News / PFI alternative needed, NAO tells government

By Seamus Ward

The use of private finance to fund public sector procurement must be challenged more and the private finance initiative may not be as suitable for as many projects as it has been in recent years, the National Audit Office said.

In a report, entitled Lessons from PFI and other projects, the NAO called on the government to use the lessons learned from past PFI experience to develop alternative methods of delivering infrastructure and related facilities and services. These should maximise value for money.

The cost of debt finance has increased since the credit crisis by between 20% and 33%, making PFI less attractive, said the report. Public sector bodies should act as ‘intelligent customers’ in several ways, it argued – collecting better data to inform decision-making; establishing effective arrangements to test, challenge and, if necessary, stop projects; and using commercial awareness to obtain better deals.

The NAO drew on a health example to illustrate the need for good data on PFI deals.

It said the Department of Health had been unable to explain to the Commons public accounts committee why catering costs per patient per day in a range of NHS?PFI deals varied from £3 to £12 and it did not know whether cheaper services represented good value for money or were of poor quality.

However, the Department’s private finance unit was praised for offering valuable guidance and advice to the NHS.

NHS Confederation acting chief executive Nigel Edwards said it was right to examine whether there are practical ways for the NHS to squeeze more value out of existing deals. ‘Taxpayers need to see that everything possible is being done to focus money on patient care.’

 New contracts must allow NHS organisations to more easily change the way they use buildings, either to adapt to a more competitive market or to move care out of hospitals and into the community, Mr Edwards added. 

‘Previous PFI projects did not build in sufficient contractual incentives for PFI consortia to fund the cost of adapting buildings to meet changes in demand,’ he said.

NAO head Amyas Morse commented: ‘The public sector should make better use of the hard-won lessons from the extensive and substantial PFI programme. This means acting as a more demanding and intelligent customer by harnessing government buying power through concerted tactics and tougher negotiation.’