1.26 The Government's commitment to PFI rests on its ability to deliver value for money in public investment that is not at the cost of the terms and conditions of employees. The Government's procurement decisions must be based first on its approach to considering where particular procurement options are appropriate and second on an unbiased and rigorous assessment of which of the available options represents the best value for money. It is therefore vitally important that the process of assessing value for money is robust - that it takes place at key stages of the procurement process and that there is the budgetary flexibility to pursue alternative procurement routes if PFI does not prove value for money. This is in order to ensure that there is no inherent bias between procurement routes. Chapter 7 sets out the Government's approach to assessing value for money and outlines measures to ensure its effective use in the procurement process.
1.27 In order to better ensure that investment is always procured through the best value for money option, the Government will be consulting on reforms to the appraisal process including the Public Sector Comparator (PSC), an important tool used in assessing the value for money of PFI projects. The result will be a value for money appraisal process that adopts a comprehensive and analytically rigorous assessment of all the costs and benefits of PFI and builds in the option to pursue alternative procurement routes at any stage if they offer better value for money. The changes proposed are:
• instituting a new test of the potential value for money of procurement options when overall investment decisions are made, to ensure PFI is used only in those sectors where it is appropriate and has a good value for money case;
• reforming the Public Sector Comparator into an early rigorous economic appraisal of an individual project at the stage an outline business case is produced, prior to the procurement of the project, to allow projects to proceed down alternative procurement routes where they offer better value for money; and
• instituting a final test at the procurement stage of a project that would evaluate the competitive interest in a project and the capacity of the market to deliver it effectively.
1.28 In sectors where the evidence and analysis now suggests that PFI procurement does not offer the benefits that had been expected, specifically in the IT sector, and in individually procured projects with small capital values, the Government is reassessing the use of PFI. The evidence on deals with a low capital value, presented in Chapter 7, suggests that they can offer poor value for money because of high pre-contract transaction costs relative to their overall value. Where small individual projects are bundled together, however, value for money can be secured through increased efficiences in procurement. In the IT sector, structural characteristics have proven to be at odds with the principal benefits of PFI, and PFI has not been able to deliver the step-change in performance the public sector requires as outlined in paragraph 7.39. The research showed that in those IT projects which were more successful, contracts had been negotiated to accomodate improved structures, susggesting a move in practice away from a PFI model. The Government will therefore consult with Departments on a level of capital expenditure below which alternative means of procurement will be pursued. The Government will replace PFI in IT with a range of procurement models, better able to deliver, on which it will consult.
1.29 Where PFI has proven and continues to prove to be value for money the Government will use PFI procurement for new investment, for example in delivering vital new infrastructure for schools and hospitals. The Government will also investigate with departments and other stakeholders potential new areas where PFI investment could offer value for money. If there is evidence that these new areas exhibit potential for benefiting from PFI procurement, investigation and consultation would be followed up with a pilot stage to provide further evidence to judge performance in practice. Areas under consideration include moving in the prisons sector from the construction and management of new build prisons to management of the existing prisons estate, urban regeneration, waste management and social housing.
1.30 The Government is committed to transparency in monitoring and reporting on the progress of the PFI investment programme. Since 1997, the Government has increased the information disclosed in the Financial Statement and Budget Report to include:
• a record of future payments contracted for by each PFI scheme; and
• the capital value of contracts signed to date and in procurement.
1.31 The Government plans to build on this by publishing, on an annual basis, a comprehensive statement on the progress of the PFI programme. This will include a complete record of transactions committed to in the previous year, a record of projects that have been completed in the year in question and their performance against expectations, and a statement on potential future transactions by sector.