Incorporating sustainable construction into pfi projects: An analysis of financial incentives and associated risks

There is a common assumption that the public procurement system, the Private Finance Initiative (PFI), is a good mechanism to deliver sustainable construction. In principle, PFI creates a long-term partnership between clients and the supply chain, takes account of environmental and social performance, and genuinely considers the whole life cost against the lowest capital cost. However, in practice there are a number of barriers to incorporating increased sustainability into PFI projects. One of the most significant obstacles is the lack of awareness of financial incentives. Few PFI clients and stakeholders are aware of the government's tax incentive, while the fear of higher risks and private finance interest rates force main contractors to complete the project as quickly as possible rather than to consider any long-term benefits derived from sustainability. The lack of the interest in sustainable construction from bankers and insurance companies again forces the PFI consortia itself to hold the higher financial risks for any extra investment linked to sustainable innovation. This paper is based, in part, on the results of a national questionnaire survey, which investigated the level of integration of sustainable construction into PFI projects. It analyses why sustainability is a dilemma for the PFI consortia, and investigates the risks associated with incorporating sustainable construction methods into PFI projects. Finally, it recommends that central government should encourage the PFI sector to learn more about possible tax saving linked to sustainability, and for the financial institutions to provide additional support for sustainable construction.