Making a business of better services

4 July 2001
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05 July 2001

The government sees a central role for the private sector in improving public services. David Arminas examines what it could mean for purchasing and supply professionals

It seems that the Labour government has wasted no time in picking a fight with public-sector interest groups. Obviously believing that it is best to strike from a position of strength, it prominently declared its intention in the Queen's speech to drive its goal of improving public services forward.

Labour makes no secret of its intention to use increased private sector participation, via public-private partnerships (PPP) and the private finance initiative (PFI), to deliver its manifesto commitments.

Alarm bells are ringing among public-sector unions and parts of the Labour Party who believe that PPP and PFI are the thin edge of a privatisation wedge.

However, despite assurances given to public-sector union leaders by Tony Blair, there is little doubt that Labour wants a growing role for the private sector.

The coming few years are going to be a critical time for PPPs. There are likely to be many more of these initiatives and the overriding emphasis will be to get them to work well. Ministers know that public support will grow thin if promised improvements to hospitals, prisons and schools do not materialise.

Purchasers - the people responsible for setting out PPP and PFI deals - will be at the forefront of this battle. It will be their responsibility to get the sums right.

The warning by David Finlay of the National Audit Office is a timely reminder to procurement professionals. as head of its private finance initiative unit, Finlay is adamant that their contract management skills will be one of the main tests of whether PPP and PFI have been worth it. Training and sharing of information will be essential to get these skills moved around the profession.

Caution seems to be the most appropriate approach to PFI, if last week's partly critical report from the Institute for Public Policy Research (IPPR), a left-leaning think-tank, is anything to go by. It acknowledged that PFI had worked for roads and prisons, but was critical of its use for hospitals and schools.

Backdoor way

The IPPR doubted whether PFI would achieve public legitimacy if it was perceived to be a backdoor way of cutting workers' pay and introducing a two-tier workforce.

It also cautioned against managers - for which read procurement heads - being railroaded into PFI, believing they will be the only way to get major projects in place. Such attitudes are to blame for some of the poor-value-for-money deals, the report noted.

CIPS is to publish a policy paper on the issue in August, the thrust of which is expected to be broadly favourable.

The paper will recommend practitioners do extensive homework before they adopt PFI. Organisations should ensure that comparisons with other methods, including traditional project management for non-PFI contracts, are made using up-to-date data. The IPPR report said one major problem has been that public-sector comparators against which PFI deals are judged are extremely poor.

The NAO's Finlay pointed out that while PFI may be the flavour of the moment, it is important to keep abreast of improvements in traditional contracting for construction. Don't let the procurement standards of three years ago remain the benchmark against which PFI deals are judged today. Technologies move on and methods improve.

The evolution of PFI means there could be preferred bidding for a strategic partner, as one major city council is considering, where there is no mention of price. Rather, the company will be chosen for its skills, such as previous PFI experience, improvement of services and use of environmentally friendly materials.

Once a preferred bidder is chosen, the relationship begins by seeing what can be done with the budget available, profits required and service levels needed. This is developing PPP to a level not even imagined two years ago, and at a time when most players within and outside construction still complain of an adversarial approach.

Procurement professionals would be well advised to keep abreast of this fast-evolving arena, given the major say they will have in drafting individual deals. Labour's agenda means they are around at least until the next election. And there can't be many willing to bet that a Conservative government, if elected, would forbid their use.


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