PFI projects are too slow, too expensive and too uncompetitive, say MPs

2 May 2012

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2 May 2012 | Paul Snell

Private finance initiative (PFI) projects “take too long, cost too much and restrict the market”, according to MPs.

This is the conclusion of the Public Accounts Committee, which added “the time and cost involved do not serve investors or taxpayers well”. A critical report into PFI published today said those in charge of negotiating contracts “too often lack the appropriate financial and commercial skills”. Around 700 projects have used the PFI approach over the past 20 years, and 30 deals are currently under negotiation.

The report, Equity Investment in privately financed projects, also said competition was limited given the large resources needed to bid for deals reducing competition. Because of this, a competitive tender process is no guarantee of value for money.

“The current model of PFI is unsustainable,” said PAC chairman and Labour MP Margaret Hodge in a statement. “Time and again my Committee has reported on problems with PFI, including the costly contracting process and the prospect of little risk being transferred but high returns being enjoyed by investors. 30-year contracts are inflexible and don’t allow managers to alter priorities or change services that have become outdated. We have even seen evidence of excess profits being priced into projects from the start.”

It recommended the Treasury identify and address the sources of cost and delays in the process, and even consider centralising procurement if that were judged to produce better value.

The Committee also urged greater consideration of whether PFI really is the optimal procurement process at the outset. “It is not clear that committing to 30-year service contracts at the outset is sensible if this locks authorities into inflexible prices, which can only be reduced by service cuts or services that are required today but will cease to be a priority in future years,” it said.

The report highlighted PFI deals also contain a range of services that are performed at a contracted price for long periods, which sometimes blocks public organisations from making cost savings during the life of the deal. The PAC recommended splitting up construction and maintenance into separate contracts to provide flexibility.

In November 2011, the government announced a review of PFI projects to reduce the cost of deals.

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