17. Although most PFI contracts are procured and managed by local authorities and NHS trusts or other locally-based teams, many of these projects are supported by central government funding. Major Departments have established Private Finance Units with a remit to support the development, tendering and on-going management of projects in their sectors. In its policy document, Strengthening Long Term Partnerships (2006), the Treasury recognised that many Private Finance Units were inadequate and needed strengthening.
18. Apart from Private Finance Units, there are a number of other organisations with a remit to improve PFI procurement and operations. The Treasury takes the lead on policy development and chairs a Project Review Group that examines PFI projects before central government funding is provided. The Office of Government Commerce has a general remit to improve procurement across government, including complex procurement, coordinates the Government Procurement Service, and carries out Gateway Reviews at various stages in project procurement. Other organisations with a remit to improve PFI procurement and contract management include Partnerships UK and, within the local authority sector, the Public Private Partnerships Programme.20
19. Nevertheless, there is a continuing lack of PFI skills and expertise across the public sector, particularly in local authorities, NHS trusts, and other locally-based teams where officials are usually encountering PFI negotiations for the first time. The Treasury accepted that this was a major issue, and had sought to provide support through an Operational Task Force run by PUK, providing skilled secondees to local authorities, and the development of centralised programme management through bodies such as Partnerships for Schools and Partnerships for Health.21
20. While it did not have the remit to carry out any capability assessments of local authorities, the Treasury considered that the best authorities were those which had undertaken more than one procurement. Leeds City Council was cited as an example. Although its first PFI deal ran into a number of problems during the procurement, its last four deals were all tendered within 18 months with adviser costs within budget. The Director of the Council's Public Private Partnerships unit considered that the build up of expertise had enabled it to develop a better understanding of when and how to use external advisers, how to put together a project specification, and a greater commercial awareness leading to more focused negotiations with the private sector.22
21. This experience is not typical, however, and one-third of procuring authorities admit that they have insufficient resources or in-house expertise for part or all of the tendering process. A barrier to the development of this expertise is the fact that experience is not shared as widely as it could be because there is no systematic way of ensuring that lessons are shared within and across sectors. Greater recycling of experience across the public sector could also lead to savings in the cost of advisers, which were on average 75% higher than budgeted on PFI projects which had closed between April 2004 and May 2006.23
22. Good negotiating skills are essential if public sector officials are to secure good deals from private sector counterparts who are usually experienced in developing and managing PFI projects. For example, project teams which had undertaken the initial benchmarkings and market testings had identified the need for negotiation skills to challenge price increases proposed by the contractors, which were up to 26% in addition to the annual price increases for inflation allowed by the contracts. The Head of PFI policy at the Treasury, who had until recently been employed as a private sector adviser to public authorities, told us that the quality of individual public sector project teams was mixed. There had, however, been improvements in recent years and the Ministry of Defence's Private Finance Unit was an example of this improvement. Public sector procurements could also be improved through the greater transfer of existing PFI procurement skills across public sector bodies. The Office of Government Commerce, as part of the reform of the Government Procurement Service, was in the process of creating a secondment model which would facilitate this.24
23. Timely and appropriate guidance can assist public authorities in procuring and managing PFI projects effectively. Detailed Treasury guidance on value testing was not, however, issued until October 2006 after the initial value tests had already taken place. But even the growing body of written guidance that now exists on how to procure and manage PFI deals is no substitute for practical experience and training to equip local officials with the necessary skills.25
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20 C&AG's Report (1), Figure 2; Q 89
22 Qq 6, 41-43; C&AG's Report (1), case example 4
23 C&AG's Report (1), paras 2.9, 3.13, 3.23; Q 130
24 Qq 20, 25-26; C&AG's Report (2), para 2.21