Psst... need a new campus, mate?

April 12, 1996

Are you PFIable? Simon Targett looks at the consultants who can say if you are.

"They're all nice guys. But in the end, they've got to make a profit, and they will do if you let them." Maggie Deacon, Brighton University's finance director, is not enamoured of professional consultants. So for constructing the university's new multi-million pound leisure centre - developed under the Government's Private Finance Initiative - she has tapped only in-house expertise.

But most higher education institutions do not have the luxury of a cost-free team of capital project experts, and over the next months they will be knocking on the doors of the big city firms and soliciting professional advice on PFI.

PFI is trumpeted as the answer to vice chancellors' capital spending prayers. This remains doubtful, especially given that Gillian Shephard, Secretary of State for Education and Employment, has ordered an emergency joint committee of her department and the Committee of Vice Chancellors and Principals to establish PFI's relevance to higher education. But mention PFI to a professional consultant, and a smile soon appears on his or her face. And why not? The Government is so anxious to kick-start PFI in the education sector that it has provided the Higher Education Funding Council for England with Pounds 1 million to cover consultants' costs on several "pathfinder" projects.

Most of the big companies - KPMG, Ernst & Young, Coopers & Lybrand, to name but three - have special PFI units. On a day-to-day basis, they are giving advice on hospitals, housing estates and motorways. These are huge projects, running to hundreds of millions of pounds.

Except for medical school projects awash with Tomlinson money - one to link King's College with the United Medical and Dental Schools will cost around Pounds 125 million - higher education cannot expect to compete in cash terms. A run-of-the-mill scheme to refurbish the catering facilities at Southampton University has received the backing of the Treasury's private finance panel even though it is targeted to cost a mere Pounds 300,000.

This has not stopped the consultants courting the new market. The number of consultants and other companies registered on HEFCE's "PFI dating agency" outnumbers educational institutions by nearly 2:1. At a Barbican-based PFI conference last year, some 28 firms were peddling their wares and glossy publicity brochures: management consultants, legal consultants, financial consultants, design consultants, as well as construction companies with consultant expertise. That is because even small projects can bring in the readies.

As Robert Griggs, head of KPMG's PFI unit, explains: "The cost does not necessarily correspond to the capital value of a project since a smaller project might have several complex elements."

Just to establish whether or not a scheme is "PFIable", as the jargon has it, can cost tens of thousands of pounds. The HEFCE "pathfinder" projects are each receiving around Pounds 60,000 towards the consultancy costs, and a long-term project can attract a princely sum. Greenwich University's Pounds 40 million accommodation scheme - providing 1,400 units - costs around Pounds 400,000. That sounds expensive, but it all depends who you ask.

Mr Griggs suggests this kind of money is untypical: "It's a bad example to take, because the Greenwich scheme was a pioneering scheme and the private sector was unused to dealing with a higher education design-build-finance operate project."

On the other hand, Richard Haycocks, head of Ernst & Young's PFI unit, calls the fee "a fairly modest figure for that size of project". If there is disagreement about the Pounds 400,000, then what about the standard fee? "That's not a fair question," says Mr Griggs. "It's like asking how much is a car - well that all depends on which one it is."

It is clear that the big city consultants are coy about costs, and pinning them down to a standard fee is a fruitless exercise. For all that, they know that the fiendish complexity of the average PFI project means that their services will never be redundant. The stamp of credibility is another feature consultants carry with them everywhere.

John McWilliam, pro-vice chancellor at Greenwich, and himself a former property consultant, says: "If a large firm of consultants is putting its name to the deal, it gives it weight, and assures governors that the best deal possible has been struck."

For Mr McWilliam, the consultants are "a prerequisite". How long they will remain so is hard to say. Newchurch & Company, HEFCE's PFI consultants, are drawing up guidelines to help institutions become more self-sufficient in setting up PFI deals. In the long run, more finance directors could follow Brighton's Maggie Deacon and develop in-house consultants. But the likelihood is that the consultants will become more visible on the higher education scene than ever before. "Time is running out for the cowboys who will borrow your watch to tell you the time," suggests Mr McWilliam. "But there will always be a need for high-class specialists to solve the technical, legal and financial issues."

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