1. The Trust decided to go for a 35 year deal rather than the 30 years originally proposed solely to keep down the annual cost of the deal. The Trust did not systematically evaluate the risks of a longer contractual commitment, such as being locked into an outdated arrangement. The duration of PFI contracts should reflect operational needs rather than be a by-product of financiers' calculations.
2. Had the Trust properly followed the Treasury's long-standing guidance on investment appraisal, "The Green Book", it would not have pursued spurious precision in its public sector comparator nor would it have based its decision on the length of the contract on such inadequate analysis. Now that the Treasury has recently produced a revised version of its guidance, it should consider what further advice and training is needed to embed the new guidelines in departments' thinking.
3. The new guidance includes several significant changes on matters of judgement: a lower discount rate and new arrangements for optimism bias and for the impact of taxation. It is unclear what effect the new guidelines would have had on the appraisal of the West Middlesex deal. Our predecessors advocated that to assist their assessment of the uncertainty in their calculations, departments should examine the sensitivity of PFI appraisals to changes in the discount rate. Judgemental estimates for factors such as specific risks, general optimism bias and taxation differences should likewise be shown separately in the calculations so that the impact of these estimates can be clearly identified.
4. In this case, the Trust could afford the annual payments due under the PFI contract only by getting extra money from elsewhere in the NHS, to the detriment of the services that could otherwise be provided there. Since NHS funding in total is limited, decisions on such PFI deals should not be taken in isolation but should take account of the effects elsewhere in the NHS of the extra PFI costs.