Osborne launches review to cut PFI costs

15 November 2011

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15 November 2011 | Angeline Albert 

UK chancellor George Osborne has announced a review of the purchase of private finance initiatives (PFI), which he hopes will reduce the cost of these deals.

As part of the government’s plans to lower the expense of PFI projects while maintaining value for taxpayers’ money, the Treasury this week launched a review to consider alternatives.The aim is to find a cheaper delivery model by considering a wider range of private sector financing sources (such as pension fund investment) and harnessing more innovation from the sector. The Treasury said the conclusion of its review aims to “deliver an accelerated and cheaper procurement process”.

Osborne said: “The government shares some of the commonly identified concerns that PFI contracts can be too costly, inflexible and opaque. We have consistently voiced concerns about the misuse of PFI in the past and we have already taken steps to reduce costs and improve transparency. This review will take this a step further with a fundamental reassessment of PFI.”

The government has already announced its plan to deliver £1.5 billion savings from the existing stock of PFI contracts in England. In July, the Treasury said these savings (achieved over the lifetime of the 495 operational PFI deals) 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 reviewing requirements, so the public sector does not spend more than it needs when specifying facilities, such as frequency of decoration.  

Those in both the public and private sector are encouraged to submit proposals on how a reformed delivery model should work when the Treasury publishes its Call for evidence document on 1 December.         

As reported by SM, a study by Future Purchasing released this autumn suggested various improvements that could be made to PFI deals. These included seeking voluntary rebates and signing providers up to clawback mechanisms reflecting unforeseen efficiency gains in the operational phases of agreed contracts; naming and shaming recalcitrant providers and investors; and if these fail to work, introducing a blanket levy through legislation.

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