Public bodies should take more care in managing PFI contracts

Public bodies in the NHS and elsewhere are not doing enough to ensure value for money in public finance initiative (PFI) contracts once they have been agreed, the backbench public accounts committee has declared.

PFI projects need better evaluation after contracts have been signed in order to maintain performance and value for money, concludes a report published by the committee this week.

Launching the committee's 42nd report, the Conservative chairman of the committee, Edward Leigh, complained: “Significant effort and expertise is deployed by public bodies in negotiating PFI contracts, but we are concerned that in some cases they seem to take their eye off the ball once the contract is set.” He added: “In too many cases value for money declines after contract letting and the approach of many authorities to managing their contracts is seriously deficient.”

More than 400 contracts worth a total of £100bn ($154bn; €156bn) are now in force across a range of public services under the PFI scheme, which was launched by the Conservative government in 1992 and has since been extended by Labour. Projects include eight major hospital developments that have already opened and 15 more that are in construction. The government's handling of PFI contracts in the NHS also came in for criticism in a report by the Commons health committee in May this year.

The public accounts committee report is based on evidence taken following publication last November of an investigation by the Comptroller and Auditor General on the same topic. That report, also called Managing the Relationship to Secure a Successful Partnership in PFI Projects, published by the National Audit Office (NAO), examined 121 PFI projects set up before 2000, including 44 in the NHS. The survey showed that value for money was believed to have declined in 23% of the projects. Only about half of the projects had mechanisms in place to ensure value for money throughout the life of the contract.

The committee's report urges that PFI contracts need “rigorous” evaluation once set up to ensure quality of services and value for money. Many public bodies complained about charges for additional services after contracts were agreed. Staff involved in managing PFI projects need adequate guidance and training to monitor contracts, it says. All future contracts should have checks such as benchmarking, market testing, and open book accounting built in, it concludes. It comments: “It is essential that PFI contracts have appropriate mechanisms in place to ensure that value for money is maintained over the lifetime of a project.”

Private contractors must expect both to share in rewards if projects go well and to lose their investments if things go wrong, the report urges. Long term contracts need room for flexibility to meet changing circumstances, it says. Only 55% of public bodies surveyed had used change procedures to update their contracts. Of those projects with a performance review process built in, 58% of public bodies had made deductions from payments to the PFI contractors when problems arose. That, says the report, suggests many more public bodies were not getting the service they required.

The report also suggests that the 81% of public bodies reporting that value for money was satisfactory or better than expected in the National Audit Office survey may be an optimistic figure. “Having entered into the contracts, authorities were not likely to admit that they had got it wrong,” the report says.

Managing the Relationship to Secure a Successful Partnership in PFI Projects, 42nd report of sessions 2001-02, Committee of Public Accounts, can be accessed at www.parliament.uk/commons/selcom/pachome.htm