3 The Treasury has recently produced guidance for new PFI projects coming to the market which sets out good practice in the management of changes. The value for money of individual changes to existing projects varies but value for money is not generally being obtained. The following recommendations are intended to complement the new guidance published by the Treasury and are aimed at PFI projects that are already operational:
a Where there is a relevant contract clause, competitive tendering should be undertaken if Authorities deem this to be value for money and they should insist on at least three competitive tenders being obtained for larger changes. In the absence of a contractual clause requiring competition, Authorities should negotiate such a clause when the opportunity arises. For example, as part of negotiations needed during benchmarking or market testing exercises, which are part of regular reviews of PFI contracts.
b For existing deals, Authorities need to put in place consistent and robust means to validate the costs of small changes. Authorities should consider carefully the need to pay lifecycle costs for the replacement of small items and challenge inappropriate costs. They should also consider the advantages of bundling together the processing of small changes, including the negotiation of appropriate lifecycle costs, and agreeing any adjustments to the unitary charge once every six months or yearly.
c Public authorities should explore with their private sector partners the feasibility of clarifying earlier contracts to bring them into line with current best practice. For instance, Authorities could seek to re-negotiate SPV fees when discussing major asset changes, as happened at the Blackburn hospital.
d Information is not shared across locally managed PFI projects as widely as it needs to be. Authorities should develop forums whereby questions and answers on the handling of changes and their costs can be shared within and across sectors. Authorities should also make more use of central government resources already provided, for instance the training courses, helpline and websites run by Partnerships UK (PUK) and 4ps who are the bodies which provide help and guidance to central and local government PFI projects.
e Contract management teams should be properly resourced in order to manage the change process. In general, it should be exceptional for a PFI contract not to be managed by the equivalent of at least one person full-time on the public sector side, and there should be more than this for larger contracts or where a lot of changes are anticipated. Authorities should also consider employing a quantity surveyor on a part-time basis specifically to check the cost of changes, where the number of changes processed is likely to justify it.
f Public sector authorities can also improve the value for money of changes by adopting the good practices used in some projects. These include:
i Adopting a strategic approach to changes - for instance, bundling similar changes together to reduce costs or planning a change programme based on anticipated needs.
ii Understanding the contract to be sure that a change request is actually a change and not covered under the existing agreement and pricing structures.
iii Keeping good permanent records of changes and payments made, including whether new assets will need to be replaced at some point during the remainder of the contract and form part of the lifecycle cost element of the unitary charge paid to the SPV. Failure to do so risks paying for something twice at a later point in the contract when, for instance, works are already covered by lifecycle cost payments.
iv Providing their private sector partners with proper briefs to make it clear what they want done. This is especially important for larger, more complex changes.
v Using effective validation mechanisms to challenge costs when necessary, including the use of industry-wide benchmark prices and the experience of other PFI projects.
vi Fostering open lines of communication with front-line users and other stakeholders, as well as the PFI contractor. This is necessary in the operational phase as headteachers, medical and nursing staff and other users have narrower scope to act autonomously in arranging for work to be done in the context of a contractual relationship than they may have had previously.