The report deals with the government's total investment in the PFI, of which construction is only part, and includes an assessment of the early performance of the PFI programme. It is considered to be too early for the long-term benefits of the PFI to become apparent.
Sixty-one out of a total of 451 operational projects were examined. The findings were as follows:
- All construction contracts were completed within public sector budgets, other than where user requirements changed
- Ninety-eight per cent of construction contracts were completed on time or early.
These results were contrasted with previous, unidentified, research which indicated that non-PFI construction projects exceeded budgets by 73% and were delivered late in 70% of cases.
This is a fantastic assertion. So fantastic that the results should be treated with caution. Judgment should be postponed until details of the evidence have been made available – this is promised for the autumn.
Then it should be possible to see whether the comparison was made on a like-for-like basis. For example: did the previous research also exclude the costs incurred as a result of changes in user requirements? And were the times similar for preparation before construction? The National Audit Office's report on the redevelopment of the main Ministry of Defence headquarters indicated that the bidding process for the PFI contract took three years and four months, and assumed that a conventional procurement process would have taken one year, three months.
These results do not by themselves establish that value for money has been obtained. No detail of the money involved has been given upon which a judgment could be made.
A judgment about value for money must be based on a cost comparison, but the Treasury gives its opinion without revealing the money involved. It is no longer permissible to rely on trust
It is generally acknowledged that private finance is more expensive than public funding. Therefore, in any comparison of the costs with the public sector, a PFI construction contract starts with a disadvantage. However, the Treasury claims that the use of output specifications – instead of prescriptive schedules of accommodation and quality standards – capitalises on the private sector's ability to provide innovative solutions. Unstated, but implied, is the idea that the extra cost of the PFI can be offset by innovations in design, specification, construction and management. Evidence has yet to be made public that these expectations have been realised.
The Treasury considers that the PFI is appropriate for major and complex projects where the private sector can offer project management skills, innovative designs and risk management expertise. Why these qualities can be obtained only by the adoption of the PFI is not discussed. The benefits expected from the use of the PFI include services starting on time, services being maintained satisfactorily throughout the life of a project, a better use of public money, a better understanding of the total cost of providing a service and the introduction of new ways of working. These benefits are to be obtained by "incentivising" contractors. The incentive is to withhold payment from the contractors until services are provided and carried out satisfactorily. The Treasury consider that it is still too early for these long-term benefits to become apparent.
However, if a completion on time and other benefits are secured by withholding payment until completion of the construction contract, it is an idea that might be considered for use in procurement procedures other than the PFI.
A judgment about value for money must be based on a cost comparison, but the Treasury gives its opinion without revealing an details of the money involved.
It is no longer permissible to rely on trust alone. The financial details of the deals must be provided. They must be provided in a standard format to facilitate comparison, and the accommodation provided must be on a common basis of measurement. The composition of the construction prices must also be on a common basis. For example, it should enable a comparison of the prices for bidding or tendering, design, special advice, construction and financial funding.