The National Audit Office report on Tarmac’s Dartford and Gravesham Hospital said it was likely to make savings of 3% on traditional procurement, but that these could be wiped out.
The NHS trust client had estimated that the PFI route would be 9% cheaper than traditional procurement but the NAO found that its calculations were out by £12.1m.
It says trusts should check calculations “rigorously” before making key decisions.
The NAO also found that advisers’ fees on the project soared. Law firm Nabarro Nathanson was paid £1.2m and accountant KPMG received £960 000. The initial estimate was that each would be paid about £150 000.
The report reveals that the cost of the project rose 17% in the year between Tarmac’s appointment and financial close.
Tarmac’s “final” bid had gone up 33%, but the trust managed to negotiate it down again. It did this by reducing the specification and giving Tarmac the proceeds of £21.9m of land sales.
The NAO believes that Tarmac was successful in raising its price because the trust found itself negotiating with one bidder after Taylor Woodrow withdrew from a shortlist of two.
The report also outlines new government measures that are intended to transfer more risk to the private sector in the PFI process. It calls for the competitive process to be maintained by keeping a second bidder in the race for longer, and says trusts should not have to pay contractors a high rate if contracts are terminated.
But the NAO did find one major saving on the project, which was the first PFI hospital contract signed. It will be built in 44 months, compared with 66 months for traditional procurement.
