WIDP considers there to be a strong value-for-money case to support the use of private finance in the waste sector, particularly where this is combined with the rigours of PFI and, even if pursed under PPP without PFI credits, then at least following the relevant PFI guidelines on contract terms etc.
The case for the use of private finance is arguably stronger in the waste sector than in other sectors, where, in addition to the design and construction risks, waste projects are subject to additional risks relating to technology, operations and maintenance.
The following are generally regarded as the foundation stones of value for money under PFI.
(a) A contractual fixed price (e.g. a gate fee) for delivery of a public service; the price upon contract signature being either fixed in real terms (i.e. fixed other than for general inflation), or steadily reducing in real terms year-on-year; where known and fixed prices have clear value within a highly constrained public sector budgetary system.
(b) Long-term solutions to public service delivery (e.g. contracts of term >10 years) which involve whole-life of asset costing and two-way commitments: on the one hand, the public sector is committed under-contract to budget and pay for the realistic cost of maintaining assets and service quality in the long-run - i.e. it is sheltered from financial pressures to pursue false-economies (such as cheap-to-build designs) and to neglect its assets by deferring maintenance expenditure; and, on the other hand, the private sector has to live with the long-term consequences of its design decisions in terms of the true cost of delivering the specified services, whether greater or less than the contracted fixed price.
(c) Performance related payments that are linked to service outputs and ensure Authorities only pay for what they get in terms of services delivered to the required long-term standards; and where the use of output based specifications creates single-point responsibility in service delivery and greater scope for innovation in design of service delivery.
(d) Private sector capital at risk; the invested capital providing both a stronger and longer-term incentive for good performance than does having profits-alone at risk. Moreover, the invested capital provides a much longer-term collateral underpinning of fixed-price contractual obligations than can be provided by performance bonds or warranties. The third-party due diligence processes that come with the deployment of long-term risk capital are, in their own right, an aid to improved project definition, cost transparency and delivery.
Although it may be possible to replicate some (or even all these foundation stones) to a degree in procurement methods other than PFI/ PPP, it is not possible to fully replicate this combination of value-for-money drivers by procurement methods other than PFI (or PPP following PFI principles), whether under Prudential Borrowings or otherwise. Moreover, the depth of supply market for PFI (and PPP) based solutions provides the basis for a strong competition, itself an important driver of value for money. Nonetheless, if suitable precautions are taken and appropriate contractual forms adopted, the difficulties inherent in alternatives forms of procurement to PFI (or PPP) can, for low-risks projects, be reduced to levels consistent with value-for-money procurement, if they are undertaken by suitably resourced and experienced Authority teams.