Treasury plans major savings improvements to private finance initiative deals

20 July 2011

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20 July 2011 | Angeline Albert

The government plans to deliver £1.5 billion savings across existing private finance initiative (PFI) projects in schools and other public sector establishments in England.

The Treasury said yesterday that it believes savings (achieved over the lifetime of the 495 operational PFI deals - some of which span 30 years) can be made through more effective contract management. This includes a reduction in wasteful energy consumption, more efficient use of space – including sub-letting or mothballing surplus building space – and a reviewing of requirements, so the public sector does not spend more than it needs when specifying facilities, such as frequency of decoration.

Led by Treasury, in collaboration with the Cabinet Office’s Efficiency and Reform Group (ERG), the programme will bring together ongoing major government supplier renegotiations and project savings actions by local contract management teams across England.

“We will need to be tough with ourselves and tough with our suppliers if we are to deliver these savings, but we have the discipline required to do so,” said Cabinet Office minister Francis Maude.

He added: “We are working hard to identify programme areas across government where there could be room for increasing efficiency while reducing overhead costs.”

Commercial secretary to the Treasury, Lord Sassoon, said: “The potential savings will vary from contract to contract, but the results are promising and we will support the wider public sector to find savings in complex contracts.”

Pilot projects launched in February at the Queen’s Hospital in Romford, which has a 36-year PFI deal, and two Ministry of Defence sites have revealed savings opportunities of about 5 per cent of annual payments.

Elsewhere yesterday, the Department for Education announced a major procurement initiative for new privately financed schools called the Priority School Building Programme. Lessons learned from the Treasury’s savings pilots will be factored into the initiative.

Education secretary Michael Gove announced consultation proposals for a more centralised approach to purchasing, to capture efficiencies and build expertise into the procurement-and-build phase of educational facilities and improvement projects.

Proposals include standardised designs and specifications for school buildings. The department intends “to move to procure these immediately”. It added: “We very much agree that in the past, there has been too much reinvention of the wheel where school design has been concerned, which has slowed procurement and increased costs.”

Gove said he was keen to remedy “a failure to make procurement as efficient as possible”, which was highlighted by April’s independent Review of Education Capital carried out by Sebastian James, group operations director at Dixons Retail.

The 12-week consultation on the implementation of James’ recommendations was launched yesterday.

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