7. The Government's Private Finance Initiative (PFI) was introduced in 1992 for consideration by the public sector in its procurement of public infrastructure and services. Since its introduction, the UK Government has established clear criteria for where PFI is likely to provide better value for money than other forms of acquisition and has made a number of policy reforms to ensure that PFI continues to deliver value for money. As a result the PFI is supported by a considerable body of specific guidance, such as standard contract and value for money guidance, which have become core templates in how to procure a PFI service successfully.
8. PFI is a small but important procurement tool for the MOD in the delivery of its investment programme. Spending on PFI represents about 5% of the Defence Budget. The Government has no preference between conventional procurement, PFI and any other procurement approach. However, MOD remains committed to using PFI wherever this delivers best value for money, regardless of accounting treatment, but not at the expense of operational effectiveness or terms and conditions of staff. A decision to use PFI is only made after a stringent assessment of whether it offers better value for money than the traditionally procured alternative.
9. PFIs bring together the best of both public and private sectors to help deliver a higher quality of public service than is possible through the public sector alone. MOD is seeing PFI deliver value for money in practice. A review undertaken by the MOD PFU in 2005 found that: 100% of Defence PFIs were delivered on budget; 88% were within 2 months of the agreed date or early; and 97% were rated as performing satisfactorily or better. This is far better than conventional procurement. PFI is delivering substantial new investment in Defence, with 54 signed deals bringing over £9Bn of private sector capital investment.
10. MODs operational PFI portfolio covers four broad categories of project: accommodation, training, equipment and other infrastructure with an equal split of projects across these four categories. The portfolio covers the delivery of services in the air, sea, land and space arenas. The MODs PFI projects are critical to maintaining operational capability. Several projects directly support frontline military operations, such as the Future Strategic Transport Aircraft, Skynet satellite communication system, Strategic Sea Lift Roll-on Roll-off Ferries and the Heavy Equipment Transporter (using sponsored reserves) - and go physically close to the 'front line'. Other projects provide indirect support to front line operations, for example by providing training for front line troops. These include simulator training projects such as those for the Medium Support Helicopter Aircrew Training Facility. The MOD has also used PFI to provide other services such as accommodation (for example, office accommodation and barracks e.g. Allenby Connaught) and infrastructure (e.g. water and sewerage services to defence sites).