62. One driver behind PFPs was the cost overruns of traditionally procured projects. Data is limited but a survey in 1999 found that in 73% of construction projects costs to the public sector exceeded the price agreed at contract and 70% of projects were delivered late. The lion's share of projects surveyed were traditional procurement.16
63. Traditionally procured projects that ran over budget include the Thames Barrier, Scottish Parliament, British Library and Phase III of Guy's Hospital in London (PPP Forum p 218, John Laing p 211). The problem is international. For example, a survey of over a hundred major traditionally procured transport projects, mostly in Europe and North America, found that substantial cost escalation is the rule rather than the exception-for rail, average cost escalation is 45%, for tunnels and bridges it is 34% and for roads 20%. The projects were completed between 1927 and 1998.17
64. Although not directly comparable, NAO surveys suggest many more PFPs are completed on time and on budget. A 2003 survey by the NAO showed less than a quarter of PFPs were delivered late and a similar proportion running over budget.
65. Payments to private finance contractors do not start until the building is completed. As contractors usually have financed the project with some equity and lots of debt they apply rigour in planning and execution so that more private finance projects are on time and on budget.
66. The banks providing the debt finance add another layer of due diligence designed to help ensure projects are successful and loans repaid. Ms Mingay said: "The advantage of private finance debt is that it does do that upfront due diligence on behalf of the lenders and the contractor is suitably incentivised to work through any problems and not walk away from their obligations through the life of their contract" (Department for Transport Q 536).
67. NAO surveys also suggest the gap between the performance of traditional procurement and private finance is narrowing. A survey of projects scheduled to be completed from 2003-2008 found 31% of those procured under PFP were delivered late and 35% ran over budget which suggested a weaker performance than the 2003 survey. Under traditional procurement 37% were delivered late with 46% over budget.18
68. The NAO surveys indicate that the performance of traditional procurement has improved. Ms Margie Jaffe of Unison said: "Procurement has moved on apace since the days of the 1960s and 1970s which was the last big construction phase" (Q 571).
69. There is strong evidence that PFPs have a better record of on time and on budget delivery than traditionally procured projects, although it appears this gap is narrowing. Nonetheless, too many PFPs are delivered late, albeit contractors rather than public authorities are liable to the consequent financial penalties.
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16 National Audit Office (2003) PFI: Construction performance, Summary, Page 3.
17 'How common and how large are cost overruns in transport infrastructure projects?', Bent Flyvbjerg, Mette K. Skamris Holm and Soren L. Buhl, Transport Reviews, 2003, volume 23.
18 National Audit Office (2009) Performance of PFI Construction, Pages 7-8.