2.24 PFI is meant to encourage innovation and good design through the use of output specifications. Public authorities establish a detailed output specification at the outset of the tendering process and bidders compete to provide the best costed proposal for how they would deliver it. Occasionally this brings VFM through better technical solutions than the public sector would develop on its own:
a The Contributions Agency issued an output specification in its tendering process for the Newcastle Estate Development Project that encouraged innovation. The winning bidder provided an innovative design which reduced the gross floor areas of the new construction by 25 per cent.24
b NHS Local Improvement Finance Trusts act entrepreneurially to build local
partnerships between public bodies, such as NHS Trusts and Local Authorities, and think creatively about the needs of their local area to help bring about the co-location of services.25
c Siemens Business Services worked with National Saving and Investment (NS&I) to modernise the business and increase productivity so that it could compare well with the leading edge organisations in its service area. NS&I could not have achieved as much without them.26
2.25 Sometimes we find that the process of tendering for PFI can hinder innovation and the design process:
a There is little time devoted to design issues and it can be squeezed by the urge to finalize the tendering process. It is also but one element of the tender process, so the choice of bidder sometimes means that the bidder with the best design or technical solution is not chosen. Intellectual property rights belong to the bidders, so the ideas of rejected bidders cannot be used.
b The tendering process can create a distance between architects and those designing the services on the one hand and the end users on the other. Bids are developed in competition so end users have to engage with multiple bidders, and rarely have sufficient time to give to all, especially when the end users are also trying to deliver front-line services.27
c The bidding process often ends with a discussion on affordability and a process of value engineering. This is where bidders, sometimes reduced to a single bidder by this stage, have worked up a technical solution in negotiation with the Public authority and end users, costed it and found it to be too expensive. They then undertake a process of descoping the technical solution until it is affordable. This process often leads to abandoning many of the more innovative elements.
d PFI's emphasis on the allocation of risk can lead to the provision of tried and tested solutions. Public authorities that emphasise their desire for bids that demonstrate innovation and good design are more likely to achieve it.
2.26 Some public authorities use private finance without the intention of achieving innovation in design. The Foreign and Commonwealth Office provided a design for its Berlin Embassy's PFI building, so bidders could not provide design innovations.28 Local Education Partnerships are designed to act strategically and entrepreneurially, but Local Authorities generally opt for a slimmed down model without the staff that could provide innovation, and some limit the partnerships to a more traditional client- contractor relationship.29
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24 The Contributions Agency: the Newcastle Estate development project, National Audit Office (HC 16, 1999-00).
25 Innovation in the NHS: local improvement finance trusts, National Audit Office (HC 28, 2005-06).
26 PPP in practice: National Savings and Investments' deal with Siemens Business Services, four years on, National Audit Office (HC 626, 2002-03).
27 Building Schools for the Future: renewing the secondary school estate, National Audit Office (HC 135, 2008-09); Daren't Valley hospital: the PFI contract in operation, National Audit Office (HC 209, 2004-05).
28 The new British Embassy in Berlin, National Audit Office (HC 585, 1999-00).
29 Building Schools for the Future: renewing the secondary school estate, National Audit Office (HC 135, 2008-09).