Construction Industry Demands new Financing Model

Worldwide, the construction industry continues to face challenges with the private finance initiatives (PFI), which is a way for the public sector to finance big public-works projects through the private sector. 

As a result, companies such as Balfour Beatty and Morgan Sindall are now calling for a new financing model.

Globally, the construction industry has grappled with complexities and risks around PFI. Problems have included:

• Renegotiation of contracts
• Cost overruns
• Public sector accountability concerns
• Transparency issues 
• Lengthy negotiations hampering the progress of projects
• Private firms' profitability clashing with public interests 

Now, in the UK, major construction companies have called for a new financing model in a report called The Blueprint for Growth. These companies include Royal Bam, Vinci Construction, Galliford Try, AtkinsRéalis, Mott MacDonald, Volker Wessels UK and WSP.

Joined by other contractors, Mace, Costain and Laing O’Rourke, the companies warn that, only if the PFI funding model is replaced, can the UK government meet its national targets around net zero.

The Blueprint for Growth puts forward 12 recommendations:

• Depoliticise infrastructure 
• Increase private investment in public infrastructure
• Introduce timely, holistic decision-making on key areas
• Improve budget setting for infrastructure schemes
• Put in place efficient risk collection
• Ensure investment continuity
• Simplify the judicial review process
• Mandate consideration of the national interest (regarding goals and ambitions of the government) 
• Establish a self-certification system to accelerate delivery of infrastructure projects
• Transform the apprenticeship levy (which is a UK tax on employers which is used to fund apprenticeship training)
• Introduce a flexible immigration system

The companies say these measures will help facilitate collaboration with industry stakeholders, policymakers and government agencies, and help countries deliver on the shared vision of a thriving infrastructure sector.

Balfour Beatty Chief Executive Leo Quinn says: “As leaders of this sector, the joint signatories believe this manifesto will drive productivity and jobs, and help our industry build the sustainable homegrown energy and transport links that will provide strength and security”.

Here, we take a worldwide look at the challenges of private investment in infrastructure and how major players are overcoming them.

Private sector and construction: a global view

The private sector plays a crucial role in infrastructure development across the construction industry, contributing capital and expertise. This view of private funding aligns with The Blueprint for Growth report, which emphasises leveraging private investment to drive economic expansion. 

Private firms enter into public-private partnerships to provide financing for construction projects, which drives infrastructure modernisation and job creation. Across the global construction industry, private investment in infrastructure has seen steady growth, driven by public-private partnerships, privatisation of public assets, and demand for modern facilities. 

Consequently, developed nations channelled funds into upgrading ageing infrastructure, whilst emerging economies invested in building new transportation networks, utilities, and commercial complexes. 

Major players from diverse sectors like energy, real estate, and technology companies, have diversified their portfolios by investing in infrastructure projects. 

Like the UK, half of all infrastructure projects in other countries, such as Canada and Australia, is funded and delivered by the private sector.

In Canada, private firms contribute substantially to infrastructure across various sectors, including transportation, energy, and telecommunications.

Similarly, Australia has embraced private sector involvement in infrastructure development. It has a well-established public-private partnership framework, which has delivered numerous projects, ranging from roads and railways to hospitals and schools.

Public-private partnerships (P3s) have become a common model for delivering major infrastructure initiatives, leveraging private capital and expertise.

Private construction funding: challenges & solutions

The private construction sector worldwide faces rising material costs, labour shortages, supply chain disruptions and increased regulations worldwide. 

Major companies, including Lennar Corporation, DR Horton and PulteGroup, are faced with the challenge of adopting new technologies and sustainable practices while maintaining profitability. On top of this, they face intense competition, project delays and economic uncertainties. 

Ways in which construction companies tackle these challenges include the embracing of technology, implementing lean construction methods and exploring the use of alternative materials. 

Some firms, such as Lennar Corporation, focus on strategic land acquisitions and operational efficiencies as ways to mitigate challenges, and also look to forge strategic partnerships with suppliers, to ensure material availability.

Other firms, like DR Horton, cut costs by leveraging its scale to negotiate better pricing. 

Investment in technology is another solution. PulteGroup is using technology to enhance productivity and efficiency.

Other strategies include: investing in workforce training; recruiting from non-traditional talent pools; utilising environmental sustainability to drive innovation in materials and processes; and adapting business models and diversifying portfolios to provide resilience against market fluctuations.

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