7.2 The Government's aim in procurement decision-making is to secure the maximum improvement in public services from investment through maintaining an unbiased stance on which procurement route will offer value for money in each case. The value for money appraisal process is therefore key to decision-making. The research set out in Chapter 4 showed that PFI works well for certain types of investment, but that conventional procurement may be better value for money for others, and therefore that evidence of delivery of value for money in practice for each sort of investment should be factored into initial decisions. Box 7.1 below suggests the characteristics of successful PFI that would shape this assessment. A robust appraisal of all the costs and benefits, including transaction costs, involved in pursuing a procurement route is needed, and paragraphs 7.8 to 7.12 describe the present PSC, and propose some reforms to it. Procurement authorities also need to have built in budgetary and procedural flexibilities to ensure that the best value for money option can be selected.
Box 7.1: Characteristics of successful PFI The benefits which PFI can offer, outlined in Chapter 3, and backed by the evidence of its performance in practice presented in Chapter 4, indicate that there is a case for considering PFI where: • there is major capital investment programme, requiring effective management of risks associated with construction and delivery; • 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, and where risk allocation between public and private sectors can be clearly made and enforced; • 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; • the value of the project is sufficiently large to ensure that procurement costs are not disproportionate; • the technology and other aspects of the sector are stable, and not susceptible to fast-paced change; and • planning horizons are long-term, with assets intended to be used over long periods into the future. |
7.3 To date, PFI investment projects have been assessed for value for money at the project level, using the methodology set out in the Green Book and drawing on the guidance on constructing a PSC to compare the costs of a PFI procurement with a public sector option.
7.4 Taking the above analysis into account, the Government proposes to move to a three stage procedure:
• instituting a new assessment of the potential value for money of procurement options when overall investment decisions are being made in the context of the Spending Review, to ensure PFI is only used when it is the best option and has a good prospect of offering value for money;
• reforming the Public Sector Comparator (PSC) into an early, rigorous economic appraisal of an individual project at the outline business case stage prior to involving the private sector, to allow projects to proceed down alternative procurement routes where they offer value for money; and
• setting up a final assessment of competitive interest in a project, and the market's capacity to deliver, at the procurement stage.
7.5 Given that the proposals set out in this chapter are a broad framework, the Government will be consulting on the details of how these stages will be implemented, and in particular on the reformed PSC (see paragraphs 7.8 to 7.12 below). They will not affect or hold up projects already in procurement.