No clear evidence on whether PFI offers VFM, say MPs

The private finance initiative may have delivered many new hospitals and homes which might otherwise not have been delivered, but there is no clear evidence of whether PFI is any better or worse value for money than other procurement routes, MPs have said.

In a report on the use of PFI in hospitals and social housing, the influential Public Accounts Committee said that by April 2009, there were 76 operational PFI hospitals in England and more than 13,000 homes had been built or refurbished through PFI, “representing a small but significant part of investment in social housing”.

It said: “As with previous reports, we again found no clear and explicit justification and evaluation for the use of PFI in terms of its value for money. However, we accept that the then government gave the Departments (the Department of Health and the DCLG) no realistic alternatives to PFI as the procurement route to use for these capital programmes.”

The committee said its other concerns revolved around central government's failure to use the market leverage that comes from overseeing multiple contracts, and the lack of robust central data to support effective programme management.

The MPs suggested that there were cases where PFI was used where there was no evidence it was the best procurement route.

They called on the government to do more to:

  • identify the circumstances where PFI works best
  • capture the lessons learned from PFI procurements, and
  • apply clear criteria to future decisions over identifying the best route for particular public infrastructure investments.

The committee said it expected any procurement decisions on the housing projects whose future is now being reconsidered in the context of the Comprehensive Spending Review “to be made using clear value for money criteria”.

The report claimed that it was clear that implementation of PFI projects could be improved. “Many PFI housing procurements have taken very much longer, and cost a great deal more, than originally planned,” the MPs said. “On hospitals, most are receiving the services expected at the point contracts were signed and are generally being well managed. There are, however, wide and unexplained variations in the cost of hospital support services, such as cleaning, catering and portering.”

The report accused the government of “missing a trick” in failing to take advantage of market developments such as the bundling of projects together and making use of economies of scale.

The DH should exploit the commercial weight and buying power that comes from letting substantial contracts, the committee said, “but at present neither central government nor the local bodies benefit from this”.

A lack of good quality central data is undermining the two departments’ ability to monitor performance and drive efficiency savings, the report added.

It also claimed that the central team at the DH was “already under-resourced and unable to secure proper value for money from these contracts”, suggesting it would be a false economy to have weak central teams that are unable to implement the committee’s recommendations.

The PAC’s other conclusions and recommendations included:

  • The Departments should prepare and publish whole-programme evaluations which assess PFI against alternative procurement routes using clear value for money criteria
  • PFI housing contracts have “cost considerably more than originally planned and, on average, have been let two and a half years late”. The DCLG must ensure that the actions it has been taking to address previous programme failings will result in future projects being delivered to time and within cost
  • In taking forward plans for delivering new and improved housing, the DCLG should ensure that the choice of procurement route, PFI or otherwise, is based on clear and transparent value for money criteria
  • The DH and other departments with PFI programmes should negotiate with major PFI investors and contractors to secure better deals for the taxpayer
  • Both departments should “define minimum data requirements and then take responsibility for ensuring that information collected from and distributed to local projects is complete, accurate and consistent”. The Department of Health and the Foundation Trust regulator Monitor should embed these data requirements in Foundation Trusts' terms of authorisation so that they are mandatory
  • There are no mechanisms built into generic PFI contracts to test the continued value for money of maintenance work during the contract period. “The Treasury, in consultation with departments, should identify how value for money tests and incentives to improve maintenance could be built into the life of PFI contracts”
  • Local procuring authorities will be at a disadvantage compared to the private sector if the departments do not provide sufficient central support. “It would be very disappointing if the public sector as a whole lost value for money from its PFI contracts because the departments were losing their capability through reducing the costs of central administration,” the MPs said.
  • The DCLG should deliver on its commitment to keep its support capacity at an appropriate level, while the PAC also expects the DH to “firm up plans for the future of its PFI Unit and for Trusts to contribute to a club to procure contract management support. Trusts should confirm that they will actively engage with the club”
  • The committee’s recommendations are directed at the programmes for housing and hospital projects but are also relevant to other PFI programmes across government. The Treasury should “outline its plans to support all departments in maximising value for money from their PFI programmes in the current economic climate.”

A copy of the report can be downloaded here.