1. It is good practice in all major projects, certainly including PFI projects, to institute explicit management of the expected benefits of the project. Departments should therefore be clear how benefits will be measured and monitored on each of their PFI projects. User surveys can play an important role in benefits management. It is a weakness in the evaluation process that, to date, user surveys have been rarely carried out.
2. Departments need to understand the economics of PFI bids. They need to satisfy themselves the returns to the private sector are proportionate to the risks borne by the private sector in the project. As a high priority, the Treasury should complete the review of PFI contractors' returns initiated by the Office of Government Commerce (OGC). The Treasury should use this review to aid greater understanding of the relationship between the various returns which contractors will derive from PFI projects and the risks they actually bear. The Treasury review should clarify the extent to which there is available information to assess these matters.
3. When, as is usual, a PFI deal involves exclusive negotiations with a preferred bidder, departments need to reassess the reasonableness of the proposed contract price for any changes to the deal. Such changes can include the impact that due diligence and the insurance of risks may have on the risks to the private sector in the deal. Departments should not agree to high returns unless high risks are actually being borne.
4. The Comptroller and Auditor General has received new statutory powers to examine the records of both those contracting with government bodies (such as PFI project companies) and their sub-contractors (such as construction companies). These powers should be used to examine any situations where there is a lack of competition influencing the pricing of PFI contracts and to improve the information available to departments for assessing the reasonableness of prices offered to them on PFI deals.
5. Departments should explore thoroughly the OGC's three recommended forms of procurement (Design and Build, Prime Contracting and PFI) before committing themselves to a particular form of procurement for a building project. Any decision to use the PFI should be taken after a careful analysis of the advantages and disadvantages of each form of procurement for the particular project. Decisions to use the PFI should not be taken solely on the grounds that capital constraints may make it difficult to use the other methods in the short term.
6. The OGC should set out clearly for departments the potential advantages and disadvantages of using its three recommended procurement methods. Such a summary will help departments in their analysis of the three options in each building project they undertake.
7. The Treasury should ascertain why, despite its previous guidance, benchmarking had not been used by departments to check most of the price increases for additional building work after contract letting identified in the NAO census. The Treasury should take steps to strengthen departments' awareness of how benchmarking should be used to assess the reasonableness of proposed price changes. We would expect this to include both training and the reinforcement of relevant guidance.
8. Departments should insist on competitions for the provision of any additional work they may require after the building work to fulfil the original PFI contract has been completed. They should expect to take a close interest in these competitions and to make recommendations on firms who should be invited to compete for the additional work. There is a risk that value for money may be compromised if additional work is not subject to effective competition, particularly where the building contractor which undertook the original work continues to be a shareholder of the project company.