3. How should the cost and benefits of Private Finance projects be assessed? What discount rate should be used in comparing Private Finance with conventional public procurement? Are current procurement procedures satisfactory?
Is enough information disclosed on Private Finance projects fully to assess whether the taxpayer is getting value-for-money?
3.1 Reams of immensely detailed documentation assessing the value of Private Finance (PF) projects already exist. The most appropriate way in which to assess the costs and benefits of PF projects would be comparison against projects that would otherwise have been publicly funded, yet the only public sector comparator data that exists is historic and it is impossible to know what would have been built had only public capital been available. On that basis private sector and public-private partnership (PPP) schemes do far better since public schemes never used to be assessed.
3.2 The LIFT Council would warn against a situation where the comparison is done on the basis of real PPP costs benchmarked against perceived public sector only costs. The most appropriate way to assess value would be a move towards the benchmarking of PF/PPP projects, thus avoiding the pitfalls of using outdated public sector data which does not give an accurate picture of the present value and cost of schemes. We would also caution against only looking at initial build costs. Whole life cycle costs should be compared as an initial cheap build hospital may well look good in the analysis but its true cost over 25 years will be considerably more than an initial expensive build. Furthermore, ward and department closures for repairs and additional revenue costs from a cheaply built facility are frequently ignored in such comparisons.
3.3 On the issue of the discount rate used, the tendency to use the HM Treasury discount rate effectively makes PF/PPP projects appear more expensive than they actually are as the private sector does not have access to this rate and instead must use a discount rate which accurately matches their cost of funding. This issue would be resolved if a Government infrastructure bank was able to lend to the private sector at the HM Treasury discount rate or projects were assessed using the discount rate used by the private sector. It is also worth noting that all financial models under the LIFT scheme are sent to the Primary Care Trust (PCT) to approve and are scrutinised by financial advisers making them absolutely transparent.
3.4 On procurement, current procedures are not satisfactory since timescales are too long and the public sector has a tendency to employ too many external advisers which can add significant cost as well as confused strategy and delay in delivery. In addition, relationships with external consultants are not based on the same partnership approach, shared goals and linked financial success as the LIFT model. The LIFT Council would advocate better targeted use of advisors, clearer role descriptions and improved scrutiny of such costs.