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?
Lessons have been learned: The process for making mid-contract variations in PFI projects has improved dramatically since the introduction of PFI. Lessons have been learned from early projects which resulted in the enhanced and simplified change mechanics being included in SoPC4. Procuring authorities appear better prepared to carry out long term planning and scoping of their initial project requirements, minimising the need for changes during the contract. In addition, the variations procedure in PFI contracts forces procuring authorities to properly analyse the proposed variation and its rationale, and to develop the best way forward with the private sector, resulting in better variations being made.
The NAO 2008 report on changes to operational PFI projects30 notes that "PFI projects are offering sufficient flexibility to the public sector",31 "The timescales for completion of larger changes compares well with [traditionally procured projects]"32 and "if the change process is managed well and there is a good relationship between the parties, changes are more likely to be cost-effective and implemented quickly".33
Coping with small variations: Smaller variations have a reputation for being problematic and expensive. This is being addressed in practice-some contracts are now designed to take certain probable small variations into account, and procedures have been developed to provide (in terms of cost and time) in advance for better certainty and cost-control should they arise. Many change procedures now include a competitive element, effectively benchmarking the quote received from the incumbent contractor against the market, again controlling costs and ensuring VFM.
Coping with large variations: Larger variations can throw up different more complex issues. If the variation is required to be funded by the private sector, the relationship between classes of lenders (those lending against the originally scoped project, and those lending for the variation) can be difficult to resolve. It can therefore simplify matters considerably (and reduce costs) if the public sector funds the larger variations. There is also evidence that PFI change mechanics have worked especially well for significant changes-as noted above, the 2008 NAO report found that timescales for larger changes under PFI contracts compares well with traditionally procured projects.
Timing of variation: The experience of dealing with a variation can also differ based on whether it is made during the construction or the operation phase. Those made during the construction phase are more problematic than those during the operation phase, as the knock-on implications for the construction timetable are much more complicated and can be costly.
Facilitates long-term planning: The long-term nature of PFI deals gives long-term stability to procuring bodies, whose service provision solutions might otherwise be subject to political interference for example on a change of policy or of Government. With PFI they can plan for the long-term with their PFI delivery partner.