CBI report claims that procurement process wastes an average of £2.45m per major hospital scheme
Nearly £100m has been wasted on 40 major PFI hospital schemes because of delays in the procurement process, according to a CBI report published today.
The report, Buying the best for the NHS: Ensuring smarter capital procurement, blames the NHS for the delays, heaping more pressure on a client already beleaguered by a review of all its PFI projects.
It follows moves by the Treasury in last month's Budget to try to improve the wasteful PFI bidding process by training the public sector to be better clients.
The CBI says that "a conservative estimate" of the cost of the delays - the procurement process was found to typically take 39 months when 18 months is recommended - is an average of £2.45m per hospital scheme worth £60m or more since 1994. This represents 1.05% of a project's capital value. If the trend continues, the CBI believes the waste could end up reaching at least £122m on upcoming hospitals.
In the foreword to the report, Sir Digby Jones, CBI director general, says: "At the point when the NHS purchases before the private sector takes control of projects, delays are all too common and costly. Sometimes the financial realities of schemes are not considered until the contracts are about to be signed, so lengthy reviews need to take place."
The report notes that companies have to absorb the costs during the bidding process and will not receive the money they are owed for the delay until far into a 30-year PFI contract. It recommends that if the selection process extends beyond the agreed timeframe, the procuring party should pay up front the cost of delay to all qualified bidders and contractors. This would include costs incurred for delays prior to the preferred bidder stage.
By being forced to pay for the delays, some companies are being driven out of the market because they simply cannot cover the escalating and unpredictable costs of the procurement process.
The report states: "Bidding competitions are restricted to companies that have the necessary financial solidity to absorb these extra costs, reducing competition and the potential for the NHS to achieve value for money in the projects it commissions."
One recommendation to speed up procurement is for the Department of Health and the NHS to create a centralised database of pre-qualification information. This would hold information on regular bidders, such as their financial backing, so that a company does not have to repeatedly fill out questionnaires.
The report states: "The questionnaire is lengthy, contains basic details and adds a significant amount of time and cost to each scheme. Such a database would be a considerable step forward in cutting down the length of the procurement process and avoiding delays."
The CBI is also concerned that PFI bidders are selected on price rather than value for money, meaning factors such as the reliability of a consortium's member organisations or its employment practices are not taken into consideration.
The report states: "Procuring authorities should not be afraid to award contracts to bids that are higher in price than others that provide better value for money. They should also place an emphasis on innovation by ensuring it is weighted strongly in bid-evaluation criteria."