Big Four’s PFI deals under scrutiny.

Of a total £41.7bn public sector investment in 2003/04, 11% will be delivered via PFI schemes.

Transport, health, defence and the Home Office will be the major recipients, but the Treasury has plans to introduce PFI into new areas including urban regeneration.

While the UK has been the pioneer of PFI, first developed by the Conservative party under the former chancellor Norman Lamont, the concept has also caught on overseas.

Ernst & Young’s PFI advisory business is active in markets as far flung as Ireland, Scandinavia, Greece, the Middle East, Russia, Australia and the Caribbean.

With so much at stake, the Big Four are being careful about how any potential conflict of interest is perceived.

The decision by Fife Council to request E&Y to step down as its PFI adviser has raised some eyebrows. It’s the first time a firm involved in a PFI deal has had to withdraw because of a perceived conflict of interest over its role as adviser to the council and auditor to one of the bidders.

E&Y says it presents the council or the client it is advising with all the facts on bidders who may be clients of its audit arm. It is then up to the council to make up its own mind on the so-called conflicts of interest issue.

Pearse Rutledge, a partner at E&Y, says: ‘It’s an area of undoubted sensitivity post events like Enron. But still we inform the council, leave them to make a decision, and in this instance they requested us to withdraw and we did withdraw.’

The Big Four firm points out that it is only after they are mandated for an advisory role by a council, and bidders are invited to come forward, that they find out who the bidders are.

As a group, the Big Four maintain that it’s not really an issue because the two sides of the business are separately managed anyway.

Tim Stone, partner at KPMG, says: ‘We’re absolutely rigorous about how we separate the two teams. There’s never been any sense of conflict. We have no involvement with the auditors whatsoever.’

‘When we’re advising a bidder, it’s perfectly possible that one of the other bidders may be one of our audit clients.’

Despite New Labour’s continued appetite for PFI, the unions continue to lobby against the whole concept.

Fife Council’s decision is partly a reflection of some of the tougher scrutiny the Big Four are facing over their involvement in PFI. A report from Unison released earlier this year, which claimed it had identified 45 instances of potential conflict of interest for accountancy firms involved in PFI, also highlighted the bonanza that the Big Four have been enjoying.

KPMG was involved with £22bn worth of projects by 2002, according to the report How the Big Four accountancy firms have PFI under their thumbs.

In a sign of how the market has grown further with opportunities opening up abroad, KPMG says it is currently involved with two projects worth £34bn.

While the private sector is clearly making a profit from PFI, the Big Four claim the concept has been hugely beneficial to the public purse.

They say it has cut down on cost overruns in public procurement, making the whole process more efficient. E&Y claims studies have shown PFI is 15% better value compared with traditional procurement.

Unison wants the government to come up with more cash for councils so they don’t have to borrow from the private sector.

Jane Robinson, spokeswoman for Unison, explains: ‘Local authorities have been pushed down the PFI road. It’s like paying for a house on a credit card.’


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