5. Question 5-When the basis of a Private Finance contract needs to be altered post procurement because of changing client needs-for example, a bigger jail is required due to a larger than expected prison population-has this proved problematic compared to projects under traditional procurement? What has been the experience of PFI projects that have reverted to the public sector?
5.1 PFI contracts have improved and evolved their variation process to make them more efficient for all parties involved. A process, contract and delivery are already in place. The interfaces are established and a working framework already exists. A best value approach will have been evaluated with the help of the SPV such that the Authority will have benefitted from the private sectors expertise on budget and programme control to keep the variation on track. Historically, some contractual variations have sometimes proved to be more challenging within projects delivered through the private finance route than those traditionally procured. This is because the holistic nature of private finance projects implies that most variations will create consequences for a number of other linked activities and processes, which shape the long-term performance of the project. Such variations must be planned carefully, to protect overall project performance. There are also significant legal costs associated with larger variations because of the complex nature of such contracts. The variation process within PFI contracts has been significantly improved in recent years, in recognition of these issues.
5.2 An example of a successful variation from John Laing's project portfolio is the addition of two wards (144 beds), a renal unit and medical school facilities to the Norfolk and Norwich University Hospital. This was a result of the client's changing requirements, decided during construction of the new hospital. A variation process, as defined in the original PFI contract, was followed and construction on the additional facilities was able to start prior to handover of the original hospital. The same architectural and engineering design team and building contractor was used, which ensured both timely delivery and full integration of the additional facilities with the original hospital project. The additional facilities were completed on time. Since then the NHS Trust has instructed the Special Project Company to complete a further £12 million (capex) of variations, thereby demonstrating the strength of our partnership.
5.3 It is important to recognise that whilst such changes can bring additional complexities over traditional procurement, the long-term success of a project can be enhanced by the level of scrutiny applied when planning and implementing change.
5.4 At our Cleveland Tactical Training Centre project, an extension was built via a traditional procurement process which linked onto our PFI facility, it was procured in isolation of the SPV and ultimately delivered late, and over budget, and was not operational for over twelve months after completion due to confusion over the project management and ownership of a number of building quality issues. The preferred route for change of John Laing's public sector partner for this project is now via the PFI variation procedures route. Examples of this kind are rarely reported, because there is no process by which to do it for traditionally procured projects.
5.5 Not all variations come at a cost, however. Variations can be banded in a PFI contract depending on their complexity and size, and so simple changes need not create expensive and laborious processes. On many occasions the initial outlay can be offset by savings in the maintenance budget; for example at one of John Laing's London hospitals we were able to offer value added lifecycle changes through the replacement of previous flooring with that offering improved performance. Not only was this flooring easier to install and replace, but it also provided for an extended lifespan, reducing the frequency with which the disruption to patients and staff during replacement need occur.
5.6 By working hard to build effective partnerships and partnering behaviours between the public and private sector partners even complex variations can be managed efficiently. The police authority at our Cleveland Tactical Training Centre wished to make a £300k upgrade to their firearms range. We worked with the authority to accommodate a number of their new requirements at no additional cost. The client recognised the concessions made by the SPV and successfully used the variations process to fulfil their needs. This has been achieved because of the ethos of cooperation and trust that has developed between the Client and the service delivery teams, as has been generally acknowledged by Partnerships UK in their 2006 report.8
5.7 In 2008, the NAO9 reported that 90% of contract managers are satisfied or very satisfied with the quality of work done to implement changes.