PFI schools are significantly worse

16 Jan 03
The Private Finance Initiative offers few benefits to education, and high-performing councils should be given the freedom to explore other methods of procurement, the Audit Commission concluded in a report this week.

17 January 2003

In an investigation that will stretch the chasm between ministers and unions further, the commission delivered a damning verdict on the scheme. Traditional funding, it found, delivers better schools while PFI schools were 'significantly worse'.

The design and build of schools was no cheaper than traditional procurement, unit costs were no less and buildings were not delivered any quicker. The report concluded: 'The early PFI schools have not been built cheaper, better, or quicker.'

The commission's findings, the first comprehensive investigation into the PFI in schools, effectively rubbishes government claims that the initiative brings better value for money, design innovation and better risk management. It also leaves a question mark over the rapidly expanding schools market, with PFI commitments in England alone set to hit £2.4bn by 2005/06.

The commission, which investigated all schools completed by 2001, crucially calls into question the public sector comparator – the financial benchmark used to judge value for money. It found that as only 14% of schools had been built in the past 25 years, few local education authorities had the necessary cost and construction information to make an accurate comparison between the PFI and traditional procurement.

In addition, it said the comparator fell short as PFI costs were projected before the design or contract negotiations were finalised. Those interviewed for the report said PSCs were often estimated on the high side in order to secure valuable PFI credits.

But perhaps the severest criticism was reserved for the process of risk transfer, which often tips the balance between traditional and private finance. The report found that the size of risks transferred was heavily influenced by the difference between the PSC and PFI. 'Where the PSC estimate was much below the PFI cost, the cost of risk transfer added on was on average higher,' it stated.

Greg Birdseye, associate director of the commission's public service research directorate, said there was little evidence that risk transfer had been scientifically estimated: 'It seems to be based on guesstimates and might not be an objective test of value for money.'

The commission makes several recommendations, most notably rejecting the government's 'one-size-fits-all approach to the PFI'. Birdseye said the PSC should be a wider test than value for money and it should be expanded to measure outputs.

The report was a welcome gift for Unison, which led a rebellion against the PFI at last year's Labour Party conference. 'The PFI is failing to live up to its promises and it is about time the government accepted that,' said general secretary Dave Prentis.

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