When PPP consortia make significantly higher profits/returns than those agreed at the time of financial close, this implies that the public sector is paying an excessive cost for the project and that the value for money assessment is flawed. The source of the profit could arise from lower than expected construction, facilities management and/or borrowing costs. However, the most likely source is the cost of risk transfer, which may be significantly less than originally envisaged.
"Our three operational PFI hospital contracts, where we provide a broad range of non-clinical services both for the staff, patients and visitors and also for the maintenance of the facilities. We undertook additional work in service variations and projects, adding just under 10 per cent to our revenue." Interserve plc, Annual Report, 2007 |
The NAO believes the secondary market is benign. It recommends that PPP planners take account of the secondary market at an early stage of the project. However, this is illusory because so little information is available on the secondary market, let alone forecasting the possible level of secondary market activity in the PSC and Value For Money (VFM) assessments, which is already fundamentally flawed. There is strong evidence that PPP consortia are making higher profits than those agreed at contract signing, meaning the project could have been delivered at a lower public sector cost.