1.6 Our previous work found that project managers reported that PFI projects were delivered within budget more often than non-PFI projects.5 As part of this 2017 study we surveyed 11 government departments. Responses showed cost certainty was generally seen as a benefit of PFI (five of the eight departments that responded to this question considered that certainty over construction costs was better under PFI). Increased certainty about price does not necessarily mean that the cost the public sector pays for construction is lower: the Treasury Committee found that some PFI projects charge higher prices for construction to cover unforeseen costs.6 Prices can still increase in PFI projects, particularly before final terms are agreed at financial close. Our report on PFI in housing reported significant capital cost increases compared to initial estimates.7
1.7 Some assets will be more complex than others to build - around two-thirds of all PFI projects are 'accommodation', for example schools, which are considered as having the lowest construction risk.8 In order to understand the impact of private finance procurement on construction costs it is important to compare similar projects. The Department for Education is currently collecting data and developing methodology and has, so far, found that the financing route has little or no effect on the construction costs of schools being built as part of the Priority School Building Programme (PSBP).
1.8 Some of these benefits can also be achieved without the use of a long-term private finance contract. The use of fixed-price contracts for publicly financed projects can be effective in reducing cost overruns.9 The risk of construction cost overruns could also be transferred using a shorter private finance contract that only covers the construction period but this option has never been pursued in the UK under PFI contracts.
___________________________________________________________________________________________
5 National Audit Office, Performance of PFI construction - a Review by the Private Finance Practice, October 2009.
6 HC Treasury Committee, Private Finance Initiative, Seventeenth Report of Session 2010-2012, HC 1146, July 2011, paragraph 48.
7 Comptroller and Auditor General, PFI in Housing, Session 2010-11, HC71, National Audit Office, June 2010, paragraph 2.4.
8 Comptroller and Auditor General, HM Treasury, The choice of finance for capital investment, National Audit Office, March 2015, paragraphs 1.10, 2.6 and 2.7.
9 See footnote 8, paragraph 1.10.