3.1. Many of the PFI/PPP/NPD contracts across Scotland are now run in portfolios by private sector investors and managers with skilled resources dedicated to delivering quality operations efficiently. The private sector contract managers know the terms of individual contracts in great detail and are able to share best practice and efficiency measures between them.
3.2. Our key conclusion is that there are opportunities for VfM savings to be delivered through increased collaboration and commercial discipline in contract management, through the development of a shared service approach. Savings could be delivered from:
i) Optimising the scope of services in the PPP contract;
ii) Reviewing the risk transfer and value delivered from transferring some risks;
iii) Reviewing response requirements and the overall value delivered by high standards of service delivery;
iv) More robust management of contractual performance standards;
v) Sharing best practice in relation to cross-sector provisions such as benchmarking of facilities management costs and insurance premium risk sharing;
vi) Increasing in some cases the hedging against future inflation in some contracts;
vii) Reducing the cost to the public sector of administering PPP contracts through a shared service approach;
SFT believes that savings in excess of £5.5m per annum could be realised through such a shared service approach, with the opportunity for greater savings existing following a comprehensive review of points above.
3.3. We also found that:
3.3.1. Given the current margins in the financial markets there are not significant opportunities at this stage for senior debt refinancing to deliver savings. There could be opportunities as construction phases end in 2011 and beyond for projects that reached financial close at the height of the credit crisis;
3.3.2. Given the increase in PWLB borrowing rates for Local Authorities in the UK Comprehensive Spending Review last year, there does not appear to be a good case for replacing elements of project finance debt with Local Authority PWLB borrowing as may previously have been the case;
3.3.3. Contract termination could potentially deliver savings in some instances, but the scope of VfM savings that may be available has not been reviewed as termination would bring assets back into the public sector for accounting purposes, and the capital budget required for this is not currently affordable.
3.4. As discussed at 2.4 above, Infrastructure UK is reviewing the opportunity to make savings in operational projects in England. SFT will continue to liaise with IUK and identify any areas where a robust strategic commercial approach could be taken with the PPP industry to deliver savings analogous with those required to be delivered in other areas of the public services. This opportunity may not be available with tightly drawn commercial contracts and the movements in the financial markets following the global financial crisis but will remain under review.
3.5. A more in depth analysis of our findings is contained in the Progress Update and Initial Conclusions Paper, which we provided to the Scottish Government towards the end of last year and which is set out at Appendix 2 to this Report.