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NAO finds lessons from PFI experience

06 May 2011

The NAO says taking experiences from PFIs can improve other forms of procurement and help Government achieve annual infrastructure delivery cost savings of £2 -3bn.

According to the Report by the Comptroller and Auditor General (HC 920 Session 2010–2012) prepared for the House of Commons, Government should also do more to act as an ‘intelligent customer’ in the procurement and management of projects. It concludes that:
1. To secure the best value for money from all types of procurement, the public sector needs to develop the ‘enablers of success’. These are collecting better data to inform decision-making; ensuring projects have the right skills; establishing effective arrangements to test, challenge and, if necessary, stop projects; and using commercial awareness to obtain better deals.
2. The case for using private finance in public procurement needs to be challenged more, given the spending watchdog’s previous analysis that the cost of debt finance has increased since the credit crisis by 20 to 33 percent. Also, under the national accounting rules, privately financed projects will often still be off balance-sheet which may continue to act as an incentive to use PFI. The NAO concludes that, in the current climate, the use of private finance may not be as suitable for as many projects as it has been in the past.
3. There has not been a systematic value for money evaluation of operational PFI projects by departments. There is, therefore, insufficient data to demonstrate whether the use of private finance has led to better or worse value for money than other forms of procurement. The NAO calls on the Treasury and departments to identify alternative methods for delivering infrastructure and related facilities services, building on the lessons learnt from PFI, to maximise value for money for government.
4. The NAO welcomes the current plans of the Treasury and Cabinet Office to strengthen project assurance. The NAO highlights the need for independent challenge capable of stopping projects which do not give the prospect of value for money. This is particularly important as there is still a shortage of the skills needed to manage and oversee complex major projects. Better contract management skills are particularly needed to obtain best value during the contract period, including by ensuring the public sector shares in cost efficiencies achieved in existing contracts.
Commenting on the Report, Amyas Morse, head of the National Audit Office, said, “The public sector should 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.”
This report brings together findings from the NAO’s five recent reports on PFI Procurement of the M25 private finance contract; Financing PFI projects in the credit crisis and the Treasury’s response; PFI in housing; The performance and management of hospital PFI contracts; Delivering multi-role tanker aircraft capability. It also draws on nine other NAO reports on non-PFI projects and the NAO’s wider experience of good practice across the public sector.
There are currently 698 signed PFI projects in the UK with a combined capital value of £52.9bn. The forecast PFI payment across all PFI contracts for 2010-11 is estimated as £7.9bn and for 2011-12 is estimated as £8.6bn. PFI contracts are usually long-term arrangements typically spanning 25 to 30 years. HM Treasury estimates that the present value of the total commitments on signed PFI contracts are £121.4bn.

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