15. Payment deductions for poor performance are a key feature of PFI contracts, which is intended to incentivise the contractor to maintain a good standard of service. The contract for this deal included an arrangement that if an operating theatre was out of action for 24 hours Bywest would suffer a payment deduction of approximately £1,400.22 This did not seem a large deduction in a situation where patients' operations might have to be cancelled. The Trust told us that it had ten operating theatres and having one theatre out of action would not have a significant impact on its work. It planned to have spare capacity in its operating theatres in case an unexpected incident occurred or a theatre was out of action.
16. As many as eight operations might have to be cancelled if a theatre was out of action. On average it would cost £8,000 in total for these operations to be carried out in the private sector, more than five times the amount it would recover from Bywest. In practice the Trust would look to mitigate the problem of a theatre not being available for use. Changes could be made to the schedule for maintaining and cleaning theatres to free up a theatre where another was out of action. Having four or five theatres out of action, however, would have a significant impact, and in this situation the penalty Bywest would suffer would be more than £1,400 for each theatre which could not be used. The Trust saw this as an improvement over previous arrangements where payment deductions were based on a standard rate per square metre which did not take into account the impact that the loss of any particular area would have on the work of the Trust.23
17. In this contract, finalised in January 2001, the Trust will be entitled to receive 30% of Bywest's refinancing gains. But in November 2000 this Committee had urged departments to share refinancing gains with the private sector and arrangements to give departments 50% of refinancing gains in new deals have now become the norm.24 The Department maintained that there had been a clear understanding with the Treasury at the time this deal was being finalised that, in deals at an advanced stage, departments should be looking for a 30% share of refinancing gains. The Office of Government Commerce had accepted that departments had to take a view on whether to insist on a 50/50 arrangement where this might delay the deal significantly or where contractors might seek to amend the deal in a way that would not be value for money.25
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22 C&AG's Report, Figure 10, p20
24 C&AG's Report, paras 2.14-2.15; 13th Report from the Committee of Public Accounts, The refinancing of the Fazakerley PFI Prison Contract (HC 372, Session 2000-01)
25 C&AG's Report, PFI refinancing update (HC 1288, Session 2001-02) para 2.27; Qq 139-145