153. Private finance could be used in more areas than hitherto, particularly in the provision of services. Mr Metter said: "In a hospital project we have a project to build a whole huge hospital and we have a whole range of services which we provide which are what we call soft services, services like laundry, cleaning, food; many of the services which feed directly into patients are provided by PFI. A natural extension of that would be to provide nursing services." He added: "Equally with the schools, there is no reason why some of the teaching could not go into the PFI project" (Q 482).
154. Mr Adrian Ewer, chief executive of John Laing, said: "There is no reason why the private sector could not embrace the provision of the service rather than just provide the hardware from which the service is delivered" (Q 482).
155. The CBI argued for 'payment by results' that would transfer at least some risk to the private sector for the quality of service provided. Susan Anderson, director of public services at the CBI, said: "If we are looking, for example, at education what we should be measuring it on is the quality of the education that is delivered in that school, not just whether you have a wonderfully designed building" (Q 186).
156. Not all demand-related risk can be transferred at a reasonable price. Mr Metter said: "In the very early days of PFI they suggested that we should take the risk for the number of prisoners they put into the prison when we had absolutely no control over how many prisoners they were going to send to the prison. They realised very quickly that to make the private sector take that risk was just going to be very expensive for them" (Metter Q 469).
157. The private sector is clearly not best suited to bear all the risks in all forms of private finance project. Experience has shown, however, that bundling certain services with construction in PFPs has delivered benefits, including the transfer of risk from the public to the private sector. We believe there is scope to transfer more demand or output-related risks. For example, with a prison such risks could be partly transferred by rewarding contractors for lower re-offending rates. In education, more risk transfer might be possible in the provision of teaching services; independent schools already take on all such risks. There is similar scope for the transfer of demand and output-related risks in relation to medical services.
158. We recommend that the Government should examine what additional risks now borne by the public sector can sensibly be transferred to the private sector, acknowledge the lesson of experience that the risks of exceptionally complex, large projects are not suitable for transfer to the private sector, and produce comprehensive revised policy guidelines.