13. The issue of appropriate length of contract period is a difficult balance. Authorities need to take into account their current views on the optimal period over which services should be provided, the risks that the requirements for particular services may change over time and the need to manage affordability (where, in a PFI deal, reducing the contract period generally increases the annual charge).
14. The Treasury will now encourage departments to identify appropriate maximum contract periods for their different types of PFI contracts and to use these in future procurements. The Treasury report noted that contract lengths should be set with reference to value for money factors rather than affordability-that is to say, long contracts should not be entered into simply to reduce the annual cost to make the project affordable. The Treasury report says that long contracts can offer value for money in the right circumstances-they can incentivise public authorities to think more strategically about the services they provide and the whole life costs of maintaining an asset and risk transfer. In other cases however the importance of these factors may be reduced, by for instance relatively low capital cost elements to the project.
The NAO will continue to assess the reasonableness of contract periods in any examinations which we carry out of individual deals.