3.3 Ipsos-MORI2 and the NAO3 have highlighted the importance of contract management in the operations phase of contracts. Whilst feedback on PFI contract performance from managers has generally been positive, there are concerns that contract managers do not fully utilise the provisions of their contracts including the use of the payment mechanism, benchmarking / market testing processes and service level standards.
3.4 In some cases, service failures are not properly logged and appropriate deductions not made. The reasons for this vary, but can result from (or be exacerbated by) insufficient commitment of resource to the task4 or a shortage of suitable skills and experience in the public sector. Commitment to adequate and suitably skilled contract management resource is essential to realise savings from operational PFI contracts.
3.5 Most projects require PFI providers to provide reports to the Authority. Contract managers should be clear what information they are entitled to and how they can use it to assess performance. While levying deductions may reduce costs, the end goal of the performance management regime is not cost reduction. Rather, it is ensuring the PFI provider performs to the agreed standard - in other words, to ensure that the authority is getting what it is paying for and that the project is delivering the value that was targeted.
3.6 In the case of the Queen's Hospital, the PFI contract management is closely overseen by the Estates Director, with two dedicated contract monitors, for hard and soft services sub contracts, and 0.5 FTE and 0.75 FTE respectively for contract monitoring of energy/waste and the medical equipment service, and approximately 0.5 FTE finance support from a project accountant.
3.7 The BHR Trust has taken a proactive approach to exploring cost saving opportunities from the PFI contract, including engaging with the project company and its investors to identify potential savings measures.
3.8 Through reviewing each contract's Project Agreement, Financial Model, Schedules and Payment Mechanism the MOD's Private Finance Unit (PFU) produced a number of contracting tools to assist MOD's project teams with their day-to-day business. These tools will assist current project teams, and their applicability will become more valuable in 3-4 years time when a new management team is in place.
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2 Ipsos MORI, 2008 - "Investigating the Performance of PFI Contracts"
3 NAO, 3 November 2009 - "Private Finance Projects"
4 Ipsos MORI found that 66% of sampled PFI contract managers devoted less than half their time to managing the contract.