VALUE
FOR
MONEY
72. It is possible for Departments to argue that
good value for money has been obtained in privately financed projects
where (1) procurement has been highly competitive, giving assurance
that the best available private finance deal has been selected,
and (2) the resulting deal has been evaluated favourably with
a public sector alternative. In the Skye case these conditions
were not fully satisfied.[57]
73. In the absence of these clear benchmarks as to
value for money we asked the Department how they had assured themselves
that the benefits of the project were worth the price they were
paying for them.
74. The Department said[58]
that part of the value to them was risk transfer, though they
had not tried to quantify this benefit. On the absence of a public
sector comparator to help evaluate the deal, they said that to
have prepared a comparator based on a comparison with a publicly
financed bridge would have been false and misleading since it
would have left the impression that the Department was seriously
considering that option.
75. The Department carried out an economic appraisal
which assessed the project against the ferries.[59]
As this could not demonstrate that the price to be paid by users
and the Department was reasonable,[60]
we asked the Department whether, on the basis of the comparators
which they had prepared, they believed the project was good value
for money. They said[61]
that the taxpayer did not have very much money in it and that
the main investment in the bridge was the private sector.
76. In response to our further suggestion that a
public sector comparator might have made an illuminating comparison
which would not have been costly to prepare, the Department said[62]
that they would now seriously look at what could be done in that
direction were they to consider such a project now.
77. We asked whether, in considering alternatives
to building a bridge, the Department had evaluated the possibilities
of allowing the ferry operator to develop ships that would overcome
the problems for which the bridge was built. The Department said[63]
that their economic evaluation compared the economic benefits
between the options of a bridge or continuing an existing ferry
service, and had concluded the benefits of a bridge were substantial.
They said that there would be difficulty in providing any ferry
service which could compete with the convenience of a bridge.
Conclusions
78. The Department decided against calculating a
public sector comparator for this project on the grounds that
such a comparison would have been false and misleading since they
had no intention of funding the Skye Bridge except as a privately
financed project. But it is highly unsatisfactory that a Department
can seek to avoid having to carry out a thorough comparative evaluation
of a proposed project merely by asserting that public finance
would not be available for a conventional solution.
79. The Department took a narrow view of the amount
of taxpayer's money in the project, looking only at their direct
contribution to the project. But the project involved the public
sector forgoing the income from the former ferry service, which
was generating profits at a rate of £ 1 million in its last
year of operation, to the benefit of the taxpayer. We expect Departments
to consider the full implications of projects for the taxpayer,
including not just direct expenditure but also indirect costs,
such as income forgone. We also expect Departments to seek good
value for those users, whether or not taxpayers, who will be required
to pay for monopoly services.
80. Because every decision to proceed with a privately
financed project must involve rejecting some alternative, systematic
comparisons are the key to prudent decision-making in this area.
We criticise the Department for not having carried out such a
comparison. We note their assurance that, in similar circumstances,
they would now look carefully at preparing a comparator.
81. In the absence of such a comparison, and given
that competitive tension did not apply in the final stages of
the negotiation of this deal, a question mark must remain over
the extent of value for money obtained by the taxpayer and the
toll payer from this project.
57 C&AG's Report para 4.2 Back
58
Q10-11 Back
59
Q11 Back
60
C&AG's Report para 4.5 Back
61
Q12 Back
62
Q51-53 Back
63
Q109 Back
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