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MPs demand better value from PFI projects

18 January 11 02:10
Hospital bed

Ministers should do more to ensure they get good value from homes and hospitals built under the private finance initiative, MPs have said.

The public accounts committee found councils and health trusts had been forced to use PFI contracts as there was "no realistic funding alternative".

But there was no evidence they offered better value for money than other types of funding for large projects, it said.

However, PFI had delivered "many new hospitals and homes", the MPs added.

PFI, introduced by the Conservative government in 1992 and continued by Labour and the coalition, allows public bodies to avoid paying upfront costs for new buildings or major redevelopments.

Private firms fund projects, while the public sector makes repayments over 30 or 40 years.

'Robustly evaluated'

The public accounts committee said that, by April 2009, there were 76 operational PFI hospitals in England and more than 13,000 homes which had been built or refurbished via the scheme.

Its report said: "Whilst PFI has delivered many new hospitals and homes which might otherwise not have been delivered, there is no clear evidence of whether PFI is any better or worse value for money than other procurement routes.

"There were instances where PFI may have been used where there was no evidence that it was the best procurement route."

The report accused the Department for Communities and Local Government and the Department of Health of failing to use their leverage in the market to secure the best possible deal for taxpayers.

The housing contracts had cost considerably more than originally planned and had been, on average, two-and-a-half years late, it added.

The committee's chairwoman, Labour MP Margaret Hodge, said: "Local authorities and health trusts used PFI because there was no realistic alternative, not because it represented best value for money.

"The use of PFI and its alternatives should now be robustly evaluated. Looking back at PFI procurements, the government should also do more to find out where and why PFI works best and capture the lessons.

"Departments should also do more to ensure they get the best out of existing PFI contracts."

Mrs Hodge also said: "By bundling together large numbers of PFI projects, private sector investors may use the consequent economies of scale to drive up the value of their interests and generate bigger profits.

"We are concerned that the benefits arising from these economies of scale are not being shared by the taxpayer."

But Elizabeth Fells, head of public services reform for the CBI business group, said: "PFI has resulted in hundreds of hospitals, homes and schools being built, benefiting communities up and down the land.

"It is an established and successful way of developing and maintaining infrastructure, with the majority of projects delivered on time and on budget.

"With the public finances constrained, the role of the private sector in supporting new infrastructure will become even more important. Any moves to challenge existing contracts will undermine private sector confidence, jeopardising future investment in crucial infrastructure projects."

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