1.11 The PFI programme continues to play a small but important part in the Government's investment plans with £5.3 billion of capital investment taking place in 2007 through PFI projects. The pipeline of future PFI deals is strong: £23.3 billion worth of projects are due to be signed over the next five years.
1.12 The 2007 CSR allocated a further £10.9 billion in PFI Credits for local authority PFI projects. The Government remains committed to the levels of PFI investment allocated at the 2007 CSR and previous spending reviews. There is now an aggregate pipeline of £20.1 billion of local authority projects of which £7.9 billion is not yet scheduled for signature within the next five years and so is not included in the £23.3 billion pipeline figure set out in the previous paragraph.
1.13 As set out in Chapter 5, the Projects Review Group, chaired by the Treasury, will continue to scrutinise local authority PFI projects and SoPC42 will continue as the standard form of contract. The Treasury will also work with departments that sponsor projects through PFI Credits to consider whether and what reforms should be made to the PFI Credit system.
1.14 Budget 2008 sets out that the Government intends to move to using International Financial Reporting Standards (IFRS), adapted as necessary to the public sector, from 2009-10. The Government has no preference between conventional procurement, PFI or any of the other procurement approaches outlined in this document. Its policy remains that PFI should be used for value for money reasons, regardless of accounting treatment, but not at the expense of staff terms and conditions. The Government also remains committed to a strategy which safeguards UK jobs, as permitted within EU rules, ensuring that British industry can compete fairly with the rest of Europe.
| Box 1.1: Key achievements of PFI Over 510 PFI projects have now completed construction and are in operation. These projects have delivered new, modern facilities including: • 70 hospital schemes now open, with a further 27 schemes under construction; • 94 education projects covering over 800 schools; • 43 new transport projects; and • over 300 other operational projects in sectors such as defence, leisure, culture, housing and waste. PFI has consistently demonstrated good value for money: • a 2001 report found 81 per cent of public sector managers reported at least satisfactory value for money with 52 per cent reporting excellent or good value; • it delivers projects on time and on budget more effectively than conventional procurement. In 2003 a National Audit Office (NAO) study, PFI: Construction Performance, found that in only 8 per cent of major PFI investment projects was the delay more than two months and in every case the public sector paid what it expected to pay. By contrast, in traditional procurement, 70 per cent of projects were late and 73 per cent were over budget; and • the 30 most recent hospital projects to sign PFI contracts showed average savings of £29 million against their public sector comparators. PFI has delivered good service results: • a 2006 report showed that 96 per cent of public sector managers surveyed believed that operational performance was satisfactory or better, with 66 per cent believing it good or very good; and • a 2008 report by KPMG indicated a statistically significant correlation between PFI school projects and improved educational outcomes. The UK developed PFI model is used as a reference around the world: • the UK has led the world in the development of PFI contracts. The UK model and guidance is widely drawn on around the world; and • throughout the EU governments are setting up private finance units, based on the UK model, to take forward PPP projects. Sources: Managing the relationship to secure a successful partner in PFI projects, NAO, 2001; PFI: Construction Performance, NAO, 2003; Department of Health; Report on Operational PFI Projects, Partnerships UK, 2006; and Investment in school facilities and PFI - do they play a role in educational outcomes? KPMG, 2008. |
1.15 Since 1997 the Government has established clear criteria for where PFI is likely to provide better value for money than other forms of procurement and made a number of policy reforms to ensure that PFI continues to deliver value for money3. As a result the Government's PFI programme is supported by a considerable body of specific guidance, such as standard contracts and value for money guidance, that has become a core template in how to procure a PFI scheme successfully. The Government will continue to support PFI operational projects, those in construction or procurement and future projects, through the on-going development of guidance and policy as lessons are learned from experience. As part of this process the Government, working together with key shareholders, will continue to monitor the impact on staff.
1.16 The OGC has also produced additional supporting guidance on procurement, as set out in Box 1.2. In considering alternative and innovative approaches to the challenges of infrastructure procurement, the Government will expect procuring authorities and private sector market participants to consider the lessons from PFI and will seek to embed its benefits within other approaches.
| Box 1.2: OGC's An Introduction to Public Procurement This guidance is a high-level document that sets out the key concepts and principles of good procurement. It explains the strategic context of procurement, sets out procurement processes and activities and touches on the importance of capabilities in public procurement. An Introduction to Public Procurement is intended for senior officials with limited experience of public procurement. Although it focuses primarily on activities in central departments and closely associated bodies, it is also relevant where central government provides commercial governance, advice or support to the wider network, such as devolved public sector bodies. An Introduction to Public Procurement is a major component of OGC's Policy and Standards Framework which covers all the key procurement policies to which contracting authorities are expected to adhere. For more information, see www.ogc.gov.uk |
2 Standardisation of PFI contracts version 4, HM Treasury, 2007
3 See for example PFI: Meeting the investment challenge, HM Treasury, 2003 and PFI: Strengthening long-term partnerships, HM Treasury, 2006