3. The research commissioned by Treasury covered more than 100 out of over 500 operational PFI projects. The report's results indicated that, based on the results of surveys of the end users of PFI services such as doctors, patients, teachers and pupils, users are satisfied with the services provided in PFI projects with good overall performance levels, and sufficient confidence in the contracts incentivising as intended. Public sector contract managers reported that 96% of projects were performing at least satisfactorily, and in 89% of projects, public authorities felt that services were being provided in line with the contract or better. The Treasury also found that public sector managers believed the relationships between them and the private sector were generally good with the parties displaying a positive and pragmatic approach to the contract.
4. The reports on service delivery which the Treasury obtained from contract managers are in line with our examinations of PFI projects that have identified very few projects which are not delivering services in line with the contract. One such project was the contract for the National Physical Laboratory on which the Committee has reported.
5. The Treasury report proposed measures to promote operational and contractual flexibility under the PFI. It is important that these matters are addressed as the majority of the 750 PFI contracts which have been let are now in the operational phase. There are risks and challenges in seeking to manage operational and contractual flexibility. The main issues are :
- PFI contract management experience is being built up in the early contracts that have been operational for some years. But with 750 PFI contracts let and further contracts being developed, there is a continuing need to enhance public sector skills in dealing with operational issues. As the Treasury report says, the fragmentation of the portfolio of large and complex projects across many authorities limits the opportunities for staff who have built up PFI experience to move from their existing projects to similar projects within their existing employer. Their private sector counterparts, however, are likely to be working for companies which can draw on a wide range of experienced contract management staff. Public sector staff therefore have a particular need for training and support in managing PFI contracts to ensure they are not at a disadvantage.
- The NAO has found that 55% of PFI contracts had been changed within a few years of contract letting.1 Dealing with change is inherent in all government activity. PFI contracts therefore need to have flexibility to deal with these changes and the terms of any changes must be capable of being demonstrated as being value for money.
- Given that government's requirements will change, authorities also need to assess the most appropriate length of contract. Long contracts bring stability in the arrangements for service delivery but there can be risks. For example, the Committee was critical of the Norfolk & Norwich University Hospital NHS Trust's extension of the Norfolk and Norwich Hospital contract to 2037 in a situation where it could also be very expensive to the NHS Trust to terminate the contract.
6. The Treasury report's main proposals in this regard were:
- providing additional support to project teams in the form of an operational taskforce available to advise on operational issues;
- assessing whether there should be changes to the standard PFI contract to make variation procedures more flexible and efficient;
- determining sector specific caps on the length of PFI contracts.
7. All these initiatives seek to help officials derive the intended benefits from PFI contracts, while allowing for requirements to change over time as the nature of public service delivery evolves.
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1 Managing the relationship to secure a successful partnership in PFI projects (HC375 2001-02).