11 Managing PFI contracts is a challenging task. We found four main areas where Trusts are trying to defend value for money in their interactions with contractors:
a Interpreting the scope of the contract to defend the Trust's position in any contractual disputes.
b Managing the change process to ensure changes to the building and services are value for money and timely.
c Fulfilling their obligations to ensure intended risk transfer.
d Ensuring that the expected level of performance is delivered.
12 Most Trusts are managing their contracts well day-to-day but need support with certain complex issues. We assessed the way Trusts manage their contracts against best practice. We found, with a few exceptions, that Trusts are currently well equipped to manage their contracts day-to-day and understand the risks to value for money. However, the risks outlined in paragraph 11 remain. We also found that Trusts rely on their support networks and the Department to keep them up-to-date on what is good practice and how to manage more complex issues and risks.
13 Some Trusts are not, however, devoting sufficient resources to contract management. Many Trusts have recently increased the resources they devote to the management of their PFI contracts. These Trusts realised that managing the contracts was a greater challenge than they had at first thought. However, nine of the 76 PFI contracts (12 per cent) have no one assigned to contract management.
14 Trusts are likely to be expected to make efficiency savings over the next few years, but their ability to make savings from their PFI contracts is limited. PFI commitments represent between 0.4 and 18.3 per cent of each Trusts' operating costs. This commitment is relatively fixed in real terms. The contracts allow the price to be increased annually for certain aspects of price inflation in contractors' costs, but Trusts can benefit from certain specific cost reductions:
• through sharing refinancing gains if they occur; and
• if the market price for hotel services is below the price in the PFI contract at value testing reviews which are normally every five years. The experience to date, however, is that these value testing reviews, which can result in price increases or decreases, have rarely led to price reductions for Trusts.
15 There are several reasons why it is difficult for Trusts to further reduce their PFI spend or get service improvements through sharing in efficiency savings:
a Unlike refinancing gains, the contracts do not require investors or contractors to share gains they can generate through more efficient management or service delivery in individual contracts, or groups of contracts, where these gains are not reflected in prices offered in the value testing reviews.
b We saw little evidence of partnering work between contractors and Trusts aimed at driving down costs and producing mutual benefits.
c Although maintenance services are subject to competitive tension in the tendering process, Trusts have not been able to benefit from any efficiencies in building maintenance which contractors achieve over the contract's life. This is because these services are not value tested and contractors do not share with Trusts information on their maintenance spend.
Whilst some Trusts have sought to make savings by reducing the scope or performance requirements of their PFI services, there is little experience of these negotiations or their outcomes. Trusts need to ensure that any decision to reduce services is informed of the long-term consequences to costs and the impact on patients.