Trusts cannot easily benefit from process improvements
3.30 Contractors are likely to reduce their costs over the course of the contract, as they learn how best to implement the contract specifications and deploy new technologies. Contractors engaged in multiple PFI hospital contracts have further leverage to secure economies of scale.
3.31 But the contracts do not provide mechanisms for the Trust to:
• identify the changing cost base through open book accounting;
• share in efficiency gains; or
• encourage performance beyond the specification set out in the contract.
Furthermore, we saw little evidence of partnering working aimed at driving efficiencies (paragraph 3.23). Consequently, prices paid by Trusts may become increasingly higher than the cost to the contractors of delivering the services.
3.32 Value testing of hotel services (paragraph 3.24) ensures prices reflect market rates. Given sufficient competition, value testing ensures that prices reflect general improvements in practice and technology. However, even when managed well, value testing is unlikely to achieve sufficient competitive pressure to cause incumbent contractors to share all the efficiencies they should theoretically achieve from a long-term contract. Nor are savings achieved by the contractor between value testing exercises shared. This does not incentivise the Trust to work in partnership with the contractors to help them operate more efficiently.
3.33 Maintenance is not value tested. PFI transfers all maintenance risks to the contractors in order to allow them to manage the whole life costs of constructing and maintaining the building in an efficient manner. The total cost of maintenance is agreed at contract signature. Consequently, the price of maintenance paid by the Trust is likely to become unrelated to the actual cost of delivering the maintenance services. During the contract period the contractor may find ways of delivering maintenance more efficiently. In some cases, initial maintenance provision may prove to be too large, in which case the provider will make substantial profits.