Highways chief seeks overseas bids as PF2 deals edge closer

Stonehenge_Lower Thames Crossing

Highways England’s boss has urged global construction giants to take advantage of new private finance opportunities in the UK, as he confirmed PF2 deals on the country’s two largest roads projects had edged closer.

Chief executive Jim O’Sullivan told Construction News that Highways England was in the process of appointing legal and financial advisers to draw up PF2 options for the Lower Thames Crossing and the Stonehenge Tunnel, and encouraged overseas firms to get involved.

Mr O’Sullivan said: “We’ve got to stage where we are in the process of appointing advisers to look at this seriously.

“[The advisers] will look at… how much [the private sector] will be able to commit to these schemes.

“The flagship projects, and the private finance opportunities they present, represent big opportunities for major international players to take advantage of.”

The Infrastructure and Projects Authority confirmed to CN that it was developing private finance models for both schemes, which will have a capital value of around £3bn.

Earlier this year, Highways England confirmed that the major roads projects within its next Road Investment Strategy – namely the A303 and Stonehenge Tunnel – would be procured separately from other capital projects.

In July, CN revealed that a design, build, finance and maintenance deal was being considered by the Treasury for the £1.6bn A303 project, while the £6bn Lower Thames Crossing was also being eyed as a potential long-term private finance deal.

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Mr O’Sullivan said that while nothing had been finalised yet, Highways England’s recommendation to government was to find major schemes where assets could be individually identified and financed privately.

He confirmed that these plans had moved forward, with financial and legal advisers expected to be chosen by the end of the year.

The advisers would, he said, also act as bid consultants to help run procurement of the projects.

Highways England said these advisers would consider: how private finance could be used to access funding; which parts of the schemes would be funded privately; and the implications of private finance to delivery programme and costs.

The roads projects could be some of the first to be developed under the Treasury’s next tranche of PF2 deals and would require £1.5bn private finance for the Lower Thames Crossing alone.

In the Autumn Statement last November, chancellor Philip Hammond promised to publish a list of PF2 projects to be taken forward in 2017.

However, Construction News revealed in May that these plans had been scrapped, with a further review to come after the election in June.

CN understands that the Treasury is now working on a review of the PF2 standard form of contract to be published in the New Year – the first review of PF2 since 2012.

The document will cover the practical, legal, commercial and technical aspects of PF2 contracts and fit them into one comprehensive standardised template outlining the best ways to structure PF2 deals.

It is also aimed at drawing on the lessons from the first tranche of PF2 deals, which supported the construction of schools under the Priority School Building Programme and the Midland Metropolitan Hospital in Smethwick, which is being built by Carillion, but delayed.

The news of Highways England’s commitment to private finance deals will be welcomed by the supply chain and particularly major European contractors, many of which have experience of delivering projects under long-term private finance design, build, finance and maintain deals in their native countries.

In March, Transport for London included European-based firms on the shortlist for the design, build, finance and maintain contract on its £1bn Silvertown Tunnel project.

The shortlisted three were Hochtief, Ferrovial-owned Cintra Global and a joint venture of Skanska and Strabag.

Like the Silvertown Tunnel, Mr O’Sullivan confirmed that vehicles would be required to pay a “toll or congestion charge” when travelling through the Lower Thames Crossing Tunnel and this money could be used to fund the strategic road network, while public money would be used for the tunnel construction and private money for the roads.

He said: “It has already been established that the tunnel will be built with public money, and we are now considering whether to build the roads with private money, and use the toll funds from the tunnel crossings to fund the road network.”

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