1 In 2003, the PAC produced a report drawing together cross cutting PFI issues, Delivering better value for money from the Private Finance Initiative, (28th Report, Session 2002-2003), and in particular drew attention to reduced value for money because good procurement practice was not always being followed.
2 The objective of this study was to examine whether Authorities had addressed the main issues raised by the PAC report and to see whether procurement practice followed good practice in the following respects:
a Ensuring market interest in the PFI tendering phase, as a necessary condition of getting a good deal;
b Tackling the problem that PFI procurement costs were often higher or much higher than expected;
c Avoiding lengthy preferred bidder negotiations with one selected bidder, which risk a reduction in value for money through lack of competitive tension;
d Limiting "deal creep" during preferred bidder negotiations, where the unitary charge (the annual payment made to the private sector over the life of the deal) increased or services provided were reduced.
3 This study covers PFI projects procured in England either directly by central Government or as part of major central Government programmes covering PFI hospitals and schools. Projects with a capital value of under £20 million were not included as these would now be ineligible for a PFI approach under recent Treasury guidance. The very large public private partnerships for the London Underground, now categorised by the Treasury as PFI deals, were also excluded as they were not comparable with the majority of recent PFI deals and have been the subject of previous reports by the National Audit Office.22 Schools procured under the Building Schools for the Future programme were not included as the programme was introduced too recently for an assessment to be made.
4 The effectiveness of the tendering process impacts directly on the value for money of PFI deals, but it was outside the scope of this report to provide an evaluation of the value for money of each single deal that closed over the period examined. This would have been impossible within the resources available. The assessment of value for money of an individual PFI deal normally comprises a National Audit Office examination and report in its own right, using various detailed methodologies.23
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22 National Audit Office (2000), The Financial Analysis for the London Underground Public Private Partnerships, HC 54, Session 2000-2001; National Audit Office (2004), London Underground PPP - Were they good deals?, HC 645, Session 2003-2004; National Audit Office (2004), London Underground: Are the Public Private Partnerships likely to work successfully?, HC 644, Session 2003-2004.
23 For the methodology, see: A Framework for evaluating the implementation of Private Finance Initiative projects at www.nao.org.uk/publications/other_ publications.htm. For a full list of National Audit Reports which examine single deals in a number of different sectors, see www.nao.org.uk/guidance/pfi_ ppp_reports_by_sector.htm.