2.19 The negotiation of a PFI project can often take longer than that of a conventional project because of the complexities involved, although the design and construction stages usually take less time. One criticism made of the PFI process is that, as the value for money assessment carried out prior to contract signature is concerned with the future cost implications, it does not reflect the extra costs already incurred due to the longer negotiation. Thus, on this deal, when comparing the costs of the PFI and public sector capital options in June 1998 (paragraph 2.10), the Department correctly did not include the costs already incurred in setting up the interim facilities.
2.20 We were interested to see if the signed PFI deal still retained its cost advantage, compared against a hypothetical public sector capital option which we assumed started in 1995 and met the original target date of September 1997. We reworked the Department's June 1998 calculations to reflect these assumptions. We also included the cost of interim facilities - for the PFI, the cost of the facilities at Bracknell, and, for the public sector capital option, the cost of the temporary accommodation needed to house the Army Staff College during Camberley's redevelopment. We assumed that the public sector capital option would not have allowed for Bracknell's disposal before the current expected date of 2002 as the Department told us that, even if Camberley's redevelopment had started in 1995, an earlier disposal would not have been possible because of the planning difficulties it had encountered on this site.
2.21 On these initial assumptions the estimated total costs of the PFI and hypothetical public sector capital options were broadly equal. However, our cost estimate for the public sector capital option was based on the Department's costings and adjustments for risk in June 1998 when there was a much fuller appreciation of the scope of the College and the required facilities. If the Department had proceeded with the public sector capital option in 1995, it would have been faced with the prospect of developing its specification of requirements during the construction of the new facilities. This would have been a high risk approach as implementing changes during construction usually results in cost increases. Provision for such increases was not included in the 1998 risk allowance. Thus our estimate of the costs of the public sector capital option is understated and this option is likely to be more expensive than the PFI. Without a detailed analysis of the risks faced by the Department in 1995, it is not possible to quantify the understatement and thus the extent of the PFI's cost advantage.
2.22 Even if our revised calculations had shown that the 1995 public sector capital option would have been cheaper than using the PFI, this option may still have represented poorer value for money. The affordability problems with the public sector capital option were greater and an assessment by the Department in November 1997 of non-financial factors identified that this Camberley-based option would not meet its operational requirements as well as the Shrivenham-based PFI. In addition, the Department would have borne the risk of managing the project. The Department told us that, given the doubts that existed in 1995 about the public sector capital option's ability to meet the September 1997 target date (paragraph 2.14) and the delays that would inevitably have arisen as it developed its specification during construction, the public sector capital option would probably not have been completed until September 1999 at the earliest.