4.5.1 A procurer cannot accept a proposed deal that is either poor value but affordable, or good value but unaffordable. Before appointing a preferred bidder, the procurer will need to be satisfied that the best value for money option is on the table, within the amount of money available to spend. The proposed accounting treatment of the deal needs to be considered as part of the affordability assessment (see the Treasury Taskforce's Revised Technical Note No. 1 "How to Account for PFI Transactions").
4.5.2 PFI deals have to be affordable not just within a budgetary cycle, but over the duration of the contract, which can be for 25 - 30 years. This will have particular importance for certain public sector bodies where the deal may be very material to their annual spending. The following affordability criteria should be satisfied for a deal to proceed:
• The procurer should be satisfied that, after meeting the payments for PFI deals, there is still sufficient funding to meet other priority spending, including good value investment that does not lend itself to PFI. The accounting treatment of a transaction will be relevant here, especially if the transaction is on balance sheet; and
• The private sector partner, and the banks who fund the project, should be satisfied that the procurer is able to confirm formally that it can meet the full PFI payments, including termination obligations, over the duration of the contract, provided services are delivered to agreed levels of quality and on time.
4.5.3 The Treasury will monitor this in general terms rather than by specific projects. Treasury Taskforce Policy Statements No. 1 (PFI and Public Expenditure Allocations) and No. 3 (PFI and Public Expenditure Allocations for NDPBs) give further guidance on affordability.