Over the past few months the Scottish Government has been gradually unveiling its plans for the Scottish Futures Trust ("SFT"), the initiative to replace the Private Finance Initiative in Scotland. From John Swinney's announcement last month we learned that the Scottish Futures Trust has now been incorporated as a limited company wholly owned by the Scottish Ministers and, much more significantly, that Sir Angus Grossart has been appointed its chairman. Whilst it is good to know that progress is being made with the SFT initiative, and Grossart's appointment will undoubtedly lend it credibility, how much closer are we to seeing the SFT in action?
The Scottish Government intends the SFT to be at the heart of its £35 billion infrastructure investment programme over the next 10 years. The SFT therefore represents a golden opportunity to improve the delivery of infrastructure projects in Scotland and increase value for money for the taxpayer.
The initial role for the SFT will be to provide a reference point, a centre of expertise if you like, for public bodies contemplating infrastructure projects. It will assist with project planning and procurement – encouraging collaboration and sharing of skills and expertise – to drive out efficiency savings and a better deal for the public purse. It will also investigate alternative models and structures for infrastructure investment.
It seems that at this stage the SFT will not itself invest in projects but instead will "fund" projects through developing proposals for the issue of municipal bonds by local authorities and assisting public bodies source the best financing deals possible, through aggregating projects where appropriate.
One of the SFT's specific tasks is to develop the non-profit distributing ("NPD") model of private investment in public infrastructure, aimed at removing "excessive profits" by capping investor equity returns. The NPD model is not a new concept – it was introduced under the previous administration – but it seems that the Scottish Government still sees a place for it. How the NPD model will "develop" remains to be seen but the SFT will need to be careful to strike the right balance between attracting private sector investment and limiting the reward for that investment.
Most of those involved in the Private Finance Initiative would admit that lessons can be learned from it in addressing issues such as managing procurement processes, ensuring quality standards and limiting excessive profits. The key to the SFT's success in delivering on these high-level issues will, however, lie in the detail of its policies and processes.
Whilst the aims and objectives driving the SFT are commendable, the message coming through loud and clear from an increasingly impatient and disillusioned industry (contractors, investors, funders, consultants and advisers alike), however, is that we need to see the SFT start delivering projects.
Giving some (limited) assurances in this regard, the September announcement highlighted two areas where the SFT will start work. Firstly it will oversee the implementation of "hub", an initiative to deliver new and improved community-based facilities for local authorities, health boards and other public sector bodies. Two pathfinder "hub" projects are expected to be announced this autumn with further projects to follow. Secondly, the SFT will provide a focus for developing a programme of schools investment. With a number of local authorities insisting they need more money from the Scottish Government to invest in schools, however, it is not yet clear whether this will translate into a significant stream of projects.
In the current economic climate, and with no clear pipeline of projects in Scotland, the danger is that industry players turn their attention elsewhere. The SFT now needs to come up with credible, high quality projects to attract reputable, experienced bidders, so that the Scottish Government's aspiration of high quality infrastructure becomes reality.
Julia Kennedy is an associate in specialising in PPP at leading UK law firm Shepherd and Wedderburn.