3 Under a PFI contract the same private sector party, usually a consortium of companies, is responsible for delivering the required service over the whole life of the contract. In PFI accommodation projects, such as hospitals or prisons, the construction element typically represents around 25 to 30 per cent of the total value of the contract. But other project costs, such as maintenance, will be influenced by the quality of the construction work. In theory, PFI incentivises the consortium to:
■ estimate the full cost of constructing and maintaining built assets when pricing the contract, as the consortium will not be able to recover unforeseen increases later by claiming them back from the department;
■ complete the construction element as soon as possible because the consortium does not begin to receive payments until the asset is ready for use and the service is being delivered;
■ achieve good quality construction as the consortium is obliged to maintain the building to agreed standards throughout the life of the contract, and failure to do so can result in payment deductions or financial damages. This incentive encourages a 'whole life' approach to construction as longer term costs can be reduced by building to higher standards. This differs from traditionally procured assets, where the companies responsible for construction have no interests in the long term performance of the assets.
4 We spoke to a number of major PFI contractors, construction industry bodies and academics. They confirmed that these are the incentives which, in theory, are provided by the PFI approach and considered that they are generally working in practice. The incentives were leading to improvements in built assets through the better integration of design, construction and maintenance, leading to the better management of construction cost risks.