PFI needs a thorough examination. It’s certainly not on its deathbed, but it clearly isn’t working as it should, and if not treated soon, it may soon be in serious trouble.
The PFI was conceived as a means of bringing private money into the public sector – which it has done incredibly successfully. Since 1992, 670 contracts have been awarded with an aggregate value in excess of £42bn. Sixty-four of the 68 hospitals completed since 1997 are PFI projects.
The attraction of the PFI for governments used to be that it allowed them to invest in public services without increasing the public sector borrowing requirement. This is no longer the case, as about half of PFI projects are on the books. The reason for its continuation is based on the Treasury’s view that the private sector can provide more efficient public services – which it can.
The problem is that this extra money has exposed the weaknesses of public sector clients. In many cases they resemble schoolchildren let loose in a sweet shop, grabbing every goody on show in the belief that they’ll be able to pay off a bit each week from their pocket money. The truth is that, pay now, or pay later, all those shiny new hospitals have to come from the public purse. Time after time, clients are bringing schemes to the market that are not affordable; unnecessary risks are being loaded on contractors, which they then lay back on the client in the form of higher prices; bid costs have risen to an average of £11.5m a hospital; and bid times of three years are not unusual. Not surprisingly, contractors are losing interest and schemes are stalled because they can’t get bidders.
These faults are lent greater urgency by the internationalisation of the PFI market. If Bovis Lend Lease can spend £250,000 to bid for and win a £100m hospital in Spain (pages 44-50), why would you spend 40 times more to bid in Britain? No wonder PFI investment specialist Laing Equion has warned the Treasury that it may take its money abroad.
The situation is unsustainable from both sides – and needs remedying now. But how? Well, there are no shortages of ideas to explore, starting with ensuring that NHS trusts can afford what they’re asking for. This doesn’t necessarily mean that designs have to be worked out before the project goes to tender, as the RIBA is suggesting. But there needs to be a recognition that more needs to be done earlier, which means that more expertise is vital in the public sector. We should also look at whether these 35-year contracts are sensible – what future-gazer could possibly foresee what’s going to happen to labour costs or medical technology in that time?
The Smith Institute’s plan to investigate how PFI procurement can be improved is a positive sign.
It is very close to the Treasury and its work on housing fed into the Barker report. A calm, rational look at what is value for money and how procurement should work is exactly the sort of treatment needed. So much of the PFI debate has been bogged down by ideological arguments over whether private companies should be running public services, rather than how public and private sectors can capitalise on their different strengths. Given that the PFI accounts for 30% of public investment, the paramount consideration is making it work. Otherwise we’re going to waste an awful lot of man-hours – and, somewhere down the line, a great deal of taxpayers’ money.
Denise Chevin, editor