With public finances drying up Gordon Brown has little choice but to rely on PFIs to provide the public buildings promised by his government. Luckily the National Audit Office has given PFIs a positive first-term report.
The National Audit Office gave Private Finance Initiatives the thumbs up, this week, in its report PFI Construction Performance. The news would have pleased Gordon Brown, who on Monday said that the use of PFIs should be extended into more sectors such as urban regeneration and social housing.

The NAO compared the performance of PFIs with traditional forms of procurement and found that PFI projects were much more likely to come in on time and under budget. Of the 37 PFI projects analysed, 24% came in over budget because of construction-related price increases.

This compared to 73% for traditionally procured government projects. The analysis of delays was similar. Of the traditionally procured projects 70% were completed later than the date expected, while only 22% of the PFI projects weren't completed on time.

Supporters of PFIs say that the improvement is down to the incentives that encourage the contractor to build the project to budget and on time. Fixed payments from the government mean that contractors have to assess the costs and risks accurately when they place their bid. If they get the tender wrong they will be liable to pick up the bill for cost over-runs.

Laing Construction found this out to their cost when they seriously misjudged the risk involved on a number of PFI projects including the National Physical Laboratory development. As a result the firm lost millions and was eventually sold to O'Rourke.

There is a flip side for contractors. Those that do manage their risks properly and complete PFIs on time will earn larger profits on PFI projects than on traditional construction work. According to the report Kier Group said that in 2001 it made returns of 2.5% on turnover for PFI projects and only 1% on other contracts.

Another boost for the government was the report's conclusion that the design and construction on PFI projects was generally found to be of good quality. The NAO says that because PFI companies are responsible for maintaining buildings after completion, the contractors look more closely at whole life costs and so improve their construction methods and use better quality materials.

The government is set to extend the use of PFIs very soon. John Prescott last week announced that £685m of PFI funding will be made available for the refurbishment of local authority housing. The use of PFIs will accelerate further when Brown's Treasury department assumes full control over the initiative.

At the moment the Office of Government Commerce supervises PFIs but Whitehall officials feel that the department's obligations to unions, contractors and other government departments is preventing it from rolling-out PFI projects quickly.

Brown's is concerned that hospitals, schools and other public buildings are not being built quick enough to convince the public that New Labour should be voted back for a third term. With PFI Brown will hope to make good Labour's election promises on the delivery of public buildings. And if the NAO is right Brown may even end up delivering better quality buildings too.