7.28 The research set out in Chapter 4 demonstrated that PFI had performed well in some important respects in projects with small capital values, achieving levels of on-time and on-budget delivery and performance satisfaction in line with the results of PFI in major capital projects and delivering the kinds of benefits that drive PFI's value for money in large projects.
7.29 However, delivering these advantages involves considerable time and resources invested by both public sector clients and private sector bidders alike. The evidence presented in paragraphs 4.34 to 4.38 demonstrated that procurement costs and times in small projects did not decrease in proportion to their size, but remained at roughly the same level as for much larger projects. It outlined that:
• small projects face the same costs of using third-party finance, employing
legal and technical advisors, and conducting due diligence financial
modelling in the same as for much larger schemes. As a result, these costs are
relatively higher for small projects individually procured;
• similarly, bidders in small PFI schemes must typically meet the costs of technical, financial, design and legal advisors. These bidders' costs also do not necessarily fall in proportion to the size of the project, and so the disproportionate costs reduce interest and competitive tension in small PFI schemes; and
• public sector clients tend to develop their own specialised PFI procurement skills far more when they are engaged in a range of projects on a sufficiently large scale. Small, one-off PFI projects raise questions about whether the public sector has the capacity and expertise to secure the best deal.
7.30 The threat that these potentially disproportionate transaction costs pose to a project's value for money was not adequately reflected in the original PSC, which failed to capture consistently the costs, and did not take into account the disbenefits associated with delayed delivery of investment to the public services. There was therefore the potential that some small projects would pursue PFI on the basis of a value for money assessment which did not take into account the wider disbenefits in terms of transaction costs and extended procurement times.