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Isle of Wight prepares for seven-year PFI road repair blitz

11 June 2012

The Isle of Wight Council has named the preferred bidder for its 25-year road maintenance Private Finance Initiative deal.

A partnership of Vinci Concessions and Ringway beat a bid from Wight Highways Partnership (Colas, Lloyds Bank, and Aggregate Industries) for the contract worth hundreds of millions of pounds. Ringway already holds the council’s winter maintenance contract. A third shortlisted bidder, Amey, was deselected by the council earlier in the process.

The council’s PFI programme director Jay Jayasundara said the contract would deliver a “step change” in the condition of the Island’s roads in the first seven years and sustain that improvement for the following 18.

The contract covers ‘fence to fence’ – all the assets between the fences on either side of the road – including footways and cycleways, streetlighting, traffic signals, car parks, as well as 209 bridges and 621 retaining walls. The provider will also be responsible for highways development control functions.

Work on the PFI deal began in 2005 and the value of the project has twice been reduced at the request of the Government. The deal between the council and DfT brokered last March reduced the DfT capital grant by 28%, to £260m net present value (£487m in cash terms). This will be paid in annual instalments up to 2038, starting with £15.3m in 2013/14,  then £17.2m in 2014/15, £19m in 2015/16 and £19.85m in each year 2016/17 to 2038.

This represents a five-six fold increase in the DfT grant the council currently receives for road maintenance – £2.81m in 2012/13. 

The council will make a revenue contribution to cover the costs of routine maintenance and operations – of £6.6m-£7m per annum at 2013 prices, index linked by RPIx (RPI excluding mortgages). Currently, the council spends £8.3m per annum on these activities and it expects the PFI deal to save £32m-£42m over 25 years.

Vinci and Ringway will provide the council with a prioritised list of schemes annually to improve the safety of the road network. The council will determine which of the measures can be funded each year from its integrated transport block grant. Any such measures will be delivered by Vinci/Ringway during the first seven years of the contract (the core investment period), after which the council can market test the delivery externally to ensure the contractor offers the best value for money.

Sixty-six council staff are expected to transfer to the PFI firms under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

The council’s project team has evaluated the value for money of the preferred bid and concluded that it is 12.5% more advantageous than the council delivering the project using a non-PFI traditional procurement route.

The final business case for the deal has just been sent off by the council to the DfT and Treasury for approval.

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