12. What system of public sector procurement would you like to see in place of PFI?
My concerns are not specific to the health sector. There are similar concerns for other PFI projects.
For schools, see the oral evidence to this Committee from Messrs Buxton and Kemp on 13 October 2009- namely no choice about PFI projects and not a level playing field (qq 81 and 105); the lack of flexibility in PFI projects for maintenance (q 83); and the inflexibility of long-term PFI contracts (q 115).
For roads, see Edwards P et al, 2004 (no relation to me).
For rail, see the example of Metronet and the maintenance of London Underground. Metronet Rail was the brand of a public-private partnership in the London Underground group that was responsible for the maintenance, renewal, and upgrade of the infrastructure on nine lines. This includes track, trains, signals, civil work and stations. In 2007-08, the company went into administration and had to be bailed out by the government. In May 2008, the company was transferred back into public ownership under the authority of Transport for London. In June 2009 the National Audit Office estimated that the failure of the Metronet PPP contract had cost the taxpayer up to £410 million adding that most of the blame for Metronet's collapse lay with the consortium itself. The Guardian website states that "In effect, the cost to the taxpayer of Metronet's inefficiency is nearly £500 million, which matches the cost in legal and consultant fees of drawing up the PPP structure".
It appears that the standard PFI contract builds in such terms that the cancellation and buying back of the PFI contracts by the government are rendered unprofitable for the taxpayer. As a result, the government is committed to a future repayment stream on PFI projects totalling £206 billion. This is the repayment stream resulting from more than 640 PFI contracts signed under the Labour Governments of the past 12 years (see The Observer, 15 November 2009).
As we have seen, it seems that the PFI cost is close to double that of the publicly-financed alternative and if so, then the excess cost of these PFI contracts will amount to around £100 billion. This is a cost attrributable to the New Labour fiscal rule of appearing to keep the public sector net debt below 40% of national output. Appearing to, for although the PFI liabilities were shifted off-balance sheet, in most if not all cases, the public liability effectively remained. Furthermore, in the light of other countries' experiences, the 40% target was very low and one which has now been significantly exceeded as a result of the post-September 2008 crisis.
The lesson must surely be; no more PFI contracts. Instead public sector procurement in the framework of national, regional and sector plans.
20 November 2009