1 Government uses a range of procurement methods for its projects and programmes. This report draws out lessons from recent experience that the public sector needs to address to achieve the best commercial outcomes in the current economic environment of spending constraints.
2 The Private Finance Initiative (PFI) is a particular form of procurement where there is a large body of experience. Lessons from the use of PFI have wider application to other forms of Government project. Key enablers of the PFI model have included the range of valuable guidance, support and project assurance developed by the Treasury and departments. This has included a standard contract model and specialist private finance units to support projects. In return, good practice and experience from non-PFI projects can help improve PFI procurement and management.
3 In October 2009, we summarised key messages from the 72 PFI reports which we had then published in a paper to the Lords Economic Affairs Committee. The paper concluded that private finance can deliver benefits but is not suitable at any price or in every circumstance. Our paper also highlighted that, not withstanding the available guidance, we had been unable to identify a truly robust and systematic evaluation of the actual performance of the use of private finance at either a project or programme level.1
4 Changes in market conditions have, however, created new challenges. Uncertainty in the financing markets, since the onset of the credit crisis in 2008, has made the use of private finance more expensive. This factor, together with public spending constraints, has increased pressure on the public sector to obtain better outcomes for less. This includes the need to consider a range of possible financing models and to seek greater efficiencies in existing contracts.
5 The type of project that Government aims to procure is changing. With large programmes to develop social infrastructure such as hospitals and schools having been delivered in recent years, the future focus of spending will be on economic infrastructure2 such as energy and transport projects. According to the Government, around £200 billion will need to be spent on economic infrastructure over the next five years,3 with the majority of the £200 billion expected to come from the private sector. At the same time, the Government is seeking to be more efficient in its spending to deliver annual infrastructure savings of £2-3 billion.4
6 Recent National Audit Office PFI reports have examined projects and programmes being undertaken in these new market conditions. The high level lessons learned from recent PFI experience will be relevant to both PFI and other areas of Government expenditure.
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1 See http://www.nao.org.uk/publications/0809/private_finance_projects.aspx
2 The network and systems in energy, transport, digital communications, flood protection, water and waste management.
3 Infrastructure UK, National Infrastructure Plan 2010, October 2010.
4 See http://www.hm-treasury.gov.uk/iuk_cost_review_index.htm