2.1  The National Audit Office has produced 72 reports on the uses of private finance in public service delivery. Fifty four of these reports relate to single projects, seven to programmes and 11 to strategic themes in the implementation of private finance (Appendix 1). Overall, we have looked at more than 100 of the 641 projects currently under construction or operation.

2.2  We find that using private finance brings benefits, but these cannot be counted on. Our reports assess VFM at a particular point in time. That may be after contract letting or at some stage during the contract's operation. Based on these snapshots we have found some projects which have the potential to be VFM, some where the VFM is uncertain, and some where the project has failed to achieve VFM, normally because it was tendered or managed poorly.

2.3  We select our studies based on materiality, risk, and potential impact. The studies are not therefore designed to be a representative sample. Furthermore, many of our reports look at specific aspects of projects, rather than attempting to comment on the overall VFM of a project, and particularly stress the lessons that can be learnt. Taking that into account it is not possible to say how many of the projects we examine have the potential for VFM, and how many do not. It is easier to count the failures: a fifth of the projects we have examined have clearly failed to achieve VFM, normally due to poor tendering or contract management.

2.4  In general we have found that:

(a)  Many projects do not have a robust justification for the use of private finance. Public authorities often pay greater attention to the business case planning of PPPs than conventionally procured projects. Business cases, however, often do not manage to set out the strategic VFM case for using private finance convincingly. There is also considerable use of quantitative analysis to analyse estimated costs and benefits, which is helpful in assessing key decisions. But such analysis is prone to mistakes, manipulation and misuse. This point is developed in part four.

(b)  A lack of systematic evaluation of operational projects results in missed lessons and means that the costs and benefits commonly assumed in business cases remain largely unproved. Furthermore, the methods of achieving potential benefits are often not built into realisable action plans. This point is also developed in part four.

(c)  Institutional incentives have pushed public bodies towards using private finance. Public authorities often have no alternative source of funding and feel pressured to use private finance because its treatment in financial accounts and budgets make it seem more affordable from the public authority's perspective. This point is developed in part three.

(d)  Private finance normally delivers what the public authority asks for. The delivery record of PPPs against contractual specification is good. Most projects deliver close to time and price, the construction normally meets the specification and the services receive few penalties. This point is developed in part five.

(e)  Private finance can deliver real risk transfer with a good contract. Overall there have been few private finance project failures. A small number of projects, however, have failed so seriously that the public authority did not get what it wanted. This has normally led to the private sector losing some of its money and the public sector being insulated from some of the costs. Poor contracting, on the other hand, has sometimes led to public sector exposure to risks they thought were transferred. This point is developed below (paragraphs 2.12 to 2.17).

(f)  Competitive pressure has not always been as strong as it needs to be to achieve VFM. In the early days of PFI, an oversupply of projects relative to the number of bidders limited competitive pressure. High bid costs also put off potential bidders. A significant number of changes are made at a late stage in the process, when only one bidder remains in the running. Since the credit crisis, there have been particular difficulties in achieving competitive financing. This point is developed in part five.

(g)  Public bodies must carefully manage PPPs through the project design, tendering and operational process. It is important to protect the public interest because PPPs are commercial deals and contractors seek ways to enhance that profit, often successfully. This point is explored in more detail in part five.

(h) Many private finance projects are delivered as part of nationwide programmes. Examples are the LIFT projects for primary care, Building Schools for the Future (BSF) and waste treatment facilities. Programme management is not unique to private finance projects. It is, however, a significant aspect of the private finance landscape. Our reports have highlighted the challenges of building up momentum in a programme.