1 GREATER CERTAINTY FROM THE
PFI
1. The National Audit Office (NAO) carried out a
census of all 38 central government PFI projects where the construction
phase was due to have been completed by Summer 2002. The results
showed that departments were experiencing greater certainty in
project delivery under the PFI. The proportions of projects which
were not delivered on time, or which cost the public sector more
than had been expected at contract letting, were much smaller
under the PFI than under previous government building procurement
(Figure 1).[2]
2. The OGC considered that the more timely delivery
of PFI projects reflected a genuine improvement in building times
from the PFI's more disciplined approach and was not due to soft
timetables being negotiated. The OGC placed emphasis on the benefits
which departments would derive from the greater certainty over
when an asset will be available and that the asset will be kept
in good order for the whole of its life. Where departments had
experienced price increases this had mainly related to additional
work which had not been part of the original specification.[3]
Figure 1:
Improved project delivery under the PFI
| |
PFI experience
(2002 NAO census)
| Previous experience
(1999 Government survey)
|
| Price exceeds that agreed at contract |
22%
| 73% |
| Built asset delivered late to public sector
| 24% |
70%
|
| Over 2 months late |
8%
| |
Sources: PFI experience: NAO census of central government &
building projects due to be completed summer 2002. Previous experience
based on a government building survey 1999
3. It is encouraging that greater certainty for the public sector
is being achieved under the PFI. This certainty may carry a price,
however, particularly as the private sector will be charging for
the risk of maintaining the built asset throughout the PFI contract
period. The CIC told us that the PFI gives the private sector
greater incentive to focus from the outset on the whole life costs
of the contract. The construction industry had found that PFI
produced cost improvements of 5 to 10%, both on construction and
subsequent operations or facilities management. The PFI contract
is also supposed to give the private sector less scope to escalate
the price after contract award. More evidence is needed, however,
to show whether these cost reductions have fed through into lower
prices compared with conventional procurement. And the CIC's calculations
of cost reductions were before any changes to staff costs that
may arise if steps are taken to address the two tier workforce
issue, where the pay and conditions of former public sector staff
transferring to a private sector contractor are different than
those of other employees of he contractor.[4]
4. As well as the consideration of project delivery and price,
it is important that there is a full evaluation of the wider benefits
from PFI projects compared with other forms of procurement. It
was disappointing that formal user surveys had only been undertaken
in four of the 37 PFI projects surveyed by the NAO. For example,
in hospitals the views of doctors, nurses and patients are essential
to building up a picture of how well the built asset is serving
its intended purpose. The OGC said it would be giving greater
prominence to the need for user surveys. It also expected that
the design quality indicators developed by the Commission for
Architecture and the Built Environment (CABE) would help in assessing
public buildings.[5]
5. Because a PFI consortium is not paid until the built asset
is operational, contractors might tend to use working methods
which deliver the asset quickly without necessarily encouraging
new ideas in design and construction. The CIC said that the PFI
process should encourage innovation because contractors should
be considering methods which minimise the costs of maintaining
the built asset over the life of a PFI contract. There was a need
to improve on the extent of innovation in PFI projects, however,
though there were sometimes constraints in practice. In particular,
funders tended to prefer tried and tested solutions as the risks
could be more easily predicted.[6]
2 C&AG's Report, Figure 1, p3 and paras 5, 2.3-2.5,
2.17-2.25 Back
3
Qq 1, 11-12, 20, 39-42, 57-63, 92-93, 165-168 Back
4
Qq 11-12, 22-24, 43-48, 92-94, 106-107, 115-117, 135-136, 146-151,
186; Ev 18-19; Qq 146-151 Back
5
C&AG's Report, para 2.29; Qq 4-6, 170-178 Back
6
C&AG's Report, para 1.20; Qq 13, 18-19, 22-24, 112-114, 133-134 Back
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