NEGOTIATIONS FOLLOWING THE VALUE
TESTING OF OPERATIONAL DEALS
14. The Treasury expects public authorities to decide,
on a contract by contract basis, whether to include facilities
services in a PFI contract or to procure them through conventional
outsourcing. In some cases, design issues may make it sensible
for a construction company to both build PFI facilities and provide
related services. In other cases, conventional outsourcing may
allow greater competition between service providers. To date,
however, conventional outsourcing has not been compared overall
with the cost and quality experience of facilities services procured
under the PFI.[17]
15. In all the building projects which had been subject
to benchmarking or market testing, the public authorities have
had to enter into negotiations to improve the price changes initially
proposed by the private sector. In four of these seven building
projects the final outcome after negotiation was still a price
increase of between 1% and 14% in addition to the annual price
increase for inflation allowed by the contracts. In these cases,
it was uncertain whether value for money had been achieved (Figure
4) given that the other building projects had achieved price
reductions or kept the price unchanged. It is possible, however,
that some bidders may have initially set prices at below market
rates knowing that price increases could subsequently be negotiated
through the benchmarking and market testing process.[18]
16. During negotiations with suppliers as part of
the value testing of services, some public sector authorities
had agreed to reductions in the services being provided to keep
the price of their PFI contracts affordable. These authorities
considered the service levels were previously over-specified and
did not expect the reductions in specifications to compromise
the service delivered to the public, although it is too early
to judge the outcome conclusively.[19]
Figure 4: Key features of the seven PFI
building projects that have completed value testing of their ongoing
services
| Project Name
| Value Testing Method
| Change in Supplier (after market testing)
| Annual Cost of Services (2005-6)
| Final Agreed Price Change (note)
| NAO assessment of value for money
| Service change
|
| Debden Park High School |
Benchmarking | n/a
| £0.2m | + 14%
| Uncertain |
|
| Queen Elizabeth Hospital, Greenwich
| Market Testing | Incumbent
| £5.7m | + 6%
| Uncertain | Some planned enhancements to service not taken up to keep contract affordable
|
| Sussex Partnership NHS Trust
| Market Testing | In-house
| £0.9m | + 5.7%
| Uncertain |
|
| University Hospital of North Durham
| Benchmarking | n/a
| £3.5m | + 1.2%
| Uncertain |
|
| St John's House, Bootle |
Benchmarking | n/a
| £0.8m | No change
| Yes | |
| Norfolk and Norwich University Hospital
| Market Testing | Incumbent
| £9.8m | - 2.2%
| Yes | |
| Darent Valley Hospital |
Benchmarking | n/a
| £5.1m | - 2.4%
| Yes | A reduced office cleaning regime and cessation of two dedicated porters for each operating theatre but the Trust does not expect this to adversely affect users. Reduction in service costs also achieved through separate decision, as part of the clinical strategy, to close a number of beds
|
Note: The price changes exclude service enhancements
and also the effect on the costs of the NHS Trusts of the NHS
Agenda for Change which would have happened regardless of the
PFI value testing process
Source: National Audit Office
11 
