PPP projects delivered increased price certainty compared to traditional procurement but there were more price movements than reported in the NAO's 2003 study. |
Of the 37 projects for which data was available, 18 (49 percent) had experienced no price change for any reason during the construction phase of the project. This represents an improvement over historical performance13 with conventional procurement but price certainty had reduced compared with the 2003 NAO survey 'PFI: Construction Performance' which found no price change in 70 percent of projects.
Figure 11 and Figure 12 below show the reasons for the changes and who initiated them.
Figure 11: Changes to the contract price during construction
Reason for price change | Number of price changes |
New facilities | 6 |
Extensions or enhancements to facilities | 15 |
Change in function | 5 |
Refurbishment work | 1 |
Design change | 15 |
Changes were only initiated by the contractor in 2 cases. Most of the time the Authority led the change or it was jointly agreed.
Figure 12: Who led the change?
Price change led by… | Number of price changes |
13 | |
2 | |
Both Authority and Contractor | 7 |
Note that several respondents stated that there was a price change but did not state who led the change
PPP aims to give the public sector price certainty in construction projects. Although the survey results indicated that there were changes in around half the projects, interviewees commented that the PPP contract encouraged minimisation of changes, and forced better up-front specification. Some authorities expressed concern that changes were being pushed out into the operating period, even where it might have been more efficient to amend the construction programme. That this is happening was confirmed in interviews with contractors who stated that, given the penalties for late completion, they resisted any changes that would delay the completion date. Although contracts contain mechanisms that allow the contractor to reclaim the additional bank interest incurred by late completion (and hence delayed payments for services) due to an authority initiated change, contractors are very keen to avoid any delay to the completion date. Authorities commented that the formal processes in the contract for agreeing changes enabled the contractor to slow down change requests. Interviewees also noted that changes were typically paid for using one-off payments rather than changes to the unitary charge because of the complexity of agreeing a change to the project financial model.
Where authorities had successfully requested changes during the construction period, they raised some concerns about their ability to demonstrate value for money, given the lack of competition for the additional works (see section 6.2 below on value for money).
Recommendation: Authorities should continue to focus on developing the up-front specification to minimise any changes during the construction period, particularly in the light of concerns about value for money. However there may be a case for streamlining the change procedure for relatively minor changes.
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13 The 2001 NAO report 'Modernising Construction' found that the 73 percent of government construction projects ran over budget.