Comparison with current practice

17  The Armouries' deal was one of the very first PFI projects and took place when there was no guidance available on how to structure such deals. Since the signing of this deal in December 1993 the PFI has developed greatly. Many more such contracts have been signed and there is a large body of guidance now available to public bodies who want to enter into such deals. Consequently developments in the PFI have made a similar outcome on other PFI projects less likely. The Armouries cannot be criticised for any failure to follow subsequent guidance as the issue is whether current best practice would have led to a better outcome if it had been available at the time.

18  For example, it is unlikely that a similar project would be approved now without a clearer demonstration of value for money. The importance of an effective competition when awarding a PFI contract is now emphasised. On this project there was little interest in the market place (paragraph 4).There is also now a requirement that a public sector body prepare a public sector comparator, showing the cost of providing the required services using public funding, and compare this with the PFI option before signing any contract. No such comparator was prepared for this deal as the Department had decided in 1991 that the new museum should not be totally funded by the public sector but that some funding should come from the private sector (paragraphs 2.3 to 2.4).

19  Had this project been concluded in line with guidance which became available subsequently, it seems likely to us that the Armouries would have been better able to tackle the problems on this project. For example, guidance now recognises the need for an agreed performance regime which was lacking on this project (although there is no evidence to suggest that the lack of this specification here had a material effect on the number of visitors). Greater rights of access to the private sector party's financial records, as is now standard, might have helped the Armouries to determine the extent of any financial problems being encountered by the contractor on this project. The existence of a direct agreement, as recommended in current guidance, would have placed the Armouries in a better position to discuss with RAI's bankers RAI's financial problems as such an agreement would have established a direct contractual relationship between the Armouries and the bankers. More significantly, current guidance, if followed, would have given the Armouries the right to terminate the contract and take possession of any assets provided under the contract immediately the contractor went into receivership, again unlike on this deal (paragraphs 2.8 to 2.10, 2.12, and 2.17 to 2.20).

20  The incorporation of the elements of current good practice in the original 1993 contract would probably not have saved this deal in the face of a collapse in visitor numbers. However, in our opinion, it seems likely that these elements would have allowed the Armouries to intervene more easily and at an earlier stage. This earlier intervention may have opened up more opportunities for saving the deal as options which were not considered to have been feasible in 1999 may have been in 1997 (paragraphs 2.28 to 2.29).