Feature Story

A Midland marvel

Birmingham has a proud tradition of being Britain’s second city, and is looking to maintain its profile with the PPP and the PFI sector playing a part, as Steven Hughes, Birmingham City Council Chief Executive, explains to PPP Journal Editor Michael Thame.

What have been the major PPP/PFI developments in Birmingham?
We have done a number of PFIs over the last decade; some of the earlier schools were PFI and that has acted as a pathfinder to the BSF programme. Outside the school sector, we have been involved in the LIFT projects, but as we have progressed the scale of interactions have got larger, so we have the BSF programme. There is the New Street Station development and the Highways PFI, which is a kind of pathfinder because there are a whole host of PFIs on the back of that. It is pretty groundbreaking in terms of what it will deliver. We have also looked at housing PFIs, and the Lyndhurst Estate is an example of where we are going forward.

We almost did a deal on a new model of extra care homes. We built four projects ourselves and then planned for another six on the back of PFI, but the recession put a stop to that idea as diminishing asset values meant Birmingham City Council’s contribution became unaffordable. However, it does demonstrate the kinds of activities we are getting involved in.

You have to pick the right model for the right circumstances, but it is clear that some form of partnership working is important in taking forward schemes for the city.

How has the city’s approach to PPP/PFI changed?
It is partly an issue of the changing financial landscape. In the 1990s and early 2000s, there was a considerable amount of European money available, which we used for projects such as the Symphony Hall and the International Convention Centre. Partnership arrangements are always more difficult the more people there are involved, so we have looked to do the things that produce the best results in shortest period of time. But certainly over the last few years we have had a greater focus on PFI/PPP type arrangements.

How has the M6 Relief Toll Road benefited the city?
It is not our project and we might have done it in a different way. In a sense, the whole point of having a toll road is you are paying to have congestion-free roads and it was really built to allow people to by-pass Birmingham.

It is interesting in a sense that it is a particular model for dealing with some aspects of transportation policy. What we have been looking at is a different kind of model: the Advanced Develop-ment Zone proposals. We are putting together a number of bids to the Treasury on that. Many of them are transport related and based on whether we can capture some of the economic value that is created by putting in place road and other transport infrastructures in order to pay for the project. The way to capture that economic value is to ring-fence the additional rateable value that is created. We are not the only ones doing it; other core cities are involved, but ours, if it has a unique aspect, is that it is not just about the city – it is about the city region. It is a collaborative scheme across a number of local authorities and will also require some partnership work with the private sector. To de-risk it you need to get prior agreements with developers whereby they agree to build something if the council develops a particular piece of infrastructure first. You need to link the two things together; otherwise, there is a significant amount of public sector risk involved. Those projects will almost certainly go ahead and they are some of the new models of dealing with that kind of infrastructure investment.

How will the Birmingham New Hospitals Project transform health in the city?
It is an incredible project because it is going to give us a state-of-the-art hospital, which in itself is important, but then there are the wider synergies as well. It is right next to the medical centre at the University of Birmingham, which has a fantastic research facility, and it frees up some opportunities in terms of the land released to build in some medical-based infrastructure. It will create an area of the city where we can get some new, high-tech, medical-based industries coming in. Work between the hospital, the university and the science infrastructure we have is really exciting going forward.

All those things have wider benefits; Birmingham is the economic driver not just for the city but also for quite a wide part of the West Midlands region as a whole. Creating modern industries within the city has a much wider benefit and that is why it is so important.

What does the BSF project mean for the city?
Under BSF all of our secondary schools will get some kind of refurbishment or rebuild over a period of time. It is about making the schools fit for purpose, but it is not just about having buildings, it is about creating the right kind of learning environment, as well as, where appropriate, having a community interface so that the school becomes a hub for its community. It is about providing the links to the wider interactions people want, whether that is libraries or swimming pools, and getting all of that in one place.
It is also about creating the kinds of learning environments that are what the children of the future of Birmingham need. It is not just about having the appropriate academic facilities; it is about putting in place the necessary infrastructure to allow vocational teaching and learning. A large part of the population are not going to become professors of archaeology; they are going to be working in industry in one form or another and they need the right skill sets for that.

Why have you undertaken the Highways PFI?
The scope of this is quite significant; it is about bringing all of our roads up to a decent standard and keeping them at that standard for 25 years. There is a considerable amount of investment upfront, both in the roads themselves, but it also includes a large amount of the street furniture, particularly the street lights.

What we are interested in, and not just in this project, is what innovation can you drive through in the procurement that creates progress?

So in the context of street lights there is a lot of opportunity to replace them to reduce energy consumption, to use the infrastructure put in place to help support other low carbon opportunities. It is about ‘intelligent street lighting’ and having a proper management network, but it is also about the potential for having charging points for electrical vehicles and so on.

It is using the fact we have a massive procurement through a number of projects to create innovative solutions that help stimulate demand in the local economy and create products that might not otherwise be there. It is also about stimulating local employment. The West Midlands is going through a bad time through recession and unemployment and what we need to be is imaginative about how we use public procurement to help stimulate the local economy in the right way.

It is not just a case of creating jobs, but also moving the capacity of the city and private sector into those areas that are going to be growth areas going forwards and help create a sustainable future economically for city as a whole.

Why is PPP/PFI now the procurement of choice?
I’m not sure that it is, but obviously what PFI brings with it is a sizeable amount of upfront investment, which is paid for over a long period of time, supported by government and it allows us to have a much greater local impact than if we simply relied on our own resources.

What are the big areas of the future for PPP/PFI?
The scope is perhaps unlimited. We are a Total Place pilot and that is all about getting connectivity between public sector agencies in one place. It is possible that we can have models that join up back office services. People think there must be duplication, so can we drive efficiencies? But the real savings are about connecting the services together, designing them across public service boundaries that deal with the whole of the person in front of you, instead of just dealing with one aspect of them.

You have got to think about what it is that we are trying to solve; how do we design a set of services across public agencies that are likely to help them do that? Within that context, what I think local authorities need to move to, if they are to take a responsibility, is a much greater focus on commissioning as opposed to providing. That is all about thinking through what needs to be done to the right specifications.

There is a lot of opportunity for the private sector to get involved in partnership arrangements with the city. In a sense, we have done that on a small scale with our Service Birmingham joint venture with Capita, because a lot of the business transformation models that we have done have come through that kind of interaction. They have helped us with creating the IT infrastructure to support that, putting it in place, as well as giving us the capacity to make the kind of changes that we need to do.

How do you feel Birmingham has embraced the PPP model and will it continue?
We have taken a pragmatic view to it, so we have looked at a range of different problems and what the possible solutions to them are. In some instances, PFI/PPP has been shown to be the best way to solve the problem. When that is the case, then that is what we have embraced.

However, we do not in Birmingham have an ideological preference for one model over another. It is a very pragmatic view of what works in individual circumstances. That is how I think we are going to take things forward, particularly in the revised financial climate. There may well be greater opportunities for more partnership working, particularly with the private sector, to help solve some of the problems we have.

Stephen Hughes
Chief Executive
Birmingham City Council

This article was taken from The PPP Journal - Issue 67

What steps has the council taken to ensure it's not ripped off in these PFI deals? If you read George Monbiot, he tells of deals where you end up with beautiful new schools but are left with no money to pay the teachers, hospitals with state of the art equipment but nobody to run them, due to massive hidden operating costs not apparent when the deal was signed.
Matt Moran - Erdington