In spite of this, the impression given by the Andersen report and post-Andersen NAO reports is that the PFI projects have in general provided good value for money as compared to a conventional public financing. Thus in a recent NAO report on PFI Construction Performance (NAO 2003), the NAO states that "…there is strong evidence that the PFI approach is bringing significant benefits to central government in terms of delivering built assets on time and for the price expected by the public sector" (NAO 2003, 6). This statement has to be taken with a pinch of salt given that on the previous page of the same report, the NAO had stated that; "it is not possible to judge whether these projects could have achieved these results using a different procurement route" (NAO 2003, 5).
Certainly when we look at the comparisons between the PFI estimates and the Public Sector Comparators (PSC) which have been carried out, the allowances for optimism bias built into the PSCs are not only very large but, as we have seen, invariably just sufficient to tip the balance in favour of the PFI projects.
The average allowance for optimism bias is invariably well above the average (of 13%) specified in the Mott MacDonald report - and as we have seen, 13% is itself very much on the high side. Nevertheless, even after much higher percentages are added on, the margins in favour of the PFI projects in these comparisons is very small - around 1% or 2%.
It is clear that the estimation of the PSC and the risk which is being transferred to the private sector is difficult to unravel and in looking at reports by the NAO since the Andersen report in 2000, we get little further guidance. For example the report by the NAO on the PFI Contract for the Redevelopment of West Middlesex University Hospital came to the conclusion that the PFI deal would cost £125 million over 35 years compared to 'a conventional procurement alternative' of £130 million (NAO 2002). The £125 mn and £130 mn figures are discounted costs but we are not told the discount rate nor are we told what the risk adjustment is.
Equally importantly, the Mott McDonald report admitted that because the PSC is prepared usually at a different point in the project cycle from the PFI and is not updated to the same extent, like-for-like comparisons are not performed (Mott MacDonald, 2002, page 26). Similar points have been made by Edwards P et al when they say; "It is impossible to compare the actual costs of PFI and thus VFM ..….. against the original PSC as the PSC quickly becomes out of date" (Edwards Petal 2004, 9). Similarly Jon Sussex has pointed out that;
"Many claims of large cost increases are based on comparing the outturn cost with initial estimates made many years previously. Such comparisons take no account of the intervening general price inflation rate or of subsequent modifications to the scheme up to the moment that design and construction is put out to tender. If the same approach were used to evaluate PFI projects then they too would appear to overrun greatly on cost and time" (Sussex 2003, 65)20
Given all of this, it is hard to avoid the conclusion that the PSC and optimism bias figures have been manipulated so that the PFI cost comes out at just below that of the PSC. A number of authors suggest that this is so, as follows;
• Pollock et al 2002 say; "the value for money analysis seems to be no more than a mechanism that has been created to make the case for using private finance".
• Jon Sussex states that; "Demonstrating on paper the cost- effectiveness of this choice relative to a public sector comparator, in order to satisfy official appraisal and audit requirements, then requires only a little ingenuity" (Sussex 2003, 71).
• Tim Gosling states that; "…a senior figure at the NAO publicly described some comparators as 'pseudo-scientific mumbo-jumbo, where financial modelling has taken over from thinking'" (Gosling (ed) 2004, page 29).
• The Select Committee on Health stated that; "we would want to be assured of the fact that the calculations to establish the PSC are so complex is not being used as an excuse to manipulate the PSC to produce whatever result is needed" (quoted in Dept of Health July 2002, page 19).
• The Public Accounts Committee has stated that "some public service comparators have been manipulated to get the desired result" (quoted in Flinders 2005, 225)
Finally as Dr John Fielden (the Chair of the Consultants' Committee of the British Medical Association) put it in 2007; "There was a political decision made that we wouldn't go down the public financing side" (BBC 2007, page 6of the transcript). As a result, the figures had to be fiddled to show the superiority of the PFI alternative. And fiddled they were21.
20. As the paper by Pollock A et al 2007 points out, there has been a rapid escalation of capital cost estimates over the three stages of the PFI cases - that is between the Strategic Outline Case, the Outline Business Case and the Full Business Case (see Pollock A et al 2007, page 4)
21. For the example of the NNUH see section 5 of appendix 1 (A1.5).