Maximising value from PFI contracts

PFI has once again been at the top of the news agenda, with Health Secretary, Andrew Lansley, having, for instance, suggested that some UK hospitals may be unable to meet their mortgage repayments as they struggle to cope with the terms initially negotiated under a PFI framework. At a time when healthcare facilities’ budgets are already being cut, this is a worrying prospect; however it would be disingenuous to attribute all of the problems currently facing our hospitals to the PFI deals that were struck under the previous government. Indeed, if you scratch beneath the surface, and examine the issue in greater detail, it is possible to see a more balanced picture beginning to emerge. A PFI approach may cost more when compared with the equivalent borrowing, but many of the statistics quoted fail to match like with like, comparing costs at the tender stage for traditionally procured projects against PFI outturn costs.

Injecting more discipline

Traditionally, public sector projects were known to be on average 10-15% over budget, and delivered anything up to six months late. PFI has put more discipline into procurement, and, although the overall cost of procuring via PFI may be higher over the long term, most PFI projects deliver on time, at the cost expected at financial close, and provide the services to the contract which was agreed. Essentially the added expense is the price users pay for transferring risk and greater predictability in terms of long-term maintenance costs and service delivery. The other aspect of PFI that is often ignored is that our public sector buildings are maintained to a set standard, rather than being left to deteriorate over time. These obligations cost money, but are often left out of the analysis of the value that PFI brings to our public sector estate. That said, there are many areas within PFI that could be improved, and indeed lessons have been learnt throughout the last decade around using PFI as a form of procurement, none more important than developing the public sector’s skills to procure and negotiate these complex contracts. Often the private sector uses experienced teams to negotiate the final contract, with the public sector using a team who have not gone through the process before, and are generally less versed on what will be required to succeed. One of the outcomes can be that the standards set for the services asked for are high, when they will not directly impact on clinical care, and risks that the private sector is not well placed to manage are transferred. Consequently, this does not always represent best value-for-money.