Clive Porter

The recent Audit Commission report on the PFI in schools has reignited the whole PFI debate. The report, in trying to objectively compare schools projects procured through traditional routes with the PFI alternative, has identified benefits and drawbacks that will be leaped upon by proponents and opponents alike.

Back to basics
It is important that the context of the report is not lost in the rush to compile the arguments for and against the PFI. The report concentrates on an early tranche of projects, which the Treasury and Department for Education and Skills have examined in some detail and from which many lessons have already been learned. Many of these, such as standardisation, knowledge transfer, closer examination of alternative procurement routes, a greater interrogation of the public sector comparator and the need to raise the profile of design, are already in place and delivering real improvements.

In addition, there are important principles that should be borne in mind. First, the private sector has always been involved in public investment – the same designers and builders that deliver the product through the PFI used to deliver it through traditional procurement. The difference is that they are required to carry responsibility for the adequacy and timeliness of information, and to take on liability for the quality of the product. This brings a new discipline to public projects.

For example, when consultant project managers were introduced to the health sector in the early 1990s there was a dramatic improvement in the deliverability of projects. This was not just because the project managers were more highly skilled, but because internal cultural barriers to progress were easily overcome and the end users worked more positively with outsiders. This early success has been taken further with the PFI and the onus is now on the output of a service user's need, rather than the input of elements internal administrators believe might be useful. The speed with which projects now come on stream is a result of this commercial approach to the development process and the decisiveness that is needed to maintain progress.

The problem with the report is that it was unable to properly assess the effectiveness of the PFI in use

It is clear that the PFI is a developing concept; the report's examination of the early projects illustrates that there is some way to go before it fully delivers benefits to the public sector. However, there has been an important evolution of PFI principles since those projects commenced. The calls from the private sector for standard contracts and processes have been heard. In addition, the duplication of monitoring consultants – to the clients, funders and special purpose vehicles – no longer occurs: a single consultant is now appointed, better reflecting the original principles of partnership. On top of this, the issue of staff terms and conditions seems to have been resolved for all but the most extreme requirements of the unions.

Reading between the lines
The problem with the Audit Commission report is that it was unable to properly assess the effectiveness of the PFI in use. The objective of the PFI is to make private companies directly – and financially – responsible for the maintenance of a facility. Therefore, if a backlog of maintenance reduces facilities to a barely serviceable condition, payment deductions can be enforced. It is hoped that this financial penalty will ensure that the maintenance of facilities is superior to that on equivalent public sector projects, where there is no financial incentive. However, in this case, the projects reviewed were not sufficiently well-established to make a direct comparison.

This is not to say that the report is out of date: on the contrary, it provides an invaluable confirmation of the problems with the PFI that the industry is beginning to tackle. It provides the means of assessing objectively whether the measures identified are appropriate or whether further improvements in an evolving concept are necessary. And it is also useful in that it provides the benchmark against which improvement must be measured.