2.16 We and the Committee of Public Accounts have repeatedly raised concerns about the lack of challenge to decisions on alternative methods of procurement. Appropriate challenge should make sure that decisions are taken on value for money criteria, rather than accounting treatment reasons. Under the accounting rules until April 2009, there was an incentive to use PFI as most projects did not appear on departmental balance sheets and were excluded from calculations of national debt. Our recent report on the procurement of Future Strategic Tanker Aircraft also highlighted how departments may be incentivised to use PFI because of affordability pressures on their capital budgets.
2.17 From April 2009, the public sector has adopted International Financial Reporting Standards to produce their accounts, and as a result, the majority of PFI projects are now included within the balance sheets of individual bodies. There remains an incentive to use private finance over other procurement options, however, as the rules still exclude PFI from statistical calculations of Public Sector Net Debt.
2.18 There is a need to revisit decisions and subject them to challenge where there are significant changes in market conditions. In 2010, we highlighted that bank finance costs had increased by 20-33 per cent. Whilst the Treasury had taken some action to consider the possible impact of these higher financing costs, it had not required a fully evidenced evaluation of the impact on all PFI contracts let in 2009.32 Bearing in mind that business cases often showed marginal savings from using PFI, the Committee of Public Accounts recommended that the Treasury should intervene after any significant change in costs to assess whether PFI deals should go ahead.
2.19 Internal challenge alone is insufficient to provide assurance that a project or programme is best placed to deliver to time, cost and quality. Certain projects should have been subject to further independent challenge within Government, for example:
• The Highways Agency's calculations to support its decision to go ahead with widening when, in our opinion, there was a potential better deal. We estimated that a conventionally procured hard shoulder running option, with a more challenging approach to conventional operation and maintenance costs, could potentially have saved up to £1.1 billion (with some expected associated loss of benefits).
• The Paddington Health Campus Scheme was a complex scheme to build a health campus in north-west London with state of the art clinical accommodation. The scheme collapsed, however, after five years and £15 million had been spent trying to develop a robust business case.33
2.20 The Olympic Delivery Authority followed best practice for the 2012 Olympics by actively seeking independent and expert challenge on its procurement activities. As well as participating in the Office of Government Commerce Gateway Reviews, the Authority established an external assurance unit to scrutinize its major procurement activities.34
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32 Comptroller and Auditor General, Financing PFI projects in the credit crisis and the Treasury's response.
33 Comptroller and Auditor General, The Paddington Health Campus Scheme, Session 2005-06, HC 1045, National Audit Office, May 2006.
34 Comptroller and Auditor General, Preparations for the London 2012 Olympic and Paralympic Games: Progress report 2008, Session 2007-08, HC 490, National Audit Office, June 2008.