9. We have heard from several sources that the presence of private finance has brought more rigour and clarity to the specification of new infrastructure. Do you agree?
A long-standing claim of PFI advocates is that, while private finance may be relatively expensive, the efficiencies it can bring to bear in project delivery will more than offset the additional cost.
A PFI can be seen as an arrangement in which the design, construction, financing and operation of a project are bundled together and delivered by a single contractor-the SPV. A key benefit of this structure is that, where a single private sector entity undertakes both the construction of a building and its subsequent long-term operation, it has an incentive to make investments in the construction phase in order to reduce maintenance costs in the operation phase and thereby enhance overall cost efficiency.
Expanding the scope of this bundle to include finance theoretically sharpens this incentive, since the value of the project to the SPV membership is determined by the expected performance of the project over its whole life.
The empirical evidence on this issue is limited, but the work that has been done does not support the prediction that higher investments will be made to curtail long-term costs. The NAO, for example, commissioned the Building Research Establishment (BRE) to analyse the build quality of eight PFI hospitals and eight comparator hospitals that were publicly procured (NAO 2007a).
The 16 hospitals were assessed against a set of design quality indicators, including the quality of external materials, internal fabric and finishes, fitness for function and flexibility for layout change and extension. Score against indicators were given with a range of 0 (very poor) to 5 (outstanding), with 4 and 5 judged by BRE as "best practice" and 3 as "good practice".
The BRE judged that, on all counts, there were "no meaningful differences" between PFI build quality and that at non-PFI comparator hospitals. On average, scores for whole-life costing were 0.69 higher in the publicly financed schemes, with an average of 3.3, versus 2.6 for the PFI schemes. This result was reached despite the fact that the average age of the publicly financed comparator hospitals was around 20 years older than that of the PFI sample.
Reliable evidence on the cost-efficiency of support services delivered through PFI is limited. However, in the healthcare sector, data on the cost of quality of non-clinical services have been collected by the NHS Healthcare Commission. In 2005, it made available the results of a one-off review which included facilities management costs and quality across all NHS Trusts in England and Wales as part of its Acute Hospital Portfolio work.
This allows for a comparison between 12 operational PFI and 141 non-PFI hospitals in terms of the following support services: security; linen and laundry; portering services; and cleaning.
On security, the average cost per square metre in the PFI group was £3.13, some £0.10 more expensive than the average for the non-PFI hospitals. However, the quality, as scored by ward managers, was somewhat higher, with an average score of 4.6 out of a possible 5, versus 4 for the non-PFIs. On linen and laundry, costs per bed in the PFI hospitals were an average of £1,204, some £137 higher than the average cost in the non-PFI hospitals. On quality, relative performance varied according to the measure used. The Healthcare Commission assessment was based on rejection rates, estimates of late deliveries and serious shortages. Rejection rates were on average higher in the PFI hospitals, but late deliveries and serious shortages were lower.
versus £20.47 in the non-PFI hospitals. Cleaning standards were much lower in On portering, both cost and quality was lower in the PFI hospitals than the non-PFI hospitals. The cost of portering per square metre was £11.82 in the PFI schemes, versus £10.65 in the non-PFI hospitals. Portering quality was measured by asking ward managers about response times for these services, with scores between 0 and 5 representing "poor" to "good". The PFI hospitals scored 2.8 on this schema, with the non-PFIs scoring 3.
On cleaning-perhaps the most important non-clinical service provided by the private sector under PFI contracts-the Healthcare Commission data shows that PFI was associated with higher costs and lower quality. The cost of cleaning per square metre was £22.77 in the PFI hospitals PFIs relative to the non-PFI hospitals-with a score of 2.7 versus 3.4, respectively.
Unfortunately, the Healthcare Commission data does not allow for a cost and quality comparison of maintenance services-one very crucial component of the PFI structure in the hospital sector, where contracts are largely based on availability payments. However, the NAO (2006) report on operational performance contains the results of interviews with managers at 19 NHS Trusts with operational PFI hospitals on the quality of maintenance. It found that half the Trusts considered availability deduction schedules to be inadequate to ensure that PFI contractors return unavailable areas to use as soon as possible, providing strong evidence of insufficient risk-transfer.
A particular problem was recorded in respect of reactive (as opposed to planned) maintenance, where only a third of managers recorded performance as good, with a further third describing performance as "adequate" and a third as either "poor" or "very poor". However, 14 of the 19 hospital managements in the PFI hospitals considered that, in general, the maintenance of buildings had improved when compared to their recent experiences in conventionally funded hospitals.
In addition, in their case study examination of six PFI hospitals, the built environment academics James Barlow and Martina Köberle-Gaiser (2009) found that the use of PFI mitigated against innovative solutions in construction. They state: "PFI has not been supportive of innovation because SPVs were concerned with minimising exposure to possible risks…the contract is designed to ensure as much certainty as possible-as early as possible-in the design process to minimise risks" (p 139). They add that PFI had led to fragmentation in responsibilities and communication between project delivery and clinical operation.