SFT is carrying out a review of operational PFI / PPP / NPD contracts to assess whether there are value for money savings that can be realised. There are currently 87 operational projects in Scotland across the schools, health, waste & waste water, transport and other sectors. The total annual unitary charge on these projects is approximately £912m.
SFT is currently working with 22 public bodies, covering 56 of the signed contracts and has reviewed contract documentation and financial models as well as meeting with contract management teams.
The opportunities for releasing savings in these long-term tightly drawn contracts are moderate, and initial findings are:
a) Given the current margins in the financial markets there are not significant opportunities at this stage for senior debt refinancing to deliver savings. There could be opportunities as construction phases end in 2011 and beyond for projects that reached financial close at the height of the credit crisis;
b) Given the recent increase in PWLB borrowing rates for Local Authorities in the UK Comprehensive Spending Review, there does not appear to be a good case for replacing elements of project finance debt with Local Authority PWLB borrowing as may previously have been the case;
c) Contract termination could potentially deliver savings in some instances, but the scope of VfM savings that may be available has not been reviewed as termination would bring assets back into the public sector for accounting purposes, and the capital budget required for this is not currently affordable;
d) There could be opportunities for VfM savings to be delivered through increased collaboration and commercial discipline in contract management, possibly thorough the development of a shared service approach involving SFT. Savings could be delivered from:
i) Optimising the scope of services in the PPP contract;
ii) Reviewing the risk transfer and value delivered from transferring some risks;
iii) Reviewing response requirements and the overall value delivered by high standards of service delivery;
iv) More robust management of contractual performance standards;
v) Sharing best practice in relation to cross-sector provisions such as benchmarking of facilities management costs and insurance premium risk sharing;
vi) Increasing in some cases the hedging against future inflation in some contracts;
vii) Reducing the cost to the public sector of administering PPP contracts through ha shared service approach;
SFT believes that savings in excess of £5.5m per annum could be realised through such a shared service approach, with the opportunity for greater savings existing following a comprehensive review of points above.