1 Value for money of the hospitals
and housing PFI programmes
1. Many PFI projects are procured by local bodies,
such as NHS Trusts and local authorities, who are the signatories
to the contracts and are responsible for day to day contract management.
Central government departments are responsible for managing the
portfolios of projects, supporting projects to maximise value
for money over the lives of the contracts and providing assurance
to Parliament on expenditure and value for money. We took evidence
at a single hearing, based on two National Audit Office reports
- on the operational phase of PFI hospitals, and on the procurement
phase of PFI housing - in order to look at the PFI process in
a broader context.[2]
2. As of April 2009 there were 76 operational
PFI hospital contracts with a capital value of £6 billion.
In addition there are a small number of projects in procurement.[3]
Over the past ten years PFI has been the major procurement route
for major health infrastructure projects. The Department of Health
told us that in 1999-2000 the then Secretary of State had said
"PFI is the only game in town".[4]
3. By contrast the Department for Communities
and Local Government has made more limited use of PFI for social
housing. The Department told us that PFI has accounted for only
2% of investment in social housing where it sits alongside a number
of other investment routes.[5]
By April 2009 there were 25 signed PFI housing projects which
had built or refurbished over 13,000 homes.[6]
Together with projects currently in procurement the Department
told us that PFI housing projects have a capital value of £2.8
billion, which excludes projects worth £1.8 billion for which
funding is no longer guaranteed following the recent Spending
Review. It is currently reviewing these projects with local authorities
to consider different funding options.[7]
4. We questioned the two Departments about the
circumstances in which they felt PFI was value for money. The
Department of Health believes that at a portfolio level there
has been no difference between PFI and ordinary public procurements
in terms of value for money, but that PFI has enabled many more
hospitals to be built that would otherwise have been the case.[8]
The Department for Communities and Local Government told us that
PFI works best for delivering significant transformational change
in areas of high deprivation but works less well for straightforward
refurbishment schemes.[9]
5. It is hard to get a definitive picture of
when PFI is value for money without robust evaluation. The Department
for Communities and Local Government has undertaken a limited
analysis of capital costs on new build schemes but this did not
take account of all project costs such as finance costs. The Department
was undertaking a programme level comparison exercise which was
due to conclude in December 2010.[10]
6. To be approved, PFI projects should be assessed
as being value for money compared to other funding options. This
usually involves comparison to a theoretical model called the
public sector comparator. The Department of Health noted that
in some cases PFI deals went ahead with the PFI option marginally
more expensive than the public sector comparator.[11]
As comparators involve estimation a marginal difference is not
significant, but we are concerned, given that other funding options
were not realistically available, that business cases may have
failed to challenge sufficiently the choice of PFI as the procurement
route. The National Audit Office also reported that local authorities
frequently cited PFI as the only realistic route to secure funding
for some housing schemes.[12]
7. Value for money is called into question if
projects are consistently late or over-budget. The housing projects
signed to date have cost significantly more than originally planned
with 12 projects seeing increases over 100%. In addition projects
have on average been signed two and half years late.[13]
The Department for Communities and Local Government told us that
insufficient time was invested in the beginning of the process
for early schemes. For example project teams did not have a good
understanding of the condition of existing housing stock.[14]
The Department for Communities and Local Government now spends
more time evaluating projects at an early stage and told us that
only one project has seen a cost increase since 2006, although
some projects may need to reduce their scope to stay within budget
in future. [15]
On hospitals, most PFI hospital contracts, once operational, are
well managed and achieving the value for money expected at the
point contracts were signed; but there is no evidence that including
operational support services in a PFI contract is better or worse
value for money than managing them separately.[16]
2 C&AG's reports, PFI in housing, HC 71,
2010-2011 and The performance and management of hospital PFI
contracts, HC 68, 2010-2011 Back
3
Q 129; C&AG's report, The performance and management of
hospital PFI contracts, HC 68 2010-2011, paragraph 1.2 Back
4
Q 36 Back
5
Q 1 Back
6
C&AG's report, PFI in housing, Figure 1 Back
7
Qq 101-103, Ev 20 Back
8
Qq 7-8 Back
9
Qq 2, 159 Back
10
Qq 111, Q15 Back
11
Qq 25, 38-39 Back
12
C&AG's report, PFI in housing, paragraph 1.12 Back
13
Qq 97-99; C&AG's report, PFI in housing, paragraph
2.11 Back
14
Q 3 Back
15
C&AG's report, PFI in housing, paragraph 2.10 Back
16
C&AG's report, The performance and management of hospital
PFI contracts, paragraph 18 Back
|