Written evidence submitted by Kent Police |
1.1 PFI projects, when compared to traditional
"design and build" procurement methodology for estate
provision, are cost effective and deliver Value for Money. Providing
the costings and comparisons are done on a "Like for Like"
basis including furniture, fixtures, fittings, outsourced services,
and all associated Lifecycle and maintenance costs (where included
in a PFI proposal/contract) there is very little, if any, cost
variation if projected over a PFI contract period.
1.2 Authorities need to be clear as to the specification
of their Requirements in terms of building/facility/service needs.
The original methodology of leaving this to the private sector
did not work and, without a doubt, was the cause of many of the
PFI issues. The contract must be supported by a strong but fair
Payment Mechanism to deal with delivery failures. Furthermore,
Authorities need to have in place strong Contract Management provision
with staff who understand the contract and are prepared to "challenge"
providers over poor performance/non compliance and ensure relevant
financial deductions to charge payments are realised having due
regard to potential costs of such a "challenge" and
the benefits of a "commercial settlement" where appropriate.
This ensures facilities are delivered and maintained to the required
standard along with the specified service delivery. This way good
quality buildings and services are provided and maintained.
1.3 However, early PFI projects suffer from poor
national/central guidance and there is probably very little that
can be done about these. Over more recent times the guidance has
improved with experience and knowledge gained but the current
SOPC4 guidance still appears biased towards the private sector.
Should PFI continue this requires a radical overhaul making better
use of the knowledge and experience gained through delivering
PFI projects currently available across the public sector.
1.4 To assist authorities in the delivery of
PFI projects central government needs to move away from a position
of "protecting the image of PFI" experienced over recent
years, to one of supporting authorities to challenge the private
sector provision where such provision is below the required standard.
Government also need to respond and challenge misleading media
coverage of the PFI.
1.5 Those PFI contractors that have a reputation
for providing quality should be able to capitalise on this whilst
those that have gained a poor reputation should not. To this end
consideration should be given to the establishment of a national
database identifying good providers (may be sector specific),
including the individual companies that make up an SPV. If these
companies/organisations were then the "preferred suppliers"
this would act as an incentive on all PFI providers that wish
to remain in the sector to deliver good service for inclusion
on the database.
2.1 Kent Police/Kent Police Authority has two
PFI projects for new police stations at Gillingham (Medway Police
Station) and Northfleet (North Kent Police Station) the contracts
being signed in July 2004 and 2006 respectively with different
"Providers". The experiences are completely different
with one having had numerous disputes and construction completed
nine months late whilst the other went exceptionally well, construction
being completed on time and no significant subsequent service
2.2 Overall contract management is provided centrally
with localised day-to-day management/supervision including of
contractors performance. This means expert advice and guidance
is always available to support local staff and delivers corporacy.
This model ensures strong management with an "independent
overview" whereby non-compliance matters are identified with
appropriate timely action being implemented.
2.3 The submitter is the central PFI Manager/Advisor
for both projects with a number of years PFI experience. As such,
the submitter now has extensive PFI experience including contract
management, dispute and legal procedures.
2.4 This submission covers the PFI perspective
rather than the wider procurement domain.
3. FACTUAL INFORMATION
3.1 Main Strengths:
3.1.1 Capital sums do not have to be identified
along with financing arrangements.
3.1.2 As contracts include maintenance of buildings,
fixtures and fittings with all being "lifecycled" budget
expenditure can be projected over the lifetime of the project
avoiding "peaks and troughs".
3.1.3 Good quality buildings are provided and
generally the facilities are well managed and maintained owing
to contractual financial implications if not. This is in distinct
contrast to the quality of public sector buildings procured pre
or outside of the PFI.
3.1.4 PFI projects are no more expensive to local
authorities than a traditional "Design and Build" contract
if costed on a "like for like" basis. In general Design
and Build does not include building maintenance, furniture, fixtures
and fittings with "lifecycle" costs and "outsourcing
"of certain functions. Further cost savings are achieved
by the public sector through not having to employ people for estate
management. PFIs deliver Value for Money.
3.1.5 Strong contract management by Authorities
ensures delivery of contracted services with financial deductions
from the monthly Unitary Charge where the service provision is
not up to standard increasing the VfM of PFI projects.
3.1.6 Risk Transfer of costs in relation to facility/services
provision over the lifetime of the project avoiding unforeseen
and significant expenditure for local authorities.
3.1.7 During the service delivery stage managers
see the long-term financial implications of estate provision/management
proposals (traditionally the "hidden costs" which are
now available) making managers better informed and more accountable
for their decisions avoiding them being made on a "spur of
the moment" basis and incurring unnecessary expenditure.
From an operational managers perspective this is not necessarily
liked but from a business and VfM perspective should be regarded
as "good practice".
3.1.8 The Government grant to local authorities
makes PFI, from a local perspective, the most cost effective method
of procurement to use.
3.1.9 During the early stages of service delivery
of a PFI contract the cost of carrying out Variations (works,
etc) always appears very high at first view. However, if one takes
in to account the Lifecycle charges and "market tests"
often the PFI route is cheaper than traditional procurement over
the remaining contract lifespan owing to the buying power of some
PFI providers. However, most PFI providers are smaller than "Police
UK" or, indeed, the public sector, begging the question why
the public sector is not maximising its buying potential across
3.2 Main Weaknesses:
3.2.1 Too much reliance placed on private sector
to identify public sector needs and solutions in early PFI projects
leading to poor design and contracts. Undoubtedly this has led
to subsequent horror stories regarding the PFI.
3.2.2 The requirement to follow national guidance,
which was not good in relation to early PFI projects, once again
lead to poor design and contracts. Even now the latest SOPC4 guidance,
although better, still appears to be biased towards the private
sector and does not appear to take in to account the wealth of
knowledge and experience that now exists within the public sector.
This guidance, if PFI is to continue, needs updating reflecting
more of the needs and requirements of the customer rather than
3.2.3 The process for securing PFI Credits is
bureaucratic making it too long and rather expensive for local
authorities (and probably providers). This has to be streamlined.
3.2.4 Historically some Government departments
have been more interested in protecting the image of PFI rather
than supporting Authorities to challenge poor provision.
3.2.5 The "Adjudication Process" for
disputes defies the traditional rules of justice and either needs
a radical overhaul or omission from the PFI dispute processes.
3.2.6 Information on good and bad providers is
not available nationally yet the information is out there. This
leads to bad providers still being awarded contracts. The provision
of a national database on how providers perform would not only
avoid further contracts being given to such bad performing organisations
(and a repeat of the same problems) but it would also put pressure
on providers to ensure they deliver a good product and services.
3.2.7 Lack of Government support to counteract
misleading media articles regarding the PFI.
3.2.8 Lack of flexibility in budgets. Traditionally,
at times of economic stress, such items as estates maintenance
are usually amongst the first matters to suffer financially. Under
a PFI project, this cannot be achieved. Of course, this is also
a significant strength as it ensures the public investment is
protected improving VfM, leading to public buildings always being
maintained to a high standard, protecting the public investment.
4. PFI DEBT "ON"
4.1 This question is somewhat academic now as
PFIs are required to be shown "on" balance sheet. However,
from an Authority perspective whether the debt is "on"
or "off" balance sheet makes very little difference
as to whether the PFI route for procurement would be followed
or not. It is acknowledged the procedures for showing "on"
balance sheet are somewhat complex but have always been available.
4.2 It is further acknowledged that from a Government
perspective there may be some small advantages to PFI projects
not being shown "on" the balance sheet.
5. RISK TRANSFER
5.1 Providing the Authority Requirements are
clear, whether construction/facility needs or service delivery,
and supported by a robust and fair Payment Mechanism then the
transfer of risk for compliance with those Requirements is sound
and achievable if good quality contract management is employed
5.2 The PFI providers to Kent Police Authority
are constantly reminded that compliance with the Authority Requirements
remains the risk of the Contractor.
5.3 The "risk transfer" includes the
delivery of policing services where those services have been transferred
to the PFI provider for delivery (Public Counter/Enquiries; Lost/Found/Seized
Property Management; Logistical services; etc).
5.4 All non-core policing activity (Custody management;
office functions; Crime Scene/Forensic Investigation; etc) delivered
from a PFI building could be suitable to be outsourced to a PFI
provider. The only functions that need to remain "in house"
are those where a "Warrant" is required to deliver them.
With the transfer of the functions would go the "risk"
with tight performance criteria against which to perform. However,
if there were a desire to outsource such functions across a police
force area then the PFI route is probably not the preferred option
for a number of reasons including complications caused to police
financing v Government PFI grant. The "PFI "Good Practice"
of having tight performance requirements to be delivered and the
financial consequences if not met is a robust model to take forward
in to "outsourcing" in general outside of the PFI domain
along with the lesson some authorities have had to learn - such
contracts require good contract management.
6. STATE GUARANTEES
6.1 PFI providers generally see the investment
in the public sector as "safe" although "long term"
with returns on the investment as being acceptable rather than
outstanding. This has become more apparent during the current
6.2 From an authority perspective, it assures
good quality public buildings maintained to a high standard, thus
protecting the public investment which, in view of the Government
PFI grant, is affordable, notwithstanding, in real terms, this
reduces over the contract period, but by a known amount, making
budgets manageable. It is implied this Grant is guaranteed for
the contract lifetime. If it were taken away then it would create
severe financial issues for many authorities.
7.1 Only having experience of delivering PFI
projects within the police environment and building related, this
element is based upon those experiences;
7.2 In essence any services required to be delivered
within such an environment can be incorporated under a PFI (other
than those where a Warrant is required, namely police officers).
However, as PFIs operate under a performance culture, to ensure
delivery of services and incentivise performance, the roles must
be able to demonstrate measurable outputs/outcomes in order to
ensure VfM. The potential is, therefore, very wide with the determining
factor being VfM and affordability.