Northern Ireland's market for private finance initiative (PFI) and public-private partnership (PPP) deals has suffered from inertia for much of the past decade, but the tide now seems to be turning.

While the rest of the UK has prospered from a more stable environment, decisionmaking powers in Northern Ireland for education, health and other sectors have twice been transferred to devolved institutions and twice transferred back again.

Additionally, many participants – on both sides of the public-private divide – were left disillusioned by the bid costs and protracted legal negotiation which they had endured throughout the initial pathfinder schemes of the 1990s over deals of relatively low value (generally below £10m).

The underdevelopment of PPP in Northern Ireland was particularly unfortunate given the evident requirement for major capital investment across the spectrum. It was this requirement that the Reinvestment and Reform Initiative (RRI), adopted by the Assembly in 2002, was intended to address.

Future development

Central to the RRI was the idea that the future development of public capital infrastructure should take place in accordance with a co-ordinated plan, rather than by a process of each Government department pursuing its own objectives in competition for resources with the others. The key means to achieve this was the establishment of the Strategic Investment Board (SIB) in May 2003.

The most important output of the SIB to date has been Investment Strategy for Northern Ireland, a 10-year programme setting out capital investment plans until 2015 across a full range of govern-mental activities, including education, health, transport and water. While not all of this will be financed through PPP, many of the larger projects will.

As anybody attending one or more of the innumerable conferences on Irish PPP during the first half of this decade can attest, there is often a great deal of difficulty and delay in converting prom-ises of capital investment at national level into completed projects on the ground. However, to the credit of the SIB, the portents appear to be good this time – in particular sectors, at least.

The numbers are large in a Northern Irish context and the timescale short. There is £4bn committed in the Investment Strategy from 2005 to 2008 and upwards of £10bn over the remaining seven years, although beyond the initial three-year horizon, the exact level of spending depends on the state of public finances.

Furthermore, the scope and timing of the proposed projects is relatively clear and specific, while the SIB and the relevant departments can now point to a good track record thus far in delivering on their promises – the Invest Northern Ireland headquarters PPP project is now complete, one roads PFI deal has been signed and a second is at the best and final offers stage, and bids are in for the Belfast Schools deal (similar to the Building Schools for the Future programme) and the new Belfast Institute of Further and Higher Education PFI scheme.

Bidders have also pre-qualified for the huge Workplace 2010 Civil Service office outsourcing project, while one large water project recently reached financial close with a second at the preferred bidder stage and set to complete on schedule.

The introduction by the SIB of a standardised contract has, to some extent, assisted in this progress. That said, there have been delays in getting some projects closed, particularly in the schools sector, where declining school rolls have created uncertainty as to the scope of public sector requirements.

Unquestionably, the biggest focus of attention over the next couple of years will be the health sector. Four projects with a combined value of almost £900m at Ulster Hospital, Enniskillen, Omagh and Belfast have or will come to market this year alone and are likely to attract interest from major operators in the UK and further afield. More will follow, probably including some type of Northern Irish variant on local improvement finance trusts.

The most obvious question for those outside Northern Ireland is whether political change – particularly the restoration of devolved powers to the Executive – is likely to result in a change in policy which would see PFI rejected in favour of more traditional procurement. Although there is still political opposition to PFI in some quarters, a wholesale rejection would seem unlikely given the experience of the last devolved administration (under whose control the RRI was initiated). Trade union opposition remains.

Traditional procurement

Secretary of State Peter Hain recently announced that cleaning services in schools would not be transferred to a private sector contractor. Whether this mollifies or encourages opposition remains to be seen, but it does create a degree of uncertainty. The recent announcement that, after the current round of schools projects under procurement, the remaining programme to renew and refurbish the schools estate would be carried out through traditional procurement has also put a dampener on the market.

Another potential difficulty for PPP and any other projects is lack of capacity. On larger projects, local contractors are likely to align themselves with major UK and multinational players, if only to share expertise and bid costs.

Although local contractors generally seem more sanguine about the issue of labour shortages on the ground than a year or 18 months ago – possibly because of the availability of labour from Poland and other European Union states – a recent report commissioned by the SIB did indicate potential shortages of both labour and construction professional skills if projects coming to market were not timed carefully.

On the other side of the coin, the SIB will be aware of the risk of projects being blown off course through a lack of effective management on the public side.

Overall, there is no doubt that the PPP market in Northern Ireland has become a much more interesting place for investors, funding providers and advisers. There is now a conviction that the Government knows where it wants to go and has committed the funding to get there. The next challenge – for all concerned – will be delivery.

Gregor Hamilton is a partner at McGrigors in Belfast.