3.4 There are a number of ways the Government is delivering increased investment. When it comes to procurement, Office of Government Commerce (OGC) and HM Treasury set out in May 2000 three recommended approaches for improving delivery:
• prime contracting, where a single party acts as the sole point of responsibility between the public sector client and the supply chain, bringing together all of the parties necessary to meet public sector requirements effectively;
• design and build, where a supplier is responsible for both the design and construction of a facility to meet the public sector's output specifications; and
• PFI, where the public sector contracts to purchase quality services, with defined outputs, from the private sector on a long-term basis, and including maintaining or constructing the necessary infrastructure so as to take advantage of private sector management skills incentivised by having private finance at risk.
3.5 For each project or programme of new investment, the Government seeks to identify which of these options will deliver the best value for money. Specifically, in modernising the infrastructure needed for public services such as hospitals, schools and other facilities the Government seeks to avoid the weaknesses of past procurement (see Box 3.1) and ensure its procurement choice will deliver:
• buildings of high quality, maintained to a high standard throughout their life;
• effectively-managed services for the public, while protecting staff; and
• new investment which is completed on time and within budget, so that facilities are available when the public sector needs them, and for the expected price.
3.6 Each of the procurement options set out in paragraph 3.4 have been designed to improve value for money and avoid past difficulties with conventional procurement. Each will offer best value for money in different circumstances. The key for public sector procurement professionals is to judge which project suits which procurement option.
3.7 PFI is characterised by a long-term, whole-of-life commitment by the private sector to deliver and maintain new public infrastructure. This approach will only be suitable for certain types of investment, naturally limiting the use of PFI as laid out below. These constraints have limited the use of PFI to around 11 per cent, or £4.6 billion, of total investment in public services this year (see paragraph 2.9). Historically PFI has not exceeded 15 per cent of total investment for any year since 1997.
3.8 The analysis set out in Chapter 4 of this report suggests that PFI can offer significant advantages for certain major capital projects - such as the construction and maintenance of hospitals or schools, or the provision of major capital assets for defence or transport infrastructure - but has not offered the same advantages in information technology (IT) or for small capital projects. (See paragraphs 4.3 to 4.12 and 4.27 to 4.56.)
3.9 The PFI model is only likely to be applicable where:
• the private sector has the expertise to deliver and there is good reason to think it will offer value for money;
• the structure of the service is appropriate, allowing the public sector to define its needs as service outputs that can be adequately contracted for in a way that ensures effective, equitable and accountable delivery of public services into the long term;
• it can be demonstrated that PFI offers greater value for money for the public sector compared with other forms of procurement; and
• the nature of the assets and services identified as part of the PFI scheme are capable of being costed on a whole of life, long-term basis. Investment with a time horizon of 5-10 years is unlikely to benefit from the PFI approach.
3.10 For example, the use of PFI would be inappropriate where:
• the pre-conditions of equity and accountability in public service delivery could not be met, as in most forms of frontline service delivery;
• the transaction costs of pursuing PFI were disproportionate compared to the value of the investment a project was delivering, impairing its value for money (see paragraphs 4.27 to 4.40); or
• the fast pace of technological change in a particular sector made it too difficult to establish requirements in the long term, or high levels of integration make enforcing systems risk allocation difficult (see paragraphs 4.41 to 4.56).