VIABILITY

For PFI to be viable the investment objectives and desired outcomes need to be translated into outputs that can form the basis of a contract and a sound payment mechanism; for example, the quality and quantity of the outputs need to be ones that can be clearly defined and measured. Many service areas can be described in contractual terms, but some areas will be inherently 'non-contractible as outputs. 

Issue

Question

Stage 1 Assessment Requirement

Programme level objectives and outputs

Is the department satisfied that long-term contracts could be constructed for projects falling in this area? Can the contractual outputs be framed so that they can be objectively measured?

The project team will need to provide evidence or demonstrate that operable contracts exist, or can be constructed, with reference to similar or analogous services being provided in the Department or elsewhere. The project team will need to also confirm that the KURs can be framed into contractual outputs and be objectively measured.

Is the requirement deliverable as a service and as a long-term contractual arrangement?

The project team will need to provide evidence or demonstrate that:

•  that the requirement lends itself to be delivered both as a service and as a long-term arrangement;

•  whether there are any inhibitors preventing it from being delivered; and

•  whether the service lends itself to providing the private sector with end to end control of delivery of the service.

Could the contracts describe service requirements in clear, objective, output-based terms?

The project team will need to demonstrate that the KURs can be used to construct clear, objective, output-based terms. The project team will also need to consider whether the required service has clear boundaries and that interfaces have been identified.

Can the quality of the service be objectively and independently assessed?

The project team will need to provide evidence from contracts providing similar or analogous services as to whether it can conceive meaningful, high-level key performance indicators that can be used as the basis for measuring and remunerating the successful delivery of the required services.

Is there a good fit between needs and contractible outcomes?

The project team will need to assess whether the fit between need and outcome is well understood.

Can the contracts be drafted to avoid perverse incentives and deliver quality services?

The project team will need to confirm that performance mechanisms can deliver the right behaviours to provide quality services. If not, the project team will need to explain why not.

Will there be significant levels of investment in new capital assets?

The project team will need to confirm the level of investment required and whether the capital assets are to be built or refurbished.

Are there fundamental issues relating to staff transfer or other workforce issues?

The project team will have to determine the likely number, if any, of civilian staff to transfer under TUPE plus the effects on Military manpower. The team should attempt to satisfy itself that the likely VFM to be delivered by the private sector will not be at the expense of existing & future staff's terms & conditions of employment.

If there are interfaces with other projects, are they clear and manageable?

The project team will need to identify all interfaces and the strategy it will employ to manage them.

Soft services

Are there good strategic reasons to retain soft service provision in-house e.g. longer-term implications of skill transfer?

The project team in conjunction with the HR Business Partner will need to provide evidence as to whether there are, or are not, strategic reasons to include the soft service provision within the PFI.

What are the relative advantages and disadvantages? Is optimal risk allocation achieved by transfer or not? 

The project team will need to consider the following issues in their response:

• Whole life costs; 

• Interface/Single point of contact; 

• Design integration; 

• Economies of scale; 

• Flexibility; 

• Interim Services; 

• Incentivisation. 

Is there a commitment that the assumed benefits can be delivered without eroding the overall terms and conditions for staff? 

The project team will need to confirm if soft services are included that will not be at the expense of existing & future staff's terms & conditions of employment. 

Operational flexibility 

Is there a practical balance between the degree of operational flexibility that is desired and long term contracting based on up-front capital investment? 

The project team will need to identify the potential long tradeoffs between operational flexibility and cost that may or may not be acceptable to the Department in the delivery of the service over the long term. 

What is the likelihood of large contract variations being necessary during the life of the contract? 

The project team will need to provide evidence of the stability of the requirement from a Departmental perspective and the potential likelihood of change whether it is small or large through the life of the contract. Project teams will need to consider technological advances, the impact of organisational changes and future demand for the service in their response. 

Can the service be implemented without constraining unacceptably the flexibility of the department to deliver future operational objectives? 

If change is anticipated or likely to happen, the project team must demonstrate it has sufficient funding to allow for operational flexibility under a PFI contract without putting pressure on Departmental resources. 

Equity, efficiency and accountability 

Are there public equity, efficiency or accountability reasons for providing the service directly, rather than through a PFI contract? 

The project team will need to provide evidence as to whether there are any public equity, efficiency or accountability reasons for providing the service directly either by MOD civilian or Military personnel, rather than through a PFI contract. The project team may need to consult with local Human Resource Business Partners on whether there are any overriding HR strategic issues that need to be taken into account. Project teams will need to consider whether skills, competencies and capabilities need to be maintained within the Department as core requirements. Project teams may need to also consider the potential use and role of sponsored reserves.

Does the scope of the service lend itself to providing the contractor with "end-to-end" control of the relevant functional processes? Does the service have clear boundaries?

The project team will need to provide evidence as to whether the required services have clear boundaries and interfaces enabling the contractor to have 'end-to-end' control. As part of the assessment the project must identify all interfaces and relevant stakeholders.

Are there regulatory or legal restrictions that require services to be provided directly?

The project team will need to identify any regulatory or legal restrictions that would prevent MOD from allowing the private sector to provide the services. The project teams will also need to consider the ownership of the IPR associated with performance/design/development of the assets for the required service may impact on the project.

OVERALL VIABILITY

Overall, in considering PFI, is the department satisfied that suitable long term contracts with sufficient flexibility can be constructed, and that strategic and regulatory issues are appropriate for departments to proceed with PFI?

The project team will need to provide a brief narrative summarising whether the overall investment objectives and desired outcomes can be translatable into outputs that can be contracted for, measured and agreed as well as ensuring that strategic and regulatory issues can be overcome.