1.12 The four pilot reviews have confirmed the approach recommended in the draft guidance for making savings from operational PFI projects, and have enabled lessons to be learned on the approach to delivering contract reviews and negotiating savings. It is recommended that all Authorities with operational PFI contracts instigate a contract savings review if a comprehensive review has not already been undertaken.
1.13 Subject to the conclusion of ongoing commercial negotiations related to some of the savings identified at the pilot projects, the pilots have confirmed annual savings of around 5% of the annual unitary charges are achievable. In the main these savings come from the effective application of existing contract provisions, optimising the use of contract assets and reviewing the specification of soft services to realign with the service requirement.
1.14 The extent to which a similar level of savings will be available across other operational PFI projects will depend upon the bespoke nature of services under each contract, as well as the degree of active contract management that has applied (and may have already extracted savings from the project), and the extent to which the specification exceeds requirements and can be amended without impairing effective delivery of the necessary services.
1.15 In addition to exploring the scope for savings from the pilot projects, the reviews have looked at the process for accessing those savings, including the management of contract variations and engagement with PFI project companies and service providers. Some important lessons can be drawn:
• Transparency of underlying cost data is extremely valuable to aid the identification of savings opportunities and to inform an authority's commercial negotiation of service specification changes and contract variations. Whilst contractual information sharing provisions should give an authority entitlement to detailed financial information from the Project Company, obtaining the information can be time consuming and difficult. Where contracts do not have SOPC4 levels of transparency obligations, it is recommended that Authorities work to introduce them where possible with the aim of simplifying the process of accessing financial information.
• Contract reviews, the identification of value for money savings and the negotiation of variations will require commercial, legal, financial and technical expertise. It is recommended that public sector network groups established in some sectors are used to provide access to experience and expertise of managing similar PFI contract issues. Where these skills are not available in-house or through other parts of the public sector, then authorities may want to commission external expertise to protect taxpayers interests and mitigate the risk of short term savings being made at the expense of longer term value. The associated costs of advisory fees should be weighed up by an authority in the context of the potential value of savings that could arise (and of commercial and financial risks that could be avoided).
• Value testing of soft services unit costs is a complex area and does not always provide cost reductions. However it many cases it does provide an opportunity to review and make changes to service specification under competitive conditions. Regular reviews of service requirements and specifications in conjunction with scheduled value testing points in soft services agreements is recommended, to ensure that the services provided in PFI projects continue to reflect requirements over the contract term.
• Timing of any review is an important factor. Government departments should establish a clear understanding of the current and future operational requirements of the asset before entering into negotiations with the contractor. This should lead to realistic and achievable outputs. For example, departments should consider reviewing project benchmarking and market testing dates across their PFI portfolio when prioritising projects for review.
1.16 In addition to the above recommendations, local authorities should be aware that, pursuant to the Local Government Act 1999, local authorities should have included "best value" provisions in their contracts, pursuant to which an annual best value review and performance assessment should take place with the contractor every year. This should provide an opportunity to identify improvements and savings which can be made to services and agree these with contractors throughout the term of the contract.