4.1 Typically in PFI contracts the private sector has taken full responsibility for maintenance and for soft services, such as cleaning, catering and security, over the term of the contract. The private sector has priced for delivering these services in accordance with the specifications developed as part of the procurement process. These services are often subcontracted to specialist facilities management providers.
4.2 The contractor is also responsible for the replacement of elements of the asset, such as the boiler, and will put in place a lifecycle reserve funded through the annual unitary charge. The private sector bears the risk of the lifecycle fund being insufficient to meet the replacement and lifecycle obligations. If there is a shortfall the private sector has make up the difference; equally if there is a surplus, the private sector will retain this.
4.3 Combining asset design and construction with responsibility for maintenance and renewal was intended to improve the consideration of longer term requirements upfront, leading to better design outcomes and lower maintenance and operational costs. This principle of incentivising the contractor to optimise whole life asset design and maintenance efficiency has been one of the key successes of past PFI projects. PF2 will continue to adopt this integrated approach to maintenance, in which both the construction and maintenance of assets are incorporated in a single contact. This will ensure that the contractor continues to be incentivised to minimise future operational costs.
4.4 There have however been a number of concerns with the provision of services in past projects:
• service provision has been insufficiently flexible both operationally and in budgetary terms. When the public sector has to reduce its outgoings, it wants to make efficiency savings and reduce spending across all of its cost base. This has not been possible under PFI contracts as all of the services have been contractually committed on a long-term basis;
• the public sector has also not been convinced that it has been getting the best deal from the service elements of the contract, especially when it has come to making minor changes to its requirements;
• there have been many examples where the cost of individual items has been significantly higher than the public sector would have expected to pay. This has eroded the public sector's confidence in these services (see Box 4.A); and
• there have also been concerns in past projects regarding the transparency and the management of the lifecycle fund as the public sector has considered that it has not had visibility of incurred lifecycle costs. This has led to suspicions that the lifecycle fund has often been overpriced and the private sector has made windfall gains.
| Box 4.A: The costs of small works in PFI projects In a report published in January 20081, the NAO noted that small works in PFI projects were often expensive compared with industry benchmarks. The NAO identified that within their sample the base costs of additional electrical sockets were higher than benchmark prices. The NAO noted that although there will naturally be a range of prices according to a number of different factors, the average base cost for the installation of electrical sockets under PFI contracts was around 54 percent higher than the published comparator. |
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1 National Audit Office, Making changes in operational PFI projects, January 2008