MPs call for PFI review

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18 January 2011 | Lindsay Clark

The government should re-evaluate the use of the private finance initiative (PFI) for procurement of building programmes in the NHS and local government, according to an influential group of MPs.

A report by the Committee of Public Accounts (PAC) said there was no clear evidence to conclude whether PFI has been better or worse value for money for housing and hospitals than other procurement options.

The MP Margaret Hodge, PAC chair said: “Local authorities and health trusts used PFI because there was no realistic alternative, not because it represented best value for money.

“The use of PFI and its alternatives should now be robustly evaluated. Looking back at PFI procurements, the government should also do more to find out where and why PFI works best and capture the lessons. Departments should also do more to ensure they get the best out of existing PFI contracts.”
PFI housing contracts have cost considerably more than originally planned and, on average, have been let two and a half years late.

Meanwhile, the Department of Health was not using its own buying power to leverage gains for the taxpayer because it failed to negotiate with investment funds centrally.

“By bundling together large numbers of PFI projects, private sector investors may use the consequent economies of scale to drive up the value of their interests and generate bigger profits,” Hodge said.  “We are concerned that the benefits arising from these economies of scale are not being shared by the taxpayer. At a time when public finances are so tight, government must use the weight of its buying power to negotiate with major PFI investors and contractors a better deal for the taxpayer.”

As of April 2009 there were 76 operational PFI hospital contracts with a capital value of £6 billion. For housing projects, including those currently in procurement, there is £2.8 billion capital raised through the system.  

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