17 The Department's main financial objective was to provide a solution which offers best value for money to the taxpayer and the Department. The Department took assurance on value for money through what they considered to be a competitive process and a comparison of the costs and benefits of the deal with those of remaining in the existing, dilapidated estate.
18 This comparison showed that the direct cost to the taxpayer of the Private Finance deal of £241 million (in present cost terms) was £51 million more than remaining in the existing premises. But the Department estimated that efficiency improvements of only three per cent of annual running costs would enable them to contain this extra cost within their budgetary allocations. There are a number of benefits arising from the replacement of the dilapidated estate, including improved working practices and working environment, and freeing the Department from the risks of property ownership. As a result, the Department concluded that the extra cost of the Private Finance deal was justified by the operational and risk transfer benefits it offered.
19 The Department decided not to prepare a full Public Sector Comparator, which would have estimated the costs of publicly financing a redevelopment of the estate. As a result, we are unable to say whether the deal is likely to deliver better value than a conventionally financed redevelopment of the estate. The Department's decision not to use a Public Sector Comparator was consistent with Treasury guidance extant at the time, which did not require the preparation of a Public Sector Comparator. The guidance has subsequently been withdrawn,1 and the use of a Public Sector Comparator to demonstrate value for money of Private Finance deals is now standard.
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1 This guidance was contained in Private Opportunity, Public Benefit (published by HM Treasury in November 1995). This guidance was subsequently replaced by new general guidance from the Treasury PFI Taskforce: Step by step guide to the PFI procurement process (first issued in July 1997 and revised in April 1998); Partnerships for Prosperity (November 1997); and specific guidance dealing with the preparation of public sector comparators Public Sector Comparators and Value for Money (March 1998).