PFI in Housing and Hospitals - Public Accounts Committee Contents

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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Prepared 18 January 2011