8. In traditional public procurement, infrastructure projects were directly funded by the public sector and included in the definition of public sector spending. Once the completed project was handed over to the public sector client, the private contractor's involvement ceased. In the words of the Institution of Civil Engineers, "Traditional procurement models separate some or all of design, construction and maintenance of infrastructure projects" (p 312).
9. Traditional procurement did not enjoy a high reputation for efficiency. Most witnesses drew attention to cost overruns and delays. As the LIFT Council put it, "… back when projects were traditionally procured, research undertaken by the Department of Health made clear that the vast majority of such projects were built late, with significant cost overruns and a high proportion ended up in court cases with contractors" (p 183). A study by Mott MacDonald of 39 large UK infrastructure projects procured by conventional means found that completion time exceeded estimated duration by 17%, while capital expenditure exceeded estimates by 47% on average.1 Not all witnesses agreed: Professor Allyson Pollock of the University of Edinburgh said that, according to a study of 1999 on cost and time overruns in NHS estates "… there is really no evidence at all ... of poor [contract] performance" (Q 272). But this was a minority view.
10. Imprecise definition by public authorities of their requirements was often at least partly to blame for poor procurement outcomes. Mr Steve Allen of Transport for London said that "one of the principal causes of cost overruns on public procurements is the procuring authority changing its specification repeatedly" (Q 378). Sir John Bourn took a similar view: "One of the major difficulties of the traditional, conventional procurement of projects-construction projects, defence projects and also, I would imagine, projects in the field of social welfare-has been the constant alteration of them and it is the constant alteration which accounted for so much of the delay and extra expense" (Q 364).
11. We heard evidence that the public sector is seldom held accountable for shortcomings in public procurement projects. Dr Tim Stone of KPMG said "There are very few people in the system who actually understand the whole life consequences of decisions" (Q 3); "… the data around public services is shockingly poor" (Q 5); "Because the data is not there … the risks can be swept under the carpet when they go wrong" (Q 10). In the CBI's view, "Service failure is seldom quantified or penalised in traditionally procured, publicly funded services. The absence of rigorous evaluation systems limits the public sector's ability to assess the benefits of their investment in a number of areas, including how outcomes were achieved, whether benefits outweighed costs and if users were satisfied" (p 51).
12. Many witnesses also took the view that in traditional procurement there was often inadequate provision for maintenance. The PPP Forum referred to "historically chronic under-maintenance and lack of investment" which "led to the severe deterioration of assets" (p 217), a view shared by Mr Allen, who said that "… all too often in a wholly public procurement you start off with an underestimated cost and the authority tends not to budget properly for maintenance of the asset over its life" (Q 377).
13. There was a fall over many years in the share of national resources devoted to public investment. Public sector gross capital formation as a percentage of GDP fell almost continuously between 1975 (8.9%) to 2000 (1.7%). A significant part of this decline is explained by the sharp decline in local government investment between 1976 and 1982 and the impact on public corporation investment (as previously defined) in the 1980s as a result of the privatisation programme. However, central government investment also fell in the 1990s (1.4% in 1991 to 0.4% in 1999).2
14. Against a background of shortage of funds and doubts about conventional methods of procurement, it was clearly in the public interest for Governments to look for new, efficient and cost-effective ways to meet demand for new public infrastructure.
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1 Grimsey, D. and Lewis, M., Public Private Partnerships and Public Procurement, Agenda, 2007, Volume 14, pp 171-188.
2 'Trends in Public Investment', Tom Clark, Mike Elsby and Sarah Love, Fiscal Studies, 2002, vol 23, no 3, 305-342.