10. PFI is giving the public sector greater certainty in the timing of the delivery of its building projects and the price to be paid. But some of these benefits could possibly have been achieved with other forms of well managed procurement. There will be advantages and disadvantages from using alternative forms of procurement, so departments should always consider which form of procurement will be best for a particular project. For example, PFI may give greater certainty in project delivery and defined service standards but it also involves departments in being locked into long term contracts. There is a risk that procurement choices will become distorted towards using the PFI simply because departments do not incur a capital outlay when using the PFI.12
11. The OGC has three recommended forms of procurement which are expected to produce better benefits than traditional building procurement: PFI, Design and Build and Prime Contracting (Figure 3). The OGC considered that comparable benefits to those which have arisen in PFI building projects might have been possible from Design and Build and Prime Contracting, procurement routes where the public sector retains ownership of the asset. NHS Estates, Defence Estates and the Highways Agency have made use of these forms of procurement. It is for departments to decide which procurement route will offer the best value for money on a particular project.13
12. The CIC told us that Design and Build was widely used in the private sector and that projects such as supermarkets were often developed to a standard model to facilitate fast construction. The OGC told us that where innovation was desirable PFI was more likely to produce better long term solutions. This was because the structure of the PFI contract created incentives for the private sector companies to look at effective ways of minimising costs over an extended period. It is important, however, that minimising costs does not compromise health and safety. The OGC and CIC were not aware of any data on health and safety under the PFI compared with other forms of procurement. The CIC thought PFI should produce a better result on health and safety because of the extensive risk analysis that is done on PFI projects. Employee issues, such as the use of sub-contractors and the two tier workforce, also need to be considered when considering the merits of alternative methods of procurement.14
Figure 3: The OGC's recommended forms of building procurement
PFI: usually a consortium will be responsible for providing an integrated approach to the design and construction and also the ongoing maintenance and facilities services over a contract period of 25 or 30 years. Design and build: a single supplier is responsible for both the design and construction of the asset. Prime Contracting: a single supplier coordinates and manages all activities through the design and construction period to ensure the asset is fit for purpose and meets predicted whole life costs. |
Source: C&AG's Report, para 2.35
13. The OGC agreed that competition between its three recommended procurement options would be a good thing. We suggested that if a similar batch of projects were taken forwards under each procurement method then the outcomes could be compared. The OGC considered, however, that each procurement method was more likely to fit particular types of projects. PFI was likely to be applicable where there was a strong service element in the requirements. Prime Contracting often suited smaller projects.15
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12 C&AG's Report, para 2.38; Q 20
13 C&AG's Report, para 2.35; Qq 14-17, 20-21, 71-80, 169; Ev 19
14 Qq 22-38, 81-82, 163-164
15 Qq 179-183