the right model must be used for the right project.


This article was taken from The PPP Journal - Issue 66