1. Since 2004 the proportion of deals attracting only two bidders has more than doubled, with the risk of no competition if one bidder is weak or drops out. Lengthy tendering periods and high bid costs are already cited by bidders as key reasons for greater selectivity, and new procurement regulations require a greater degree of bid development earlier in the process. Where only two detailed bids are forthcoming, project teams should investigate the reasons for the lack of interest, and departmental Private Finance Units should consider what lessons can be applied for future PFI deals.
2. The average tendering time for projects in 2004-2006 was 34 months, compared to 33 months for projects that closed prior to 2004. The average cost of advice was £3 million, reflecting the length of the process, and delays to projects cost the taxpayer at least £67 million. The Treasury should encourage departments to impose sector specific targets for the completion of deals and require the completion of post-signing project evaluations by project teams. A summary of the evaluations should periodically be published by the Treasury to help spread good practice and learn lessons for the future, for example, on the need to have the right skills and experience in the public sector team.
3. One third of public sector teams made changes to PFI projects after they had selected a single, preferred bidder. Although new procurement regulations may reduce the scope to make significant changes after the competitive process has ended, the practical effect of these regulations has yet to be tested. The Treasury and Departments should assess the impact of the new procurement regulations by mid-2008, including whether they have reduced the incidence of late changes to deals.
4. Benchmarking and market testing, which might have been expected to improve prices during the contract period, have in practice increased prices by up to 14%. The private sector has been able to negotiate price increases for the provision of existing services with more than half the local project teams examined. Such increases put at risk the value for money case for long term arrangements to provide facilities services such as catering and cleaning. Such arrangements should be avoided unless the value for money case can be shown to be insensitive to the sort of price increases (or equivalent service reductions) through the contract period that have already occurred on other projects.
5. Public authorities have found it difficult to find appropriate data to benchmark PFI service costs, placing them at a disadvantage in price negotiations. Incumbent suppliers will be in a strong position if authorities cannot place them under competitive tension. Partnerships UK (PUK) should bring to an early conclusion its current work to collect data on PFI benchmarkings and market testings. The Treasury should then work with departments to consider whether, taking account of the PUK data and other departmental cost databases, further cost data are needed to enable project teams to negotiate robustly on any future PFI value testing exercises.
6. There is evidence that, faced with price increases, public authorities had to cut back on services in hospitals, including portering, to keep the contracts affordable. Where such cutbacks have been made so far the authorities believed that they would not compromise the service to the users though cutting services could, in some situations, impact on users. Where reductions in services provided under PFI deals are agreed, they should be notified to the relevant departmental Private Finance Unit. The Treasury should review the results of user surveys to identify any evidence that such service reductions have put satisfaction in doubt.
7. There is a continuing lack of PFI experience and skills within public procurement teams across the public sector. One-third of procuring authorities admit that they have insufficient resources or in-house expertise for part or all of the PFI tendering process. The Treasury and the Office of Government Commerce should implement two linked changes to allow all complex procurements such as PFI projects to be staffed by people with relevant experience and skills:
- the establishment of a career structure to create and retain a cadre of appropriately rewarded public sector procurement professionals, expert in complex procurement such as the PFI;
- the development of a secondment model which would allow interchange between procurement experts in the public and private sectors.