Letter from the Director-General Business
Services Association to the Chairman of the Committee (PS 41A)
I have reviewed with my members your Committee's
request for additional information on the profit returns experienced
by them in respect of NHS PFI contracts. The current position
is that no such contracts have been in operation for more than
a few months, so no hard information or evidence is available
at this time.
The bidding costs of these PFI projects is considerable
(generally in excess of £500,000 per bid for the service
company consortium member alone), the timescales for return are
lengthy (construction may not commence for two years after financial
close and services may commence only on completion of construction,
maybe a further two years later) and the risk profile is complicated,
since there are a host of unknown and unpredictable issues which
need to be factored in, including demographic change and advances
in clinical science which could affect dramatically the accommodation
needs of the hospital.
At this early stage, therefore, it is not possible
to confirm what the life cycle profitability of these projects
is likely to be. It is our belief, however, that they will be
in line with the figures which I quoted to the Committee, that
is between 1 and 3 per cent.
I regret that it is not possible to give more
concrete information at this stage in the evolution of NHS PFI
projects. Hopefully, by the time of the next enquiry into these
issues by your Committee, more factual evidence will be available
and we will be in a position to offer you more detailed assistance.
21 February 2002