Conclusions and recommendations
1. There is no clear evidence to conclude
whether PFI has been demonstrably better or worse value for money
for housing and hospitals than other procurement options. In many
cases local authorities and Trusts chose the PFI route because
the Departments offered no realistic funding alternative.
There have, however, been long delays and cost increases affecting
many early PFI housing projects, as well as wide and unexplained
variations in the cost of PFI hospital support services. The Departments
should prepare and publish whole-programme evaluations which assess
PFI against alternative procurement routes using clear value for
money criteria. The evaluations should include the merits or otherwise
of including support services in the contracts.
2. PFI housing contracts have cost considerably
more than originally planned and, on average, have been let two
and a half years late. The Department
for Communities and Local Government must ensure that the actions
it has been taking to address previous programme failings will
result in future projects being delivered to time and within cost.
3. Following the Comprehensive Spending Review,
the future of remaining PFI housing projects is uncertain.
In taking forward plans for delivering new and improved housing,
the Department should ensure that the choice of procurement route,
PFI or otherwise, is based on clear and transparent value for
money criteria.
4. The Department of Health, in failing to
negotiate with investment funds centrally, is not using its own
buying power to leverage gains for the taxpayer. Specialist
investment funds have interests in large numbers of PFI projects.
One fund, Innisfree, has acquired interests in a substantial portfolio
of hospital projects. The bundling together of projects by these
investors gives them the prospect of taking added value from economies
of scale, with no benefit to the public sector at a time of severely
constrained public finances. Central negotiations with investors
have proved successful in the past in securing a share of refinancing
gains for the public sector. Central government is currently negotiating
with major suppliers to seek better deals from a range of existing
contracts. The Department of Health and other departments with
PFI programmes should similarly negotiate with major PFI investors
and contractors to secure better deals for the taxpayer.
5. The Departments do not routinely collate
sufficient accurate data on the costs and performance of their
PFI contracts. Monitoring and improving
value for money depends on local projects having access to good
quality information from across the programmes. Both Departments
should define minimum data requirements and then take responsibility
for ensuring that information collected from and distributed to
local projects is complete, accurate and consistent. The Department
of Health and the Foundation Trust regulator Monitor should embed
these data requirements in Foundation Trusts' terms of authorisation
so that they are mandatory.
6. There are no mechanisms built into generic
PFI contracts to test the continued value for money of maintenance
work during the contract period. The requirement
for buildings being maintained to high standards over the life
of the contract is supposed to be a key benefit of PFI. Yet around
20% of hospital Trusts were not satisfied with the maintenance
service. Unlike services such as catering and cleaning, maintenance
is not subject to a value for money review during the contract
period, so contractors do not face the threat of losing the contract
if they are uncompetitive. The Treasury, in consultation with
departments, should identify how value for money tests and incentives
to improve maintenance could be built into the life of PFI contracts.
7. Local procuring authorities will be at
a disadvantage compared to the private sector if the Departments
do not provide sufficient central support.
Central departments need to have adequate resources to: collect
data and carry out programme evaluations; exert market leverage
and identify opportunities for efficiency gains; and share good
practice with the local projects and offer support to them. It
would be very disappointing if the public sector as a whole lost
value for money from its PFI contracts because the Departments
were losing their capability through reducing the costs of central
administration. We look to the Department for Communities and
Local Government to deliver on its commitment to keep its support
capacity at an appropriate level. We also expect the Department
of Health to firm up plans for the future of its PFI Unit and
for Trusts to contribute to a club to procure contract management
support. Trusts should confirm that they will actively engage
with the club.
8. Our recommendations are directed at the
programmes for housing and hospital projects but are also relevant
to other PFI programmes across government.
In the Government's response to this report, the Treasury should
outline its plans to support all departments in maximising value
for money from their PFI programmes in the current economic climate.
We expect the Treasury to comment specifically on the evaluation
of PFI as a procurement route, on using market leverage and on
the sufficiency of central data.
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