9 There are generic benefits from PFI deals such as incentivising the contractor to introduce the required service quickly and to maintain the service delivery to a satisfactory standard. These benefits have to be weighed against possible disbenefits, which include being tied into a long-term contract during which the public sector's requirements may change. There may also be further specific benefits and disbenefits from a PFI approach to a particular project.
10 In this project the Trust considered the benefits of the PFI approach outweighed the disbenefits. The Trust placed particular emphasis on the fact that the contract would incentivise Bywest to complete the redevelopment quickly and with price certainty, to maintain the buildings well and to deliver the required standard of service during the 35-year contract period. The Trust has sought to manage the risks of a PFI contract by building into the contract some flexibility and arrangements to test that any contract variations are value for money.
11 The Department told us that it would not necessarily withhold approval for a PFI project that appeared slightly more expensive than conventional procurement if there were convincing value for money reasons for proceeding with the deal. In this case the Trust's initial financial comparison did show the PFI price slightly higher than the cost of conventional procurement. Both the Trust and its advisers KPMG considered the PFI option would deliver value for money taking all benefits and disbenefits into account. But they had concerns about the accuracy of the initial financial comparison and whether its results might prevent the project being approved by the Department.
12 As part of the iterative process of developing the risk analysis which forms part of the financial comparison, the Trust and KPMG re-appraised the figures to ensure the risks inherent in traditional procurement were properly reflected in the public sector comparator (PSC). The final calculations showed a risk-adjusted saving from using the PFI of £5.5 million compared with a PSC, including project risks and clinical costs, of £989 million over 35 years (net present values)4. As with all long-term cost estimates there are inherent uncertainties in this comparison, and particularly regarding the size of the adjustment for risk. The total value for risk was, however, consistent with previous experience with conventional hospital projects and was in the middle of the range indicated by a recent wider study. The re-assessed cost comparison therefore reinforced the value for money case for the PFI deal.
13 In this project the financial comparison was not clear-cut. The attention given by the Trust to the figures shown by the financial comparison may have masked evidence of important wider benefits that the PFI approach was expected to secure.
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4 £129.3 million net present value excluding clinical costs.