24 March 2006
New Treasury guidance will cap the number of Private Finance Initiative contracts lasting more than 25 years and limit those that include 'soft' services such as cleaning.
Contracts that already include soft services will now all be subjected to periodic market testing. That move follows Treasury concerns that existing benchmarking schemes could lead to significant price increases from incumbent contractors once contracts come up for renegotiation over the next two years.
The Treasury's plans are outlined in the report PFI: strengthening long-term partnerships, published alongside the Budget on March 22. The plans also include the establishment of a PFI operational task force to improve the public sector's ability to manage contracts.
The announcements were coupled with a reassurance to the City that the Treasury is committed to completing some 200 PFI projects, with a capital value of £26bn, over the next five years.
The introduction of 'sector-specific caps' for the length of PFI contracts follows concern that long-term projects are too inflexible, particularly in the NHS. While most currently last 25–30 years, the Treasury now feels that such lengths might not be 'a true reflection of the optimal period of service delivery'.
While the Treasury found that standards of soft services provided by PFI contracts were 'no worse' than those in non-PFI structures, it also states that 'PFI has not led to a step-change in delivery in this area'.
The Treasury thus intends to update its current 'value for money' guidance to rule that 'the inclusion of soft services within PFI contracts should not be taken as a given'.
Margie Jaffe, national officer for Unison, welcomed the move. 'It's PFI without the people,' she told Public Finance. 'That was always our first goal. This is significant progress.'
Stephen Matthew, PFI project partner at the law firm Nabarro Nathanson, told PF that retrospective moves to market-test rather than benchmark soft services could lead to some legal battles. PFI operators would be particularly concerned if a new contractor caused them to incur financial penalties.
PFmar2006
