2.20 PFI aims to encourage the construction of assets with more efficient and transparent whole-life costs. The project company is responsible for both the construction and operation of the asset, and the cost of both is included in the single price provided to the public sector client. This can reduce the focus on upfront costs, and may involve spending more on construction if it means spending less on maintenance. Many conventionally funded projects fail to consider whole-life costs. We recently criticised the Learning and Skills Council for encouraging Colleges to focus on the affordability of upfront capital costs rather than whole-life costs.20
2.21 It was a common feature of publicly managed buildings that maintenance budgets were often cut in lean times, even if that meant greater costs later. This is exacerbated by a public expenditure system where capital funding is injected as additional funding, whereas maintenance is funded from revenue where it will lose out to the delivery of core services. This can lead to a significant backlog of repairs. The NHS spent £300 million in 2007-08 on its backlog of repairs.21 In 1992, when Further Education Colleges were incorporated, they found £800 million of backlog repairs were needed.22
2.22 PFI provides a contractual guarantee that the public client will fund the ongoing maintenance of the building. This has generally meant higher annual maintenance costs than previously and less budgetary flexibility. But it also avoids the build up of a backlog of maintenance, which might cause damage requiring more expensive work to be undertaken. It can also make for more pleasant and better-kept environments. Whether it will lead to an overall reduction in whole-life costs would be very difficult to prove.
2.23 Private finance is not, however, the only way to ring-fence maintenance funding or consider whole-life costs. The London Borough of Lewisham, for example, has established a sinking fund to ensure its non-PFI schools are maintained to the same standard as its PFI schools.23
__________________________________________________________________________________
20 Renewing the physical infrastructure of English further education colleges, National Audit Office (HC 924, 2007-08).
21 House of Commons Commission, Written Answers, NHS: Repairs and Maintenance (2 March 2009).
22 Renewing the physical infrastructure of English further education colleges, National Audit Office (HC 924, 2007-08).
23 Building Schools for the Future: renewing the secondary school estate, National Audit Office (HC 135, 2008-09).