The management of advisers

11.  The Trust incurred advisory costs of £2.3 million. Although this is a smaller deal, these costs are virtually unchanged from the costs incurred on the earlier PFI hospital contract this Committee examined let by the Dartford & Gravesham NHS Trust (Figure 2). In addition, Bywest had incurred costs of £1.8 million. The Trust also incurred an estimated further £0.5 million of costs in an earlier abortive PFI scheme.19

Figure 2: Comparative costs of the West Middlesex and Dartford & Gravesham PFI hospital deals

Sources : The West Middlesex University Hospital and Dartford & Gravesham NHS Trusts and the Department

12.  The Trust told us that it had learned lessons from its earlier abortive PFI scheme and had been able to absorb up-to-date experience from the involvement of the Department and the NHS Private Finance Unit. The Trust considered it had controlled costs effectively and attributed the scale of the costs of the West Middlesex deal to the development of a new standard form contract for NHS PFI deals which would benefit the whole of the NHS. It was only at the end of the negotiations when more work was needed on the standard contract that costs had exceeded its expectations. The Trust's financial advisers KPMG were also the advisers on the Dartford & Gravesham hospital and other PFI deals. Their charges for financial advice on the West Middlesex deal were unchanged from their charges for providing advice on the Dartford & Gravesham deal, the first PFI hospital contract to be let. That deal had needed a large amount of financial advice as it involved issues relating to PFI procurement which had not previously been dealt with in the NHS.20

13.  Large amounts are being spent on advisory costs in taking forward NHS PFI deals despite there being considerable similarity between the deals. Over £70 million of taxpayers' money has been spent on NHS PFI advisory costs. The costs vary between 1 and 8% of the capital value of the projects with the average being 3.7%. This average is broadly consistent with the range of costs which the Ministry of Defence told us previously it expected to incur on major projects based on costs as a proportion of total contract value. In addition, the private sector is also incurring substantial costs on PFI deals which it says generally represent between 2 and 2.5% of the capital cost of each deal, with the costs being 10% of the capital costs of smaller projects. It is inevitable that these costs will be reflected in the pricing of PFI deals. In taking forward a series of PFI hospital deals the NHS seems to be paying repeatedly for the costs of similar advice.21

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19  C&AG's Report, Figure 4, p4; Ev 29-31; Qq 213-215, Ev 25

20  Qq 29-33, 80-86; Ev 29-31

21  Ev 29-31; 4th Report from the Committee of Public Accounts, Private Finance Initiative: redevelopment of MOD Main Building (HC 298, Session 2002-03); Q 55