13 April 2007
The Treasury has issued new rules to make Private Finance Initiative contracts more amenable to changes in service delivery methods and user demand.
The rules, which take effect from May 1, require all new contracts to include shorter lengths, 'change mechanisms' for predictable and unpredictable service changes and early termination rights.
The changes include establishing in advance criteria for transparent pricing for service additions. They follow Treasury concerns that current 'benchmarking' procedures do not result in good value from incumbent contractors.
A source close to the Treasury told Public Finance its latest Revision to Standardisation of PFI Contracts document was designed to remove 'friction' between contractors and public authorities. The new clauses are likely to be applied in cases where PFI hospitals adapt wards for other uses; where prisons require additional places or where new policies such as those for school meals require contractors to deliver higher quality services but at a fair price.
The document recognises that flexibility might come at a price but states: 'Well-designed contracts therefore need to strike a balance between price, long-term flexibility and certainty of whole-life costs.'
PFapr2007
