3.7 A key feature of PFI is that the private sector provider does not receive any payment until the underlying asset is constructed and services start to be delivered. This feature is intended to incentivise prompt and effective delivery. There is some evidence that this incentive is effective. National Audit Office surveys in 2003 and 2009 found, for example, that the majority of PFI contracts deliver to the time and cost expected by the public sector. There is also some evidence that the pre-tender stage may take longer, but there is a lack of comparable data across sectors as to why this may be the case.
3.8 Effective accountability in delivering intended outcomes is not just a question of delivering what the contract requires. It is also important to consider the entire project duration from initial identification of need through to final delivery. Previous plans on when services will come into operation are undermined if there are delays in achieving contract signature. There have been significant delays identified in recent National Audit Office reports:
• The Future Strategic Tanker Aircraft procurement took over nine years between initial work and signing date. The overarching cause of the delay was the scale and complexity of the deal. Specifications for a complex new service delivery model evolved until late in the procurement. We identified poor governance and oversight of the project in its early stages, with the Senior Responsible Owner not appointed until eight years after the project was first advertised to industry.39
• We noted delays of between 5 and 61 months in our sample of housing PFI projects, with average delays of 30 months. Local authorities' estimates of the time needed to procure projects were overly optimistic and some requested change to standardised contracts, which had to be approved centrally, adding to the delay. The time taken to approve business cases centrally had increased too, reflecting the Treasury's insistence on more robust scrutiny.40
Our experience of conventionally procured major public projects is that over-optimism was also common in estimating the likely time and cost of the pre-procurement phase.
3.9 Long procurement times can have a financial impact. Private sector bid costs will increase which may feed through into future contract prices. And, unless departments have engaged their advisers on a fixed price contract, delays at the pre-tender stage have significant cost implications for departmental consultancy budgets.
3.10 Delay risk adds to the risk inherent in any long-term project, which project assurance should address: that the outcomes initially intended from a project may no longer meet updated business needs. Changes in policy or other factors may affect the volume or nature of the services needed. In 2008, we highlighted this and the associated risk that the private sector may charge high prices for variations.41 Further examples are:
• In our report on the BBC's management of three major estate projects, we found that the detailed scope of the three projects was not fully defined at the outset and there was a lack of control over contract variations on two of the projects.42
• In 2005, Brighton and Hove Council decided to close the College of Media, Arts and Technology as a result of falling rolls. The school was removed from the PFI contract at a cost of £4.5 million to the authority.43
The issue of whether an asset will be used for its full life is particularly important in PFI contracts because termination costs would include breaking long-term service contracts.
3.11 There are two further aspects of accountability to consider: evaluation and transparency over investors' returns.
• Effective accountability must include rigorous evaluation of the delivery of projects and programmes. In our report on PFI in housing, we found that the Department for Communities and Local Government's evaluation of the PFI programme was limited, partly because of delays and difficulties in collecting consistent data. The Department for Communities and Local Government told us it has now taken steps to improve data for evaluating PFI in housing. In our report on PFI in hospitals, we concluded that evidence indicated that PFI hospital contracts were achieving the value for money expected at the point the contracts were signed. But we also noted that the Department of Health's programme evaluation and support to projects had been limited by a lack of cost and performance data. As the subsequent Committee of Public Accounts report identified, local procuring authorities will be at a disadvantage compared to the private sector, unless departments provide sufficient central evaluation and support.
• Transparency over investors' returns and the investors' experience of managing the risks transferred to them in PFI contracts are not currently part of the Treasury's evaluation of the PFI programme. There is no contractual requirement for investors to disclose their returns, which might turn out to be more or less than they had initially expected, other than when refinancing. This is an issue which we expect to return to in our future work.
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39 Comptroller and Auditor General, Delivering multi-role tanker aircraft capability.
40 Comptroller and Auditor General, PFI in Housing.
41 Comptroller and Auditor General, Making Changes in Operational PFI Projects.
42 Comptroller and Auditor General, Report to the BBC Trust's Finance and Compliance Committee, The BBC's management of three major estate projects, January 2011.
43 Education and Skills Committee, Sixth Special Report of Session 2006-07, Sustainable Schools: Are we building schools for the future?: Government response to the Committee's Seventh Report of Session 2006-07, October 2007.