Before the general election in May 1997, some Private Finance Initiative (PFI) lawyers were concerned that the PFI would be shelved if the Labour party came to power, says Ed Marlow, a partner and head of PFI at Denton Hall.

As it turned out, there was no need to worry.

The new Labour government wholeheartedly embraced the concept of putting private money into public services, and even boasted recently that it was responsible for revitalising PFI after the Conservatives 'left it in a mess'.Alan Milburn, chief secretary to the Treasury, claimed in a recent speech to a further education conference that whereas no hospital deals had been signed by the Tories, the current government had initiated 31 major hospital developments to date, worth £2.9 billion.

He said Labour had signed deals worth £4 billion overall since coming to power.

He estimated that, by the end of this year, private s ector investments in PFI projects would account for around 14% of overall public sector investment.Recent announcements by the government have confirmed its commitment to the concept of the private-public partnership, whereby the private sector agrees to invest money in a public service, in return for a rental agreement.

Kay Booth, a member of the project finance unit at Lovell White Durrant, explains: 'If you have £100 million to spend and you want five schools at £60 million each, then you can't do it.

But if you tell the private sector to build the schools and in return you pay a rental, then the £100 million goes a lot further -- at least, in the short term'.The government has obviously been convinced by the arguments, having just announced that it wants to see the value of PFI deals increased still further -- from £4 billion to £12 billion by the end of this Parliament.And in a flurry of recent activity to facilitate the expansion of PFI, Mr Milburn also announced the introduction of guidance for standard contracts for PFI deals, after two years of consultation.

He explained that 'the guidance will avoid the pitfalls of the past -- where the public sector, let alone those in the private sector, have had to re-invent the wheel at considerable expense every time a hospital or a college entered into a PFI agreement'.More recently still, the government announced its intention to set up a body called Partnerships UK.

Mr Marlow of Denton Hall explains that this private sector-led organisation 'will lend its know-how, expertise and understanding to public sector procurers for a fee, and if necessary, will help finance the procurement costs to get the project off the ground'.

The private sector will take a majority stake in the venture with central government, which will be entitled to appoint a minority of non-executive directors to represent its interests.

There will also be a new Office of Government Commerce as part of a shake-up in the way that Whitehall manages its annual £13 billion procurement budget.Not surprisingly most, if not all, the announcements have been welcomed by PFI lawyers, particularly the proposed increase in PFI deals over the next two to three years.

Ms Booth says that, as a result, more work will be generated for lawyers.

She is not surprised by the government's ambitions 'because there are a lot of infrastructure projects needed and PFI is the way to achieve them'.

Michael Boyd, a partner at Pinsent Curtis and a member of the major projects group, says the increased money is encouraging, not least because 'it is an indication of this government's continuing commitment to PFI'.However, the introduction of standard contract guidance has been slightly more contentious.

The government's aim is to achieve a consistent approach by incorporating standard conditions into every contract, thereby simplifying the process and reducing the length of time that projects take to reach completion.

Ms Booth says 'the government became aware that one of the things it had to control was the negotiating process.

The reason it sometimes takes so long is that all the parties are trying to cover every eventuality.

So it makes sense to have standard guidance, although every project has a number of specific things that will still have to be negotiated'.

She is not concerned that the end result may be fewer costs billed by lawyers.

'If PFI is to work, then costs need to come down.

If there is more work, lawyers may not lose out in the end'.Anne Baldock, a partner and the manager of the PFI team at Allen & Overy, is al so pleased with the outcome of the consultation.

She says: 'When the government was working on standardising PFI contracts, we ran some seminars to ask clients for their views on it and tried to pull together quite disparate views, and facilitate finding a middle ground.

We were looking in particular at the issue of compensation for default termination on the service provider.

There was a great deal of debate about whether compensation should be payable at all by government and if so, about how it would be calculated.

At the moment the government has come out with a good middle ground'.Nick Bliss, a partner in the project finance group at Freshfields, is also generally supportive of standard contract guidance.

However, he says 'there are one or two issues which don't accord with the present orthodoxy as to how certain risks have been treated in projects to date.

I am sympathetic to the government's attempts to achieve a different allocation of risk, but it will take time for the private sector to accommodate these new issues.

It also remains to be seen whether the transfer of greater risk to the private sector will result in higher cost to the public sector'.Barry Blakemore, a member of the PFI unit at the law firm Hempsons in Harrogate, echoes these concerns on risk allocation.

He cautions that although the introduction of standardised contract guidance is supposed to speed up the negotiation process, it may have the opposite effect if some of the parties are not on board.

He explains that: 'Sometimes the funder comes on board later in the deal than anyone else.

He has the cash and has his own ideas of what the risk should be.

If he has not been involved in the negotiating process to reduce his risk, he may just walk away with the money.

Standardised contracts are a great idea and I am all in favour of speeding up the negotiation process, but you have to consider what this will mean to the people with the purse strings'.Although the guidance does not amount to a model document, John Bourne of the National Audit Office (NAO) has warned the public sector that: 'In looking at future PFI deals, the NAO will take a close interest in the extent to which these standard terms have been followed and the reasons for any departures from them'.

Mr Marlow says that, in reality, the guidance 'is very close to a diktat from the Treasury'.However, the onus will also be on PFI lawyers to deliver the goods.

Nick Maltby, a partner at pinsent Curtis and also a member of the major projects group, says: 'The challenge is to improve the process to make the money go on the project and not on our fees.

At the end of the day, it is all about volume.

It's all very well to take three years to do a deal, but I would prefer to be doing six deals in three years.

The more successful it is in more sectors, the more credibility it will have'.The government hopes that its decision to create a new privatised body -- Partnerships UK -- will deliver just that.

The idea is to provide expert advice to public sector bodies thinking of entering into PFI deals, so that the government's modernisation programme for public services can be achieved.

However, there is no obligation on the public sector to use Partnerships UK, and the government is at pains to point out that the new body will have to win business on the strength of its own expertise.The response to this proposal among PFI lawyers has been mixed.

Tim Steadman, a partner in the PFI group at Clifford Chance, is concerned about a potential conflict of interest for the new body.

'Partnerships UK will be help ing projects get off the ground by providing funding for things like feasibility studies and procurement costs.

It will only rarely directly invest in a project.

But when it does, then arguably there will be a conflict of interest between its role as an advisor to the public sector and its role as an investor'.But Mr Marlow of Freshfields does not think there is any potential for conflict.

He agrees that Partnerships UK is a 'curious entity because it can take an equity interest in a project', but he maintains that it will not lead to a conflict of interest.

He points out that: 'It cannot compete with the banks and it cannot lend money'.For its part, the government has stated categorically that Partnerships UK will not operate as a bank.

Instead, it says that its ability to provide development funding to get PFI deals off the ground, where other forms of private money are not available, will enhance rather than undermine existing flows of private finance.Mr Bliss takes the view that 'we will just have to wait and see.

It is not necessarily a bad thing that there is another competitor in the market ready to supply equity to projects, but whether they can supply it below the market rates because they can raise money from the government easier remains to be seen'.

He warns that the government needs to be careful that it does not end up being stuck with a whole variety of failing projects on its hands.But the government is bullish about the future of PFI and is committed to developing a whole range of new public-private partnerships.

Mr Milburn announced recently that the government intends to 'take forward public-private partnerships for many of the remaining commercial organisations in the public sector -- such as London Underground, National Air Traffic Control, British Waterways and the Commonwealth Development Corporation'.

He dismisses criticism that PFI is about mortgaging the future of this country's public services, and rejects the idea that it is 'just a rental scheme where the public sector pays money out but gets nothing back'.

However, Mr Bliss of Freshfields says that it may be ten years or more before we really know whether it has been a success.

'It represents a revolutionary change in procuring public assets and I don't think people understand that yet.'