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MPs slam 'under-resourced' PFI management

Companies managing Private Finance Initiative (PFI) contracts are under-resourced and not providing good value for money, according to the influential Public Accounts Committee (PAC) of MPs in a report released this morning.

According to the PAC, there are more than 500 PFI projects in operation in the UK, with a combined capital value of £57bn, and future payments coming to £181bn (£100bn at today's prices).

The report says it is "inevitable, over the course of 25 to 30 years of operation, that changes will be needed to the services and assets provided under operational PFI projects."

But, when changes are made, they is little consistency in how these changes are priced and managed. "In 2006, some £180M was spent on changes, but there were large variations in the extent of management resource both for PFI contracts of a similar size and for making changes of the same cost," reads the report.

"15% of PFI projects were not being managed on a full time basis, which is a clear risk to value for money," it continues.

"Major changes costing £100,000 or more accounted for 90% of the total value of changes to PFI projects in 2006. Nearly 30% of major changes which could have been competitively tendered, were not."

According to the report, companies operating PFI deals set up 'Special Purpose Vehicles' to manage the contracts. These new companies deal with competitive tendering and charge fees for managing changes to the contracts.

"These fees have ranged from 2% to 25%, adding an estimated £6M to the cost of changes made in 2006," reads the report.

The PAC propose ramping-up competitive tendering, "At present, only 27% of project changes over £100,000 are subject to competition. The arguments for handing additional work to an incumbent contractor are not persuasive nor do they hold sway in every project. Public sector authorities should raise this percentage so that alternative bidders compete to undertake the work whenever possible."

They also propose enforcing the Treasury's guidance, issued in 2007, that prohibits the payment of 'management fees', which cost the exchequer some £6M per year. The PAC felt these fees were "unjustified".

Finally, to ensure consistency between contracts, the PAC say that, "By the end of 2009, Partnerships UK should draw up guide prices for common minor jobs, based on existing cost information from the Royal Institution of Chartered Surveyors and others."

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