Authorities 'not doing a good job' managing PFI, says PAC

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The Government needs to do more to ensure that deals between the public and private sectors are good value for money, an influential Commons committee said today.

Taxpayers may be losing out as many public sector authorities are "not doing a good job" of managing Public Financial Initiative contracts, the Committee of Public Accounts said.

Many contract managers do not have enough commercial expertise and more than 15 per cent of the projects are not being managed on a full-time basis, according to the latest PAC report, entitled Making Changes in Operational PFI Projects.

The cross-party group of MPs said it was inevitable, over the course of
25 to 30 years of operation, that changes would be needed to the services and assets provided under PFI projects.

But they warned there were large variations in the management of such deals. A third of contract managers at PFI hospitals and a sixth of contract managers of PFI schools have described their teams as "under-resourced", the PAC said.

Major changes costing £100,000 or more accounted for 90 per cent of the total value of changes to projects in 2006. But nearly 30 per cent of major changes that could have been competitively tendered were not - "a clear risk to value for money".

Tory MP and PAC chair Edward Leigh said: "Whether a PFI contract constitutes good value for money for the taxpayer depends not only on the terms of the deal originally struck with the private sector, but also on how well that contract is subsequently managed by the public sector authorities over the next 25 to 30 years.

"The evidence is that many public sector authorities are not doing a good job of managing operational PFI deals. Many contract managers do not have enough commercial expertise and the management of the contract is frequently not sufficiently resourced."

He added: "Public sector authorities must keep the incumbent private sector contractors on their toes by, wherever appropriate, making proposed changes costing over £100,000 subject to competition."

The PAC also called for the removal of management fees after it emerged that separate "go-between" companies cost an estimated £6 million a year.

For most small changes, management companies known as Special Purpose Vehicles "simply act as conduits", passing requests for changes from public bodies to the private firms and back again.

But many SPVs charge management fees ranging from 2 per cent to 25 per cent, despite Treasury guidance last year which advised against the payment of such fees in new PFI deals.

A Treasury spokesman said: "The Government will continue to support PFI as part of its strategy to deliver high-quality public services, alongside other procurement routes, where it demonstrates value for money.

"PFI can deliver better infrastructure, faster and on budget, and keep that infrastructure up to a high standard throughout its life.

"The Treasury will respond fully to the substance of the PAC's conclusions and recommendations with a minute at a later date."