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9. What would the new body look like and what would it do?
9.1 SFT is expected to be a limited company. The intended outline structure is set out below at Figure 1. The membership of the holding company will be representative of the Scottish public interest and have responsibility for appointment of the Board. The Memorandum and Articles of Association of the company would confine its activities to providing infrastructure within Scotland. In doing so the company would be constrained to the business of planning and supporting the delivery of national and local infrastructure plans published from time to time.
Figure 1 - structure of Scottish Futures Trust
9.2 SFT will be run on non-profit distributing principles and would obtain its funding through bonds and other appropriate commercial financial instruments at rates which would be cheaper than those involved in PFI procurements.
9.3 It will undertake the following range of functions:
- provide serviced assets to public authorities and others who provide public services;
- provide private finance to those who provide public services;
- provide other related financial services at cheaper cost through aggregation of demand;
- provide a centre of expertise for best practice advice and support to public authorities on the planning and delivery of infrastructure investment projects;
- provide co-ordination and support for the provision of shared infrastructure; and
- provide a forum and focus for public and private sector market engagement.
It is envisaged that in practical terms SFT will require to build up to a position where it offers the full range of services and secondly that the range of services used by individual authorities will vary depending on the public sector client.
9.4 The company would use margins around commercial lending rates to meet its costs and there might be a case for setting it up to generate surpluses for investment in further projects. There would be no uncapped equity returns under the SFT Articles of Association.
Provision of facilities to public authorities
9.5. There is no intention to transfer existing public sector facilities to this body although some strategic land assets could be transferred. For new projects only, the SFT vehicle could design, build, finance, operate, manage and own the facilities created. The corollary to this is that although the public authority would have use of the new facilities (schools, hospitals, transport infrastructure) it might not own them.
9.6 Public authorities seeking to make use of SFT facilities would be able to participate in advance discussions about the specification of energy efficient and sustainable exemplar designs which SFT would use as the starting point. A further aim would be to increase the flexibility of the use and maintenance of facilities compared to that currently available through PFI.
9.7 Before embarking on the design and construction of a facility, the SFT investment vehicle would conduct due diligence * over the business case outlining the public authority's needs and the funding commitment.
Provide cheaper private finance than PFI
9.8 Where public authorities choose to source funding from the commercial money markets there are gains to be had from aggregation of demand and of debt management. For example, SFT might act as adviser and agent for authorities in order to optimise borrowings through the issue of municipal bonds. Its expertise could also assist in the management of existing partnership contracts and borrowings. An SFT investment vehicle would seek to co-ordinate authorities' requirements before seeking finance. From the market perspective, providing finance for a mixed portfolio of projects would spread the risk involved and is likely to assist in minimising the overall cost of funds.
Provide other related financial services at cheaper cost through aggregation
9.9 It is expected that the body's powers of aggregation would be applied to uses other than solely achieving the optimum borrowing rates. It might, for example, act as a risk taker and organiser in order to achieve a reduction in insurance costs required to cover some elements of projects.
Provide a centre of expertise for advice and support to the public sector
9.10 The experience and expertise held by public bodies in planning and delivering major infrastructure investments varies from one to another. A shortfall in in-house expertise can mean that the planning and delivery of projects often does not have a clear focus and either takes a disproportionate time to come to the starting line or alternatively is taken to the market too early and results in significant re-scoping during procurement. The net effect on the project in both cases is to delay significantly the procurement process and the consequence of such delays is an erosion of buying power due to construction inflation eg a £50m project delayed by a month means a £250,000 loss in value/increase in budget at current construction inflation levels.
9.11 However, the specialist skills required to handle large scale infrastructure investment projects and programmes are scarce and expensive. The Government believes there is considerable potential for efficiency gains if the SFT investment vehicle were able to provide project planning and delivery advice and support to public bodies as well as applying due diligence on the readiness of projects to be released to the market. It would also be consistent with the shared services approach being adopted across government and the need for 2% efficiency savings across the public sector as part of the spending review outcome. The Government would therefore expect that all of the public sector would wish to co-operate with SFT and it would monitor SFT's use and impact routinely.
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