Whitehall focus Ex-City banker to oversee MoD projects

10 Feb 05
The head of the Ministry of Defence's new Private Finance Unit will have a veto over future projects as part of his remit to improve the department's lamentable procurement record, officials have revealed.

11 February 2005

The head of the Ministry of Defence's new Private Finance Unit will have a veto over future projects as part of his remit to improve the department's lamentable procurement record, officials have revealed.

Whitehall sources told Public Finance that Nick Prior, the former City banker seconded from Partnerships UK to lead the unit, has been given 'considerable clout' to control the cost of Private Finance Initiative projects, many of which have risen excessively in recent years.

One MoD source said: 'Prior's team will have the ability to delay projects, and possibly even reject them, if he feels the costs, time spans and details involved represent an unnecessary risk or poor value.

'This is not simply an advisory role, like that of some historical Whitehall PFI teams. The PFU's advice has to be taken on board. Before now, each project team would often go their own way through the PFI process, but the PFU should make that a thing of the past.'

Prior's oversight role has been approved by the Treasury, which has long voiced concerns about the cost of PFIs at the MoD and is attempting to standardise private procurement across Whitehall. 'The fact that I have worked very closely with the Treasury for the past couple of years is a large part of my coming here,' Prior said.

Lord Bach, MoD procurement minister, announced the establishment of the unit on February 8. Prior will appoint a 30-strong team of finance experts, many from outside Whitehall, to operate within the MoD's main building in London and assess all new PFI proposals.

He will also oversee 17 existing proposals, including the problematic £13bn contract to supply the Royal Air Force with air-to-air refuelling planes, which requires around £2.5bn of debt finance up front. Protracted negotiations with the preferred bidder, a consortium led by EADS, have raised fears that delivery could be delayed.

It is not just high-value equipment schemes that have caused the MoD problems. Last summer, the department pulled a £2bn airfield support services proposal after three years, leaving bidding firms demanding compensation. MoD officials said Prior would pay particular attention to bid costs involved in new projects.

Lord Bach said: 'We accept that not all our privately financed projects have run smoothly and there is considerable scope for improvement in the PFI procurement process.

'This new unit will enhance the capability of the MoD to deliver.'

Efficiency plans 'must take full account of risk'

Government departments must ensure that efficiency plans drawn up to meet the Gershon agenda include robust management of risks that threaten the provision of high-quality public services, Paul Boateng has said.

The chief secretary to the Treasury told a National Audit Office conference that the need for a proper risk management framework was particularly pressing when relying on other agencies to deliver services.

Boateng, speaking on February 8, told delegates that the Treasury and Number 10's Delivery Unit would in future be looking for evidence that Whitehall ministries had risk identification, assessment and management systems in place.

These would be at the core of departments' efficiency and service delivery plans and ensure that they met their Spending Review objectives, he said.

'Every one of us involved must have a very clear understanding of the total level of risk taken on,' Boateng said. 'We must understand risks right from the start, and address them head on, early on.'

The Treasury's review of departmental financial management, which is currently getting under way, would also look at risk management across government, addressing departmental capacity and governance issues, Boateng said.

He called on civil servants to draw on the expertise available within Whitehall to meet these challenges.

'Let me just say that you should not be shy to ask for support. I know the Office of Government Commerce, for example, can help to raise our game further in this area. It is crucial that we get this right, and do so now.'

National Physical Laboratory PFI scheme scrapped

The Department of Trade and Industry has halted a Private Finance Initiative deal to rebuild the National Physical Laboratory in Middlesex and brought the project back in-house.

Department officials have confirmed that they made a £75m termination payment to the contractor Laser, a spin-off from Serco.

Trade and Industry Secretary Patricia Hewitt said she had stepped in once it became clear that technical difficulties experienced by Laser would increase costs significantly and had 'threatened the project's viability'. The department has assumed full ownership and responsibility for the project, but said it could still recruit private firms to complete some work on the 36,000 square metre site.

NPL has been Britain's national standards laboratory developing measurement science in support of commerce since 1902, including one of the world's first computers in the 1940s.

Prospect, which represents many of the scientists employed by the NPL, welcomed the DTI's decision, but called for swift clarification of the impact on jobs at the site.

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