7. The PFI approach involves the public sector in contracting to purchase quality services, with defined outputs, from the private sector on a long term basis, and includes maintaining or constructing the necessary infrastructure so as to take advantage of private sector management skills, incentivised by having private finance at risk.
8. Because PFI is characterised by a long term, whole-of-life commitment by the private sector to deliver and maintain new public infrastructure, it will only be suitable for certain types of investment;
∙ PFI is one of a number of procurement options open to the public sector for modernising infrastructure and involving the private sector in improving public services with its own characteristics, costs and benefits;
∙ PFI should only be used where it is appropriate, in line with Government's commitment to efficiency, equity and accountability;
∙ there should be no inherent bias in favour of one procurement route over another and this principle must be followed throughout the procurement process.
9. In keeping with these aims, procurement decisions need to consider which procurement option is most appropriate, given the nature of the capital investment and the public service with which it is associated. The decision must involve an unbiased and rigorous assessment of all available options to determine the option, which is most likely to represent the best value for money.
10. HM Treasury instituted a revised process for assessing the value for money of PFI projects at Spending Review 2004. This process gives an indication at an early stage as to whether PFI is likely to represent value for money based on real evidence of PFI in practice, and employs an ongoing assessment of the project to ensure value for money is maintained during procurement. The value for money assessment process contains three stages:
∙ Stage 1: is an initial assessment undertaken by departments during the Spending Review of whether PFI is likely to provide value for money for a whole programme of investment projects;
∙ Stage 2: is a later assessment undertaken by the Authority working on a project within the PFI programme to assess whether PFI is likely to provide value for money given the individual circumstances of a particular project; and
∙ Stage 3: is an ongoing assessment of the continued competitiveness of the market to ensure that value for money is not compromised once the assessment that PFI is the best route has been made and the procurement commenced.
11. Given the unique nature of MOD projects, HMT accepted that it was likely that Stage 1 and Stage 2 for some MOD projects would overlap and that a conventional Stage 1 assessment detailed in the HMT VFM guidance could be omitted. However, for these projects, an initial Stage 2 assessment has to be applied at the inception of the projects and again once the IAB Review Note (Outline Business Case) stage is reached. Projects should then proceed as per the guidance, taking account of any extenuating circumstances. The Road Map for undertaking a VFM assessment of potential PFI investment proposal is listed below: