The Agency relied on competition to provide value for money

3.3  In the absence of a Public Sector Comparator, the Contributions Agency relied on competition between bidders to ensure value for money. This approach complied with the Treasury's guidance at that time, which stated that, where capital for a conventional procurement was unlikely to be available, departments did not need to demonstrate value for money against a conventional approach (called a Public Sector Comparator).2

3.4  This means that the Agency did not update their September 1995 comparison between a conventionally-funded project and a Private Finance deal. We acknowledge that the Agency acted in accordance with guidance existing at the time. But, in our view, the September 1995 comparison (shown in Figure 13) does not conclusively demonstrate that the Private Finance approach would offer value for money and we consider that the exercise provided insufficient justification for ceasing to evaluate a conventionally-funded option.

3.5  We also consider that the September 1995 estimates cannot be used as a point of comparison with the final cost of the signed Private Finance deal because they include a number of items excluded from the scope of the final deal, including furniture costs, heating, lighting and fuel costs, and rates, and were based on providing accommodation for 14,000 staff, against 10,700 in the final deal. We are therefore unable to conclude from the September 1995 figures that the signed deal represents value for money.

3.6  Design and Construction and its financing represents around three quarters of the cost of the Private Finance service for the Newcastle Estate Redevelopment. Some other clients for Private Finance projects, such as the Prisons Service and Hospital Trusts, have compared building costs against their own benchmarks in order to help them identify excessive cost estimates or over-specification of the required asset. In this case, although the Contributions Agency did not compare the construction costs proposed by NEP against standard building cost benchmarks for offices, their evaluation was closely supported by quantity surveyors. They focused on whether the required quality of building was achievable at the stated cost, and concluded that it was. They considered that competitive pressure would deter bidders from inflating building costs.

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2  This approach complied with the guidance on assessing value for money in Private Finance deals available at the time, 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).