7.23 In common with appraisal and evaluation practice across central government, decisions about when to use PF2 need to be made in accordance with the principles set out in the Green Book1. Business cases should present more than one viable delivery option and provide a balanced assessment of the strengths and weaknesses of each approach. Selection of the preferred contracting approach will be on the basis of a project specific qualitative and quantitative assessment of the options available. As decisions about the relative value for money of alternative contractual approaches inherently involve the exercise of judgement, it is essential that there is clarity and transparency about the way a value for money judgements are taken. Procuring authorities need to clearly identify the comparative evaluation of different contracting approaches.
7.24 PF2 is complementary to other contracting options and should be given equal - but not greater - consideration as part of the structured options appraisal within the economic and commercial case presented for a project or programme. Separate appraisal methodologies and guidance were developed specific to PFI because it was seen as relatively complex when compared against many of the alternatives. As a consequence more guidance exists for PFI than for many other contracting options.
7.25 Despite a clear focus in government's business case guidance on the need to give due consideration to all reasonable options for delivering a project, the existence of separate, detailed appraisal guidance for PFI has led to a tendency for appraisers to undertake in-depth appraisal of PFI while giving insufficient weight to the potentially viable alternatives. In addition, the existence of PFI credits2 - ring-fenced funding available to support PFI but not other forms of delivery - exacerbated this, as there was a clear budgetary incentive for procuring authorities to pursue PFI. This Government therefore abolished PFI credits in autumn 2010 to create a level playing field for all forms of public procurement, thus seeking to ensure that procuring authorities consider all reasonable options for meeting their requirements.
_____________________________________________________________________________________________________________________________________________________________________
1 HM Treasury, Green Book, 2003
2 Under the PFI credit regime departments wishing to support a programme of local government PFI projects were given a provisional allocation of PFI credits at a Spending Review. PFI credits represented a notional capital sum and were intended to support the capital costs of a project, met through Revenue Support Grant.