2. Question 2-How does the performance (eg, cost, delivery dates and service quality) of schools, hospitals, prisons, roads and other projects operated under private finance compare to those which were traditionally procured?
2.1 All projects delivered using private finance are subject to regular performance scrutiny from both the Public Sector partner and senior lenders. This ensures that the infrastructure is operated to a high quality, failing which there are financial penalties to enforce this, and in extremis the contract can be terminated. These long-term incentives and drivers do not exist in traditional procurement. The private finance procurement route creates a clear focus of accountability for an infrastructure project in its entirety, which is not typically the case for traditionally procured projects that may involve multiple contracts and give little guarantee that the infrastructure will be maintained and serviced to a consistently high standard over the long-term.
2.2 Timely delivery of key facilities brings clear benefits to communities, as does the high quality operation and maintenance of facilities and technologies by specialist providers. Furthermore, clearly defined availability criteria assist the private sector in ensuring the maximum availability of highways, classrooms, hospital wards and fire stations. Each of these mechanisms are components of Private Finance projects. We see this evidence in many of our projects.
2.3 On our M40 road PFI contract, innovation was required to meet performance expectations. Replacing a traditional surfacing treatment with an alternative preventative solution ensured that there was minimum disruption to motorists. Cost efficiencies were delivered, as well as a dramatic reduction in the environmental impact-as evidenced by an independent sustainability consultant that calculated a 94% CO2 saving, when comparing preservatives against a resurfacing application.
2.4 The superior performance of PFI-procured projects is reflected within the findings of a number of independent assessments:
- A 2001 NAO report4 found that 81% of of public sector managers reported at least satisfactory VfM, with 52% reporting excellent or good VfM.
- A 2003 NAO report5 found that only 30% of major non-PFI construction projects were delivered on time and 27% on budget, compared with 76% of PFI projects delivered on time (and only 8% more than two months late) and with no cost overrun paid by the public sector. Further, a Mott McDonald "Review of Large Public Procurement in the UK" for HM Treasury in 2002 reported cost overruns on traditionally procured projects of up to 51% for building projects and 66% for engineering projects attributed to "the large number of risks excluded from the contractor's price at the award stage".
- Significant delivery problems have materialised in some traditionally procured projects, with a number of high profile examples, such as the Scottish Parliament building (which was initially estimated to cost £109 million but ultimately cost the tax payer £430 million with a three year delay) and the Jubilee Line extension to the London Underground (major delays and cost overruns, contrasted with the on-time/on-budget delivery of the privately-financed Lewisham Extension to the Docklands Light Railway).
- The 2003 HM Treasury paper "PFI: meeting the investment challenge" highlighted that a number of key projects procured traditionally had been delivered late and significantly over budget; (such as Guy's hospital, the Trident submarine project, and the top 25 MOD equipment projects at a total cost of over £4.5 billion), which could have necessitated cuts elsewhere in the public purse to balance the over-spend.
- Guy's hospital in London was the last traditionally procured major hospital before the introduction of private finance. The hospital was due for completion at the end of 1992 however due to a number of problems was not completed till April 1997. The National Audit Office described the project as "one of the worst cases of overspending in recent NHS history" and the HM Treasury put the rise in cost of the project at £124 million to £160 million.
- A 2006 survey6 on operational PFI projects by Partnerships UK found that 96% of public sector managers believed that operational performance was satisfactory or better, with 66% believing it good or very good.
- A 2008 review of educational performance in PFI schools by KPMG7 indicated a statistically significant correlation between PFI school projects and improved educational outcomes.