Public sector comparators are false say MPs

30 Jan 03
Senior backbench MPs have condemned as 'false and spurious' the public sector comparators used to test the value for money of Private Finance Initiative deals.

31 January 2003

The Public Accounts Committee said too much emphasis was placed on PSCs, which compare the cost of procuring goods or services through conventional public sector means rather than the private sector.

MPs were unimpressed by the 'minuscule' savings expected on the redevelopment of the Ministry of Defence's Whitehall headquarters under the PFI.

Their report, published on January 30, said the PSC had estimated the work would cost £746.2m through conventional procurement, compared with £746.1m under the PFI.

'Such accuracy in long-term project costings is spurious, and the small margin in favour of the PFI deal provides no assurance that the deal will provide value for money,' the committee said.

The PAC's Conservative chair, Edward Leigh, was more blunt in his assessment of the robustness of PSCs.

'The difference was a mere 0.01%, but as these costs are nothing more than estimates, it is false and spurious to present them as having a high degree of accuracy,' he said.

'Value-for-money judgements must be based on broader considerations, particularly where there is little significant difference in the cost comparison,' he added.

The committee's report criticised the MoD for its failure to pay 'closer attention to finance costs' in the 16 months it took to close the deal.

The price of the contract increased by £99m over that period, between the selection of the Modus consortium as preferred bidder and closing the deal. Financing costs were attributed to £60m of this.

MPs said it would have been 'productive' for MoD officials to focus on the pressures generating the price increase at an earlier stage.

'Reducing the length of that period, postponing the choice of finance to the end to get the cheapest form of financing available, and a cannier approach to the finance markets prior to closing the deal all might have helped to secure savings on this project,' they said.


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