- 1 Jan 1999
The Private Finance Initiative and the Planning Process
The Private Finance Initiative (PFI) aims to promote efficient cost-effective public sector procurement of services from the private sector. The services are procured by a legal contract between a public sector agency (the sponsor) and a private sector supplier (the supplier). The supplier will be chosen through a competition organised by the sponsor.
The effectiveness of PFI is dependent on the innovation of the supplier which is encouraged by competition. Bidders in PFI competitions are therefore encouraged to find the best cost-effective solution and are not restricted to a single pre-determined option. This will normally mean that bidders come forward with different technical solutions for the provision of the assets required for service delivery, for example a new road, a new or re-furbished school, a prison, or a sewage treatment works.
The procurement of a PFI service by legal contract is often referred to as a DBFO (design, build, finance and operate) contract. This reflects the contract requirements for the supplier to provide and finance the capital equipment, buildings and other infrastructure required to supply the service. It is important to note that the PFI contract is not solely for the supply of the capital assets, but also for the supply of services arising from the use of those assets by skilled operators and other employees or sub-contractors of the supplier.
The provision of the physical capital assets by the private sector to meet the requirements of the PFI contract, must be supplied in accordance with EC Directives, UK legislation and policy requirements, including the land use planning system.
This note provides guidance on the promotion and implementation of a PFI project within the land use planning system. The contents of the note will be relevant to all participants in a PFI project, in particular the sponsor (including where the sponsor is also the planning authority), the planning authority and the private sector bidder. The particular considerations which apply where the sponsor is also the planning authority are dealt with in a separate section (paragraphs 22 to 26).
Establishing the Principle
6. PFI projects involving the development of land will normally require to secure planning permission and this process will generally be more straightforward if the project accords with both National Planning Policy Guidelines (NPPGs) and the development plan for the area concerned. As with any major project, where a PFI proposal diverges significantly from structure plan policy, or contravenes national planning policies, the planning authority should notify the application to the Secretary of State. Where the local authority is a party to the proposal or has an interest in it, there will often be a requirement to notify the Secretary of State (see paragraph 23).
7. Section 25 of the Town and Country Planning (Scotland) Act 1997 states that where regard is to be had to the development plan in considering a planning application, the provisions of the plan shall be the primary consideration in arriving at a decision. It is therefore important that, wherever possible, public sector sponsors should actively engage with the development plan preparation process to seek to ensure that structure and local plans make appropriate provision for the projects they intend to pursue. Even if the sponsor is not in a position to be site specific, it is important to establish the principle of development and appropriate planning parameters.
8. The responsibility for integrating the planning requirements with the other aspects of the project rests with the sponsor. It is fundamental to the achievement of a successful contract that the main planning issues are identified by the sponsor at the outset alongside all the other key components - technical, legal, financial and operational. Sponsors should ensure that they have appropriate planning expertise within their project team, be it internal resources or professional consultancy support. Within the planning authority, individual officers may be unfamiliar with the PFI procurement process. However, the active involvement of planning authorities is integral to the success of the project. It is important that they are kept informed throughout the process, that they are involved in the business case process, and that their involvement is recognised as a critical strand of the initial project appraisal.
Planning Permission: Outline and Detailed
9. Establishing appropriate planning parameters for the project and, where appropriate, securing outline planning consent, will normally be the responsibility of the sponsor. Obtaining detailed planning permission should normally be the responsibility of the supplier, who in most cases will be better placed to submit planning applications having identified his proposed best option and having the necessary supporting information.
10. Where the principle of the land use proposed has not already been established in the development plan, it may be appropriate for the sponsor to obtain outline planning permission, leaving the supplier to secure detailed consent. In certain circumstances the sponsor may consider it appropriate to obtain full planning permission before commencing the procurement process. This may be relevant where there is effectively only one possible design option (e.g. with a road proposal). The financial risks to the sponsor of such action will need to be taken into consideration. It will also be important to establish that this would not unduly limit the scope for private sector innovation or the cost-effective provision of services. Generally, it will be more appropriate for the process of obtaining full planning consent to be carried out by the supplier.
Liaising with the Planning Authority
11. The sponsor should approach the planning authority at an early stage to secure its assistance in identifying the key planning issues which are likely to be pertinent for the particular project, along with general planning and timing constraints. It will be good practice at the outset to agree a basis for liaison between the two parties. Such an agreement might cover the scope and terms of any development brief, the procedures for access and information exchange between the sponsor, bidders and the planning authority, the provision of opportunities for the planning authority to comment on bid submissions at each stage of the bid process, and the subsequent monitoring of the PFI project after the contract has been signed and planning permission granted.
12. For projects which may be candidates for environmental assessment in terms of the EC Directive on Environmental Assessment (85/337/EC) as amended by Directive 97/11/EC, the sponsor should seek an opinion from the planning authority (under Regulation 7 of the EA Regulations) as to whether it would be likely to have significant effects on the environment. The Town and Country Planning Environmental Impact Assessment (Scotland) Regulations 1999 will bring the amended directive into force and will supersede the Environmental Assessment (Scotland) Regulations 1988 .
13. Good communication between the relevant parties is essential throughout the process of securing planning permission and will ensure that all are working towards appropriate outputs. It is important to identify critical dates and agree a protocol and timetable at the outset. The timetable should include a reasonable allocation of time for consultation. To maintain consistency and confidentiality, contact should be between named officials throughout the process, although the involvement of these officials should not compromise the function of the planning authority in any way.
14. Given the significant size of many PFI projects, it will often be necessary for the planning authority to involve a wide range of interests within the authority to establish a corporate approach to the project from the beginning. The authority may also require to consult a wide range of other interests, particularly for projects which require an Environmental Statement, and it may be necessary to raise any wider strategic issues within inter-authority liaison arrangements. Where environmental assessment is required, the time needed should be factored into the project planning and also the four month period for determining the planning application. For larger projects, there may be an advantage in establishing a working group of representatives of the various interested parties to ensure close liaison and effective management of the process. However, any such arrangements must not prejudice the planning authority's formal assessment of any resulting application.
Managing the Bidding Process
15. It is important to allow bidders freedom to submit imaginative, value-for-money proposals. However, effort may be wasted and the scope for efficiency savings may be lost or reduced if the subsequent procedures to obtain consent for the selected scheme take too long or are unsuccessful. The risk of this happening can be reduced by making certain that all of the essential planning requirements are sufficiently clear at the outset, to ensure that only projects capable of development into satisfactory solutions are taken forward by bidders. Input from the planning authority to the preparation of the development brief may help to ensure that bidders have a good understanding of the planning parameters (see paragraphs 17-21).
16. Bidding for PFI projects can be expensive and innovative ideas developed during the tender period have a high commercial value. If meaningful discussions are to take place between the sponsor, the planning authority and bidders during the course of the competition, it is important that these are recognised to be commercial - in confidence. A balance must be achieved between maintaining confidentiality with each bidder whilst treating each even-handedly. In the case of one bidder requesting a certain set of information, it is good practice to send the same information to all other bidders.
17. Defining the appropriate level of prescription may be difficult at the start of project. In many cases, the best approach may be for the sponsor to agree a development brief with the planning authority. This will help ensure that there is one coherent development brief and not two or more, possibly with conflicting requirements. The brief would highlight the relevant aspects of the development plan for the area and identify constraints or requirements in relation to such issues as land uses, densities, building heights, design principles, transport arrangements and open space and playing field provision.
18. At the outset it may be necessary for the sponsor to prepare an introductory document outlining the background to the PFI project and identifying the planning issues which may need to be addressed. If the sponsor does not have in-house skills suitable for preparing this document, it may be appropriate to engage consultants to assist. In the light of this initial document and subsequent meetings with the planning authority, a development brief can then be agreed for presentation to potential bidders at the pre-qualification stage. The parties may wish to make provision for the development brief to be considered by the authority's Planning Committee for support in principle without prejudice to its determination of any future planning application.
19. Short-listed bidders will be able to use the brief to design and cost their scheme without drawing it up in detail. Where there are clear value-for-money alternatives proposed by bidders, then these can be viewed in relation to the requirements of the development brief. The preferred bidder, assuming it has followed the development brief principles, can have greater confidence that planning approval will be obtained, although no guarantee can be given .
20. The preparation of the development brief for a PFI project and the ensuing stages of amendment, bid evaluation and project monitoring will take place through agreed procedures between the sponsor and the planning authority (see paragraph 11). This provides the interface between the market competition of PFI bidders and the public interests represented by the planning process.
21. These procedures need to be kept as simple as possible to reduce the preparatory costs for all parties - the sponsor, the planning authority and the bidders. However, to proceed without adequate preparation and agreement on the terms of a development brief at the start may entail higher costs for all parties at a later stage. The balance of effort and resources from sponsor and planning authority should be discussed at an early stage so that all parties are aware of their roles and responsibilities as the project proceeds through its various stages.
Local authority projects
22. In circumstances where a local authority is a PFI project sponsor, careful consideration will have to be given to the matter of securing planning permission for the proposed development. In many cases the authority is likely to wish to establish at least the principle of planning permission for the development to minimise the risk to the PFI contractors that permission may not be forthcoming. Where the sponsor body is also the planning authority, care must be taken not to compromise the function of that authority. It is essential that the roles of sponsor and planning authority are kept separate.
23. Where the planning authority has an interest in a PFI project, the following requirements have to be taken into account in relation to referral of such proposals to the Secretary of State. The Town and Country Planning (Development by Planning Authorities) (Scotland) Regulations 1981 (the NID regulations) make provision for cases where a local authority require planning permission for a development which they themselves propose to carry out in the area in respect of which they are the planning authority. The regulations specify requirements regarding advertisement of the intention to develop, consultation prior to advertisement and the circumstances in which a notice of intention to develop must be served on the Secretary of State. Local authorities should consider carefully regulation 7 which specifies that, where planning permission is deemed to have been granted the permission "shall enure only for the benefit of the planning authority carrying out the development and not for the benefit of the land". Legal advice should be taken as to whether a PFI contractor would be able to proceed with the development on the basis of the deemed planning permission or would also require to seek planning permission.
24. Attention is also drawn to paragraph 13 of SODD Circular 4/1997 on the Notification of Planning Applications which explains that "[the NID] regulations do not make provision for procedure analogous to applications for outline planning permission"; i.e. NIDs cannot be advertised as outline proposals. This may render the NID procedures inappropriate for development proposals for which the local authority is looking to contractors to undertake the detailed design of the scheme.
25. Alternatively, if a local authority is of the view that a particular PFI project is to be carried out by someone other than themselves - i.e. it is not a case where the authority requires planning permission for a development which they propose to carry out - then the NID procedures would not be available to them. In such circumstances it would be open to the authority's planning department to require a planning application of another department (e.g. the education department for a PFI schools project or the roads department for a PFI road project), or a third party agent. Such an application would be handled under normal planning procedures and the authority would be obliged to consider the terms of the Town and Country Planning (Notification of Applications) (Scotland) Direction 1997 which is incorporated in SODD Circular 4/1997. Article 16 of the Schedule to the Direction refers to "development in which planning authorities have an interest" and thus brings such development within the notification procedures.
26. This means that a planning authority must notify the Secretary of State if it proposes to grant planning permission for development: in which it has a financial interest; or which is to be located on land in which it has an interest;
in circumstances where the NID regulations do not apply, and the proposed development does not accord with the adopted or approved local plan for the area, or has been the subject of a substantial body of objections.
27. PFI projects are subject to the normal requirements of the UK planning system. The public sector agency sponsoring a PFI project is responsible for defining the framework in which the PFI project will be taken forward and within which planning issues will require to be addressed.
28. PFI places particular pressures on the planning process. Sponsors should actively engage with the process to seek to ensure that development plans make appropriate provision for the projects they intend to pursue. They also require to pay close attention to the procedural requirements of the planning system and approach the planning authority as early in the project development process as possible.
29. The sponsor is responsible for securing the establishment of appropriate planning parameters for the project and, where appropriate, outline planning consent. Obtaining detailed planning permission should normally be the responsibility of the supplier. Sponsors should only submit an application for full planning permission where there is only one suitable scheme or it is impracticable to defer until after the tender competition.
30. The preparation of a development brief can be of assistance in defining the planning parameters for a PFI project.
31. Enquiries about the contents of this planning advice note should be addressed to Graeme Purves, The Scottish Office, Planning Services Division, Room 2-H91, Victoria Quay, Edinburgh, EH6 6QQ (0131 244 7533) or by e-mail to firstname.lastname@example.org. Further copies, together with other PANs, may be obtained by telephoning 0131 244 7538. A copy of this PAN is also available on the Scottish Office web site at www.scotland.gov.uk.
SODD 4/1997: Notification of Planning Applications
Town and Country Planning (Scotland) Act 1997 Town and Country Planning (Development by Planning Authorities) (Scotland) Regulations 1981 Town and Country Planning (Notification of Applications) (Scotland) Direction 1997 Town and Country Planning Environmental Impact Assessment (Scotland) Regulations 1999 Environmental Assessment (Scotland) Regulations 1988 EC Directive on Environmental Assessment (85/337/EC) as amended by Directive 97/11/EC
Telephone: 0131 244 7528
Area 2-H (South)
Planning and Architecture Division
The Scottish Government