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PFI WITH A ROOF
Equion is a division of John Laing plc, specialising in serviced accommodation projects.
Libbie Hammond spoke to Equion MD, Richard Weston, about the PFI market.

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CT_indexHP.jpg When I asked Richard Weston if he still enjoyed working in the PPP market after seven years, he had no hesitation in saying yes. “Definitely,” he confirmed. “When I look back the changes have been phenomenal, as we have moved from single building projects with uncertain terms and conditions, which were negotiated on every project, to what is now in the UK a very sophisticated marketplace. As an industry, we have gone a long way towards working to standardised terms and conditions, we have got multi-site projects and we now have the NHS LIFT and Building Schools for the Future schemes.

“For years the construction industry has been entering into contracts, especially with the public sector, where the client would have no real confidence as to what the out turn cost was, or when he might get the building. I can’t think of any other industry that was prepared to operate in that way. “If you compare now with ten years ago, the fact that the construction industry can now deliver that type of certainty is hugely significant.” He continued: “We are starting to see PPP appearing in the housing and regeneration area, and we are also seeing it being adopted not just in Europe but also Canada and Australia, so becoming global. The UK has definitely led the way in this, but a lot of other countries are now adopting it and changing it to suit their own requirements and learning from the experiences we have had in the UK.”

John Laing plc is the UK’s listed market leader in PPP/ PFI infrastructure projects. It currently invests in 49 PPP/ PFI projects in the rail, roads, utilities and accommodation sectors. Equion is the group’s specialist provider of PFI and PPP serviced accommodation projects. The division is now one of the UK’s leading investors in the delivery and management of acute hospitals, NHS LIFT, police and emergency services, courts and firearm facilities, education, regeneration and defence projects.

Richard Weston is a director of John Laing and has been managing director of Equion since its inception in 1998. The Equion portfolio of investments has now grown to approximately £150m with additional projects at Preferred Bidder stage. Prior to his appointment at Equion, Richard held a number of senior posts within the Laing Group of companies, having joined the company in 1967. He took up the story of his early career: “I started as a trainee with the Laing Group and most of my original career was in civil engineering as a planning engineer, and dealing with industrial relations and all sorts of other issues. I then became director of Laing Civil Engineering, responsible for estimating and marketing and design and build, and then I was seconded to set up UK Highways, which was one of the first consortia to bid for DBFO roads. We won some significant contracts, and so having cut my teeth in PFI on highways projects the opportunity came to continue with PFI and develop Equion.” Equion was initially called

Laing Hyder, and was a joint venture between Laing Construction Group and Hyder, the Welsh utility company. “We changed the name to Equion in 2000 and then in 2001 the Laing Group bought all the Hyder interests in PFI so Equion then became a 100 per cent owned subsidiary of John Laing, and we built the business from there,” explained Richard.

Following a restructuring in 2001 the Laing Group sold its property and construction side, so from 2002 the organisation became an infrastructure funder and operator, and Equion now accounts for nearly half of the total Laing Group turnover.

“Equion developed as an investor and project developer for PFI accommodation projects and we currently have 28 live projects, with four at preferred bidder level,” said Richard. “As part of the development of Equion we also developed our own facilities management business, Equion FM because there seemed to be a gap in the market for quality FM contractors that were prepared to operate the smaller schemes. This has become an FM business that will turnover £30 million in 2006, which we started from scratch.

“Equion FM is our wholly owned subsidiary, but Equion and the Halifax Bank of Scotland (HBOS) have formed two joint ventures called ExcellLearn and ExcellCare. ExcellLearn is set up to bid for the Government’s education initiative, Building Schools for the Future (BSF). This programme replaces the education PFI, in England, and is currently one of the biggest investment opportunities for Equion in the PFI and service delivery arena. Through ExcellCare we are developing over 50 primary care facilities through NHS LIFT.

“Equion’s regeneration activities are carried out through Regenter, our joint venture with UK Pacific Investment Management (UK PIM), and its housing management division Pinnacle PSG. Regenter concentrates on investing in and managing project companies that operate in the PFI housing and regeneration sector.”

Having worked in the PFI market as it developed, Richard is ideally placed to comment on the advantages this method of working offers. “The most obvious one is that probably for the first time ever, we are seeing public works schemes being regularly delivered on-time and to a fixed, agreed cost and I consider this PFI’s biggest achievement. You can see that in particular in the context of major hospitals in the UK, but applies to just about every other area of public works.

“The second advantage is that when the public sector is buying a facility through a PFI contract, it is actually buying a service not a building, although it generally ends up with a facility at the end. The private sector takes total responsibility for the performance and maintenance of that facility, so if the facility fails in any way the public sector doesn’t then pay for it. This never happened when they were servicing their own buildings. The PFI contract provides an absolute obligation on the part of the private sector to maintain the facilities to a given standard. This means that ten years after they are built PFI hospitals, schools and roads will all be maintained and operated to a very high standard.” Despite the recent questions in the press asking if there are many more major hospitals coming through on PFI or at all, Richard had no doubt that the market is healthy. “Forty hospitals have already been built, plus many more smaller ones, and now through NHS LIFT a huge number of health centres are being built. Add onto this the new ten year, £2.2 billion schools building programme, and the housing and regeneration that is starting to come through and we can see the PFI market is very healthy.

I think there is still a lot of public works procurement to come through this route, plus we see projects starting to come through across Ireland and Scotland, and through Europe and parts of America, so I think it is expanding and full of opportunity.” Although Equion has worked on many projects, Richard highlighted two as particularly significant. “The Newcastle Hospitals Freeman and the Royal Victoria Infirmary deal was closed in mid-2005 and was won with an alternative bid. The bid was unusual in that it offered to build more facilities than were in the original requirement, so it included children’s facilities. We hadn’t got the design to a very advanced stage when we were given preferred bidder status, so it was quite a challenge to drive that design within the affordability limits, plus it was the first experience we’d had of taking a major project through the bond issue, rather than bank debt. We developed this project in close development with the NHS Trust, and we are very proud of it.

“Another interesting one is the MoD main building, where we bought 50 per cent of the shares in the project company during the construction phase.

“This means we weren’t involved in winning the contract, but nevertheless the project has been hugely successful mainly because of the very close working relationship that has been developed by all the parties involved.” In fact, the £439 million Ministry of Defence Main Building refurbishment won the Best Operational Defence Project award at the Public Private Finance Awards in 2005. The grade one listed building was facing a bill of some £100 million to meet current health and safety regulations. Project company Modus Services - a joint venture between Innisfree and Equion - redeveloped and modernised the building to create a modern and flexible working environment whilst ensuring areas of historic and architectural interest were protected and restored. Richard commented: “The transition for moving 3000 civil servants back into the MoD main building and dealing with all the issues that arose from changes of arrangements, meant we had to develop a huge amount of flexibility in order to meet the final programme. It really demonstrated how relationships can work successfully when people have the will to be completely open with each other.” Alongside the development in working relationships, Richard identified the increasing use of offsite construction as a positive move in the industry.

“I am far from convinced that it always reduces cost, but it certainly improves quality and controls some difficult bits of construction on site, which helps the programme.”

“For me with a civil engineering background another very significant development is the use of fibre reinforced concrete. I think that saves the trade significant time as well as alleviating complex issues in terms of clashes with embedded elements. A change that is still in its infancy but we are just starting to see, is the development of more energy efficient buildings, and I think this will develop too.” Although PFI has vastly improved the way that public buildings are procured and delivered, Richard admits there are many ways the industry could improve and says Equion learns vital lessons from every project it is involved in.

“The way I get enjoyment is by never being satisfied with what is being delivered, so I am always demanding more,” he said. “I think we need to do more research into improving productivity in the construction industry, and drive down the number of man hours. The industry finds dealing with the high use of sub contract trades far more difficult than it should and needs to get to grips with it.” He concluded: “Whether from a contractor or customer point of view, I would like to see productivity improve, and waste of every sort taken out of the system. There are huge amounts of waste in a whole host of areas that could be driven out and which wouldn’t detract in any way from the end product, so I would like introduce anything that makes us more efficient, more focused on the end product and delivering more product for the money.”  CT-E

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