Although the NAO has started to publish a series of reports dealing with specific PFI deals, there is still relatively little detailed information available on the performance over the long term of individual PFI projects. The NAO has so far reported on the value for money aspects of a small sample of PFI projects that are of particular interest and, as such, are not representative of the full range of projects undertaken to date. For example, reports have not as yet been made by the NAO on PFI projects where problems have occurred after contracts have been signed. These include the PFI contract to collect, store and transmit passport application data for the Passport Office by Siemens Business Services, where higher then expected demand for passports led to scenes of chaos outside Passport Offices during summer 1999. The NAO has produced value for money reports on:60
• Skye Bridge;
• Bridgend and Fazakerley Prisons;
• NIRS2 - The Replacement National Insurance Recording System;
• The First Four DBFO Roads;
• The A74(M)/M74;
• Dartford and Gravesham Hospital;
• The Immigration and Nationality Directorate's Casework Programme;
• The Passport Agency's Initial Processing and IT Support System :
• The DSS PRIME accommodation project- the transfer of the then DSS estate to the private sector;
• RAF non-combat vehicles;
• Defence Fixed Telecommunications System;
• The Contributions Agency - Newcastle Estate Development;
• Defence Fixed Telecommunications System;
• British Embassy in Berlin; and
• Channel Tunnel Rail Link.
Of the fifteen projects, or groups of projects above, the seven italicised projects have been judged for value for money purposes against a public sector comparator (PSC). This enables the present value of PFI projects to be compared with the public sector alternative, allowing the likely cost savings from, or the value for money of, such PFI deals to be estimated.
It has been calculated that the total present value of the PSCs of the seven PFI projects is just over £4.6 billion compared to the total present value of the winning bidders of just over £3.7 billion.61 This suggests that the total cost savings of these projects was 20% or £0.9 billion. If the NAO sample was representative of all PFI projects, then an estimate of the savings from the £22 billion PFI projects signed up to 1 September 2001 would be in the region of £4.4 billion. Two of the projects make a significant contribution to total savings - NIRS 2 and PRIME - accounting for almost 81% of the total savings. If the NAO sample excluding NIRS 2 and PRIME could be thought of as more typical, then the estimated savings would be 10% or £2.2 billion. A 2000 report62 commissioned by the Treasury Taskforce found that amongst a sample of 29 PFI projects for which a PSC was available, the average saving was closer to 17%.
Over the lifetime of the Bridgend and Fazakerley Prisons PFI schemes, the NAO has estimated that combined aggregate savings of 10% will be made when compared to prisons built using public finance and operated by the private sector. More recently a report commissioned for the Treasury Taskforce on the PFI found that:
The operational benefits of PFI will take much more time to establish. […] The long term value for money of PFI projects will depend on how well the private sector manages the risks transferred to it and on the public sector's success in managing the contracts over their duration, a significant proportion of which are for 25 to 30 years.
When asked about the value for money of PFI projects most public sector managers have agreed that the PFI deal they have signed provides value for money. In the recent NAO survey of public sector managers,63 100% perceived at the time the contract was let that the PFI option offered marginal or better value for money. None thought the value for money poor. When asked for their current perceptions 4% changed their views and thought the value for money aspect of the PFI deal was poor.
Not all parties agree that PFI projects offer value for money. Professor Allyson Pollock of University College London has suggested that the PFI has not been delivering value for money in health projects.64 Her research shows that some schemes have escalated in both cost and scale so that greater efficiencies or levels of risk transfer have not offset the very high financing costs and the costs of private sector borrowing. There have been some cases where health authorities and the government have had to put in extra subsidies and extra services have been contracted, to bridge the gap. An example of the gap that she cites is the decision of Worcestershire Health Authorities to finance the Worcestershire Royal Infirmary through the PFI:
[…] using PFI means that increased costs of the new hospital will be met in part from the closure of 219 inpatient beds at Kidderminster Hospital without alternate provision. But since the catchment area of the new hospital will increase by 100,000 to 380,000, the population served will have almost one-third fewer acute beds under the PFI […]65
She continues:
The first NHS Trust to sign a PFI contract, Dartford and Gravesham, stated in its outline business case that 'at no additional cost to commissioners [the scheme] delivers vitally important strategic objectives'. But by the time West Kent Health Authority was asked to approve the full business case, a £2m-a-year contribution was required (on top of a new contribution from central government). This led to the withdrawal of funding for proposed community health service developments, some of which were required to provide services displaced by the PFI scheme.
The evidence suggests that some types of public service projects may be more suited to the PFI than others. While road and prison projects have achieved reasonable efficiency gains, projects in other sectors such as schools and hospitals have shown minimal gains. The main reason for this is that for road and prison projects, there is no partition of core and ancillary services, enabling the private sector contractor to make design and build
decisions on the basis that they will also operate the services. This does not tend to happen in health and school PFI projects where core services are still operated by the public sector. A second reason is that for road and prison schemes a single, central government agency, the Prison Service and Highways Agency respectively, is involved as the contracted purchaser, while the multi-agency dimension of hospital and school purchasers may present problems. For example, for school PFI projects it is the Local Education Authority (LEA) that sponsors a PFI scheme. However, they have to get the agreement of the school's governing body who, should the contract go ahead, have to release control of part of their budget to finance future payments to the private sector contractor.
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60 A full list of NAO Value for Money Reports on PPP/PFI is available on the NAO web site as at 13 December 2001: www.nao.gov.uk/publications/vfmsublist/vfm_ppp.htm
61 Arthur Andersen and Enterprise LSE, Value for Money Drivers in the Private Finance Initiative, 17 January 2000
62 ibid.
63 NAO, Managing the relationship to secure a successful partnership in PFI projects, HC 375 Session 2001/2002, 29 November 2001
64 LGIU, Public Private Partnership: Opening the public private debate, June 2001
65 Allyson Pollack, "PFI is bad for your health", Public Finance, 6 October 2000, pp30-31.