By Richard Johnstone
28 April 2011
Insufficient data means it is impossible to conclude whether Private Finance Initiative projects offer better value for money than conventional procurement, the National Audit Office says.
In a report published today, the watchdog says government departments have not been assessing the value for money of their projects. It adds that the future use of private finance in public projects might not be as suitable as it has been in the past. It calls on the Treasury and departments to identify alternative methods for providing infrastructure and related facilities services, building on the lessons of the PFI.
There are 698 signed PFI projects in the UK with a combined capital value of £52.9bn.
If the government is to meet its target of £3bn of savings a year in infrastructure, it will have to act more intelligently in the procurement and management of projects by developing better indicators of success for projects, the auditors say.
This includes collecting better data and establishing effective arrangements to test, challenge and, if necessary, stop projects.
The watchdog also says the case for using private finance in public procurement needs to be challenged more, as the cost of debt finance has increased since the credit crisis by 20% to 33%.
The forecast PFI payment across all contracts for 2010/11 is estimated as £7.9bn, and is set to rise to £8.6bn in 2011/12.
But despite these findings, the NAO notes that the PFI will continue to be attractive to the public sector as privately financed projects will still often be off the balance sheet.
The auditors also say that while PFI contracts can be inflexible, the regular forums held by NHS trusts to share experiences were good examples of how to share best practice. They also note that the Treasury has launched a pilot scheme to seek to reduce the costs of existing PFI projects, starting at the Queen’s Hospital in Romford.
Commenting on the report, Amyas Morse, head of the National Audit Office, said the public sector needed to make better use of ‘the hard won lessons’ from the extensive and substantial PFI programme. ‘This means acting as a more demanding and intelligent customer, by harnessing government buying power through concerted tactics and tougher negotiation.’
NHS Confederation acting chief executive Nigel Edwards called for ‘a measured debate’ about the PFI ‘so we do not discourage future private investors from supplying capital for large projects’.
He added: ‘It is right to examine whether there are practical ways for the NHS to squeeze more value from existing deals, given the substantial savings that all trusts have to make. Taxpayers need to see that everything possible is being done to focus money on patient care.’
He added that the government’s proposed reforms to the NHS would introduce a number of challenges for future PFI and non-PFI funded capital projects, with a need for more flexibility.
