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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.