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Highway Robbery – DBFO Roads in the UK

On December 9, 2020, in DBFO companies, DfT, by PeterSilverman
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I have recently come across this article from 2005. As we shall see the lessons from it were ignored by the DfT.

Under the Design Build Finance Operate (DBFO) regime a concessionaire company finances and builds (or widens) a section of the Highways England network. In return they receive annual payments [adjusted for the level of traffic (shadow tolls)] for 30 years over which period they are responsible for the operation and maintenance of a section of the network.

This table gives details of all 11 such arrangements.

The Manchester Business School paper carried out a financial analysis of the first 6 years of the initial 8 contracts all which commenced in 1996/1997. I have created the following tables using figures from the paper:

Actual costs over 6yrs under DBFO£million
Payments to DBFO concessionaires over the 6 years. (Note1)859
Ongoing payments pa (= av. of yrs 4, 5 & 6 = (195+218+205) /3 (2)206
Estimated costs over 6 year costs if HA had not used DBFO£million
Capital / Construction cost (3)590
Maintenance over the 6 years (4)323
Total expenditure after 3 years913
Ongoing payments pa (= av. of yrs 4, 5 & 6= (59 +70+50) /3) (5)60

So after 6 years HE had laid out £859 million and were facing on-going costs of £206 million pa.

However, if instead they had simply done the job themselves – employing the same contractors used by the DBFO concessionaires on the same terms – by the end of the 6th year they would have laid out £913 million but would be facing on-going costs of only £60 million pa.

If this differential was maintained over the remaining 24 years it would amount to a whopping (206 -60) x 24 = £3,504 million!

No wonder the Manchester Business School team referred to it as Highways Robbery.

Knowing all this the DfT still went ahead with three more DBFO, aka Private Finance Initiative (PFI), schemes culminating in 2009 with one for the widening the M25. In January 2018 the Audit Office reported that the shareholders in the concessionaire company, Connect Plus (M25) Ltd, received 31% pa return on their investment over the initial 8 years. See M25 – Audit Office reveals PFI contractors super profits

Also see A69 – the £17 million by-pass that will cost us £118 million


 

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