2.18 In a long-term project, it is desirable if investors work with the Authority to add value to the project and share benefits achieved through continuous improvement. However, there has been little incentive previously for investors to improve services or to identify shared efficiency savings. As with our previous work on hospitals, our interviews found that investors generally did not add value to services beyond the contracted levels.7 The standard contract terms, however, do include provision for periodic benchmarking or market testing of certain services. This testing of 'soft' facilities management services (such as cleaning and catering but excluding maintenance) provides an opportunity for the public sector to benefit from market effciencies improvements over the contract's life.8
2.19 Given the current spending constraints, the Treasury is now seeking savings of £1.5 billion from projects in operation. The Treasury issued guidance to Authorities in July 2011 recommending areas where operational savings should be targeted, including effective contract management, optimising the use of asset capacity and applying service standards consistently so that the public sector is only paying for the level of services required.
2.20 In some instances, investors who are also facilities managers under a subcontract have cooperated with authorities to make operational savings where this did not have an adverse impact on returns. The Treasury told us that financial investors have also cooperated with operational savings initiatives on a similar basis.
2.21 In seeking other savings, project company managers said they were concerned not to expose their companies, or senior lenders (whose consent would be needed), to the risks that cutting back on maintenance costs might entail. Investors holding portfolios also told us that it was hard to make economies of scale because most costs are set by long-term contractual arrangements and negotiations with subcontractors would have to involve co-investors and lenders. Investors are making some economies of scale, achieved for example on insurance costs, which are generally shared with authorities. However, savings in project company management costs are not shared, although they may be reflected in subsequent PFI bids.
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7 The performance and management of hospital PFI contracts, HC 68, 17 June 2010.
8 Making Changes in Operational PFI Projects, HC 205, 17 January 2008.