2.6 Private finance occasionally allows public bodies to do things they would find difficult to achieve using other procurement routes (Case study 1). Such strategic issues can outweigh considerations of pure cost efficiency, but are unconvincing if they appear as post hoc rationalisations. They need to be clearly stated at the outset and built into the procurement process. When assessing private finance projects, we expect the public authority to have considered carefully whether there are strategic advantages or disadvantages from using private finance, such as:
a the need for a development to be operational by a particular date;
b the ability to access scarce skills;
c the desire of supporting particular parts of industry;
d the need for flexibility; or
e the inability to commit to long term current spending.
Case study 1 |
The first tranche of privately financed road contracts were let by the Highways Agency in 1996. Under each of the contracts, the private sector agreed to build a road meeting the Highways Agency's technical requirements and to operate and maintain it and some existing roads for a period of 30 years. The Highways Agency expected only three of the first four PFI road projects to provide better financial terms than traditionally procured and conventionally financed alternatives. It considered that the contracts were VFM because using PFI fitted with its strategy of encouraging the development of a private sector road operating industry.1 |
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