Risk

Comment

Additional note on application to operational PFI savings

Data quality

Data on quantity and unit costs should be taken from a reliable source or cautious estimates used.

A reliable source would include the PFI contract or contract financial model.

Properly calculated

Savings should be calculated using an appropriate economic or cost-accounting methodology and checked internally before publication.

Savings covering more than one year should make clear whether they are stated in nominal or real terms and how any present value has been calculated.

Net of costs

All transitional costs and any additional costs should be netted off from savings reported in the year in which the costs are incurred. Adverse effects on other programmes should also be recognised.

This should include the cost of any risks taken back inhouse.

Impact on Services

Any adverse effect on service quality should be reported. Any reductions in planned activity /outputs should be demonstrated not to have a material impact on overall outcomes.

Any impact on overall outcomes should be clearly reported, including those cases where the original service standard exceeded current requirements.

Calculated against a realistic baseline

Baseline should be a realistic forecast rather than a worst-case scenario. Ideally, departments should compare actual spending against previously approved spending plans e.g. at the beginning of the spending review period (the counterfactual).

The baseline should be based on the contracted payments, reflecting all unitary charge and other payments, as well as any indexation provisions.

Costs have not been reallocated

Savings should not be reported if spending has been reallocated to another similar activity either internally or in another publicly funded body. However, savings may be used for approved new services which would otherwise have been funded by Parliament.

Cash-releasing

Financial or cash-releasing savings will reduce departments' annual expenditure. Efficiency savings should represent the same output at less cost. Non cash-releasing savings and other benefits, e.g. increased output or reductions in services, should be clearly distinguished.

In the case of PFI contracts, a cash-releasing saving may be accompanied by a change in the risks carried by the public body. Any 'contingent' aspect of savings should be clearly identified and quantified.

Realised

Reported savings should clearly distinguish between savings achieved to date and those anticipated in the future. It should be possible to reconcile the saving to budgets and to financial or management accounts, after allowing for planned new services.

Sustainable

One-off or time limited savings should be reported separately from ongoing reductions in annual spend. One-off savings may be sustainable if they are part of an ongoing programme of similar savings.

Temporary reductions in the unitary charge should be clearly distinguished from ongoing reductions or other 'whole life' savings.

Scored only once

Savings should not be double-counted under separate categories or by different bodies. Savings reported under previous initiatives should not normally be reported again.

Any savings previously announced as a result of government negotiations with major suppliers should be clearly distinguished.