MPs slam Defra over handling of local authority waste PFI projects

September 19, 2014

An influential committee of MPs has sharply criticised the Department for the Environment, Food and Rural Affairs (Defra) over its handling of three PFI waste projects involving local authorities.

In a hard-hitting report, the Public Accounts Committee found that PFI contracts, which typically last for 25-30 years, did not offer the necessary flexibility to respond to rapidly changing technology and changing policy requirements for waste disposal.

The MPs said Defra had been “unacceptably slow” to intervene in projects that were struggling to deliver the required waste management infrastructure, leading to delays and incurring extra costs.

The report described the Department’s handling of the cancelled Norfolk PFI waste project as “particularly poor”.

Defra had failed to exercise good judgement by agreeing to give funding to the project and then failing to give sufficient consideration to the local impact of its decision to withdraw funding to that project, the PAC said. “This contributed to the contract being cancelled which has left Norfolk taxpayers facing a bill of some £33.7m.”

The committee examined two other PFI waste projects as part of its inquiry, one run by Surrey County Council and the other jointly managed by Herefordshire and Worcestershire councils.

The PAC report said that:

Defra should consider including other forms of support to help local authorities to manage their waste in ways that are flexible enough to deal with changes in technology and waste levels “to ensure local authorities are not locked into projects that provide more capacity than is required and are very expensive”.
While the Department had told local authorities that there were alternatives to PFI contracts for constructing waste management infrastructure, such as selling the waste, it had more work to do to improve local authorities’ contracting capability, especially for PFI projects. “It needs to be much clearer about the outputs and outcomes it requires when funding future waste projects and ensure that it only pays for what is delivered.”
Funding agreements for early PFI waste deals were “poorly drafted and too lax” as they required payments to be made even though some of the key assets planned had not been built. Defra maintains that later funding agreements are more robust.
The Department waited “far too long” before renegotiating its funding agreements with Surrey and with Herefordshire and Worcestershire Councils. “Since taking over responsibility for overseeing these PFI grants in 2001, the Department continued to allow payments to be made to Surrey and to Herefordshire and Worcestershire councils even though key infrastructure had not been built. The Department only altered its funding agreements with these councils in 2013 when the Department negotiated a £30m reduction in its payments to Herefordshire and Worcestershire Councils, and a change in the timing of its payments to Surrey County Council.”
Defra should act with far greater urgency when it has concerns about a project’s progress. “The Department supported the Norfolk scheme despite having strong reservations about the local authority’s timetable for securing planning permission. This contributed to the £33.7m bill Norfolk taxpayers now face.” If the Department had not promised funding support in early 2012 it might have prevented the council from signing the contract.
The Department should not agree to fund schemes until all its concerns have been resolved.
Defra should make better use of its position and expertise to support local authorities in negotiating PFI contracts and achieve value for money for local taxpayers. “PFI contracts are complex and require specialist knowledge to achieve value for money. Local authorities, who are likely to enter into such contracts only once in a generation, lack the significant expertise that resides in central government.”
The Department had made decisions on this programme focused entirely on the need to meet an EU target [for reducing waste sent to landfill] without due regard to the impact of its decisions on local authorities. The Department was fully aware of the likely compensation costs that would be incurred by taxpayers in Norfolk when it decided to withdraw funding for that project. The Department needed to balance the need to meet the EU target at minimum cost, with making sure that its decisions serve taxpayers’ interests as a whole and did not result in additional costs for local authorities. “The Department should place more weight in its decision-making on the cost to the public in the round when it considers withdrawing its support to individual projects.”

A copy of the report can be viewed here.

Margaret Hodge MP, chair of the Committee of Public Accounts, said: “It is appalling that lax, poorly drafted PFI funding agreements to support the building of local authority waste processing plants have led to hundreds of millions of pounds worth of grants being made to three councils even though the main waste assets – such as incinerators – have not yet been built.

“Funding agreements with Surrey and with Herefordshire and Worcestershire councils signed by the old Department for Environment, Transport and the Regions, meant central government started paying grants to the local authorities as soon as the contractors began to deliver waste management services rather than waste management assets.

“The supporting PFI contracts signed by the local authorities did not require all of the expected assets to be constructed, resulting in £213.5m in grants having been paid to the councils over the last 15 years with none of the main waste assets to show for it.”

Hodge meanwhile said it was “scandalous that taxpayers in Norfolk have been left in the lurch and landed with a bill of around £33.7m because the Department withdrew its funding for the Norfolk waste plant in October 2013”.