UK Treasury names pilot project as it targets PFI savings

A taskforce will be deployed to examine UK project finance initiative contracts with a view to determining what savings can be made for the public purse. Romford’s Queen’s Hospital will be the first contract to be scrutinised by the team, with findings to be published in the spring.

 After several months of noise emanating from Whitehall, the UK government has launched a taskforce that will examine private finance initiative (PFI) contracts with a view to cutting costs for the government.

Lord Sassoon

The team is headed by Lord Sassoon, commercial secretary to the Treasury, and comprises legal, technical and commercial advisors. The first contract targeted will be the Queen’s Hospital, in Romford, which will be scrutinised for potential savings. Conclusions from the analysis will then be applied to the “full portfolio of PFI projects,” the Treasury said.
To cut costs, the team will look at ways of “optimising the contract and asset management, validating insurance cost/gain sharing arrangements, and identifying where additional costs are being incurred for unnecessary service levels,” the Treasury said in a statement.
“PFI contracts are not immune from savings,” commented Lord Sassoon. “The launch of this pilot, along with our next round of engagement with industry on a PFI code of conduct, indicates our determination to drive out costs while ensuring front line services are maintained. It is critical that government urgently addresses every opportunity for savings across all contracts, no matter how complex they may be,” he added.
Since PFI contracts are legally binding, it is unclear how potential savings will be implemented. In its statement, the Treasury said only that “government continues to seek a voluntary code of conduct with industry – investors, contractors and lenders – to ensure their positive engagement in reducing the cost of contracts”.
PFI – the UK government’s standardised procurement process of tendering public works to the private sector – has been under fire recently, with many politicians viewing it as a massively expensive procurement method with little value for money. The UK government is expected to pay more than £8 billion (€9.5 billion; $13 billion) in PFI liabilities over 2011 and 2012.
Cabinet Office minister Francis Maude claimed in a recent interview that many PFI deals were “ghastly” and imposed a “penalty” on schools, hospitals and other public services. He said that “some people on the other side” of projects [meaning the private sector] “must have been laughing all the way to the bank”.
Conservative backbencher Jesse Norman is calling for a £500 million rebate to be paid voluntarily to the Exchequer by those who have profited from PFI deals. And a UK Parliamentary committee last month called for procuring authorities to “negotiate with major PFI contractors to secure a share of efficiency gains for the taxpayer”. MPs concluded that there was “no clear evidence of whether PFI is any better or worse value for money than other procurement routes”.
Observers may be wondering if there is a future for PFI in the UK given the recent political onslaught, but a spokesman from the Treasury told Infrastructure Investor that government was interested in making sure there was “a level [procurement] playing field going forward”. He added that “if PFI shows value for money for a particular project, it will continue to be used”.
Asked if the Coalition government was working on a new model to replace PFI, the spokesman said that “models are always being developed” and that new projects might be procured using “hybrid solutions”.