1.110 It is difficult to acquire suitable data to test the Flexibility proposition. Historical data on the frequency of major scope changes in the sector might, for example, be used as a somewhat imprecise guide to the probability of scope changes occurring within the first ten years of the project under consideration. It is even more difficult to use historical data to meaningfully assess the impact of procurement method on the ability of the project to accommodate one or more major scope changes.
1.111 Perhaps the most straightforward way of reflecting scope change in the Spreadsheet is for the Procuring Authority to determine what are the most likely events that would lead to a scope change (for example, greater than expected variability in demand, changes in legislation, European and domestic, changes in technology) and assess the impact of that scope change on capital costs (for example, new legislation might require classrooms to be sound-proofed or the development of new communities might require an expansion of local hospital capacity). In conventional procurement, the capital cost of the scope change would simply be incorporated into the capital costs. In PFI, it would go through the private sector's financing structure and manifest itself in an increase or decrease in the Unitary Charge. It will be important for Procuring Authorities to build up this evidence going forward as more contracts become operational or enter the latter stages of their concessions.
1.112 There is little empirical evidence that the ability of an asset and/or associated service to accommodate change improves or deteriorates depending on the procurement method chosen. Under the PFI Option, a Procuring Authority enters into a long-term, performance-based contract with a single private sector provider. This might, prima facie, indicate reduced flexibility on the part of the Procuring Authority. However, under PFI, the performance of the asset and/or associated service being provided is governed by a service and performance specification which can be varied, largely at the discretion of the Procuring Authority. Notwithstanding the protected rights of Procuring Authorities to require their PFI partners to accommodate changes, the reasonable cost of the PFI partner implementing such changes falls to the Procuring Authority. Standard provisions govern how changes should be accommodated in PFI contracts.
1.113 Even at the extreme where, for example, a Procuring Authority decides that an asset and/or associated service has become obsolete before the end of the Contract Period, standard contractual provisions enable Procuring Authorities to terminate the PFI contract. In these circumstances, however, Procuring Authorities are contractually obliged to make a reasonable compensation payment to a PFI partner that has been providing services satisfactorily and in accordance with agreed performance requirements.
1.114 It is not obvious that a conventionally procured asset and/or associated service is any better placed to accommodate discontinuous changes that are required once an asset or service has been commissioned. Under the Conventional Procurement Option, an asset will have been paid for in full at the outset. Its abandonment before the end of its useful life will be an expensive exercise both in marginal cost terms (for example, decommissioning, redundancies etc.) and due to the substantial opportunity costs that crystallise.
1.115 It is certainly plausible that a Procuring Authority's ability to accommodate incremental changes, most particularly in the case of facilities rather than services, is more restricted where that facility is being provided under a PFI contract. In its report "Managing the Relationship to Secure Successful Partnerships in PFI Projects," published in November 2001, the National Audit Office (NAO) found that despite many projects still being in their early stages, 55% of the 121 projects reviewed had made some use of the contractual change procedure.11 In such circumstances, the competitive position of the Procuring Authority might be judged to be somewhat weakened, although PFI contracts do typically preserve the right of Procuring Authorities to change or enlarge the scope of relevant services through open-tender. However, due to the performance-based payment regime of PFI, the PFI provider will seek to have its legitimate concerns about the potentially damaging impact that other service providers might have on its performance properly addressed in advance of agreeing to any required change.
1.116 The Spreadsheet is able to take account of the estimated impact of a change in scope during the Contract Period for those projects where Capital Expenditure is a significant feature. It does this by enabling Procuring Authorities to model a scope change in any year of the Contract Period.
1.117 Where scope changes are included, Procuring Authorities must estimate the level, likelihood and timing of the change anticipated, in relation to the project being assessed, based on experience of the nature and frequency of such changes on other broadly similar projects. If experience suggests that, for similar projects, scope changes have been frequent, wide-ranging and unpredictable in nature, then this should be taken into account in the qualitative assessment being conducted by Procuring Authorities in parallel with their quantitative analysis.
1.118 There is increasingly good evidence, from sources such as the National Audit Office's reports (www.nao.gov.uk), about the level and incidence of variations in PFI contracts. Equally, the Estates Agencies of sponsoring Departments may be a rich source of information on the incidence and scale of scope changes that typically affect conventionally procured projects. Procuring Authorities should have regard to such information when making their assumptions.
11 These changes related to alterations in services covered by the original specification, the introduction of new services, additional building works or design changes and amendments to performance measurement arrangements - (www.nao.gov.uk/publications/nao_reports/01-02/0102375.pdf)