These recommendations relate to the Department's portfolio of existing PFI projects and any further PFI procurements they may undertake. The recommendations may also have relevance to other forms of public/private partnerships which the Department may develop in the future.
i A lack of robust data for project teams to specify their requirements and the risks being transferred to contractors has been an issue for a number of the case studies examined. Project teams should ensure that the initial planning stage of each project includes the production of suitable data on any existing use of the required service, forecast usage and the condition of assets being transferred to the private sector. The Department's Private Finance Unit should check that this information is available before bidding competitions commence.
ii PFI contracts are long term contracts which have the potential flexibility to deal with the Department's changing requirements. But change requires negotiations between the parties which need to be managed effectively to ensure value for money is not eroded during the contract period. The Department's PFI project teams should assess the likely impact of future changing circumstances on the PFI contracts they propose to enter into. In particular, they should:
■ be fully conversant with the prescribed processes for dealing with change, including Treasury and Departmental guidance;
■ only enter into contracts that set out clearly how changes will be made to the project including processes for benchmarking the price of variations;
■ continue, during the service period, to undertake regular assessments (at least yearly) of factors that could affect future requirements and the impact these may have;
■ actively manage supplier relationships with the private sector to successfully incorporate changing requirements on terms which are value for money; and
■ when considering a possible change in the use of an asset delivered by the private sector, remember that the Department may become liable for repairs arising from the change.
iii Some of the Department's projects with early PFI contracts may experience difficulties in enforcing the performance they require because of a lack of clarity in the drafting of the contract. Where the Department's projects experience service problems because the contract does not set out their requirements clearly they should either renegotiate the contract or seek, through their relationship with the contractor, a mutually agreed working arrangement to overcome the contract deficiencies. Terminating a non-performing contract represents an extreme option. It imposes significant transaction costs on the Department, but these costs may be lower than the ongoing costs of poor performance. The Department should not rule out termination of non-performing contracts on the grounds of transaction costs alone.
iv Although it is normal practice in PFI projects for the private sector to record performance and the public sector to monitor performance levels there is a risk that contractors might misrecord performance to avoid payment deductions. The Department's project teams should assess the appropriateness of the systems used to validate contractors' service performance. In particular they should be alert to the risk that the extent of successful service delivery could be overstated without any adverse effect on users of the service that would draw their attention to the situation. Project teams should carry out audit work on the performance monitoring systems, consider whether the performance data being provided is adequate and carry out spot checks of the authenticity of the underlying data.
v Good contract management involves retaining knowledge about the project, monitoring risks and carrying out regular evaluations. There was a lack of staff continuity on some of the case study projects we examined, which meant that it was harder to achieve a high standard of contract management. To improve the management of PFI projects the Department's PFI project teams should:
■ keep at least one senior member of the team in post for the first year after the contract has been let, so there is a suitable transfer of knowledge to the team who will manage the contract;
■ have staff with appropriate contract management skills acquired through either previous experience or appropriate training;
■ capture project risks on formal risk registers in both the procurement and in-service phases;
■ undertake user satisfaction assessments on a systematic basis; and
■ carry out post contract evaluations and subsequent annual reviews of overall contract performance. The NAO framework for evaluating PFI projects may assist this process1.
vi The Department's Private Finance Unit has carried out valuable work in reviewing the procurement and service experience of its PFI projects. The Department's Private Finance Unit should extend its review of PFI projects by:
■ identifying and disseminating lessons from its project teams' post contract evaluations and subsequent annual reviews;
■ analysing information on the internal and external costs of procuring recent and current PFI deals to identify action points for improving the efficiency of the procurement of future deals; and
■ recording and monitoring the main risks affecting the successful delivery of services across the Department's PFI portfolio taking account of the project evaluations and the issues identified in this report.
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1 Available from the NAO website www.nao.org.uk.