Practical Law

PLC Public Sector reports:

The performance of the PFI initiative and the effectiveness of the competitive dialogue procedure (CDP) have both come under the microscope recently.

As we have previously reported, in light of the recession the use of private finance has come in for considerable criticism, recently magnified by the Government’s decision to prop up PFI with the creation of the Infrastructure Finance Unit and the use of public money for private finance.  In light of all this publicity, the House of Lords’ Economic Affairs Select Committee announced that it would be conducting an inquiry into PFI and off-balance sheet debt.

The Committee posed an interesting selection of questions in its call for evidence and the NAO has now provided its response.  The response makes interesting reading, extolling some of the virtues of PFI:

• Most private finance projects are built close to the agreed time, price and specification: in the NAO’s sample, 69 per cent of PFI construction projects between 2003 and 2008 were delivered on time and 65 per cent were delivered at the contracted price. Of those delivered late, 42 per cent were delivered within six months of the agreed time, and under half experienced price increases. Further, the recent NIAO report on a Northern Irish road PFI highlights a project delivered more cheaply using PFI and ahead of time.
• Public bodies using private finance are normally satisfied with the services provided by contractors.

However, the response also makes it clear that there were a number of areas that were not satisfactory:

• The reasons for electing to use PFI are often unclear (and often appear to be based on institutional incentives to keep debt off-balance sheet rather than a sound business case).
• There is no suitable evaluation model for public authorities to compare PFI to other forms of procurement and ensure that they are getting value for money.
• PFI procurements do not always provide the level of competition necessary to ensure value for money is obtained.
• The public sector does not always have the necessary commercial expertise to manage the PFI process during the procurement or contract management stage (commercial skills in government are also the subject of a separate, some what critical,  NAO report published this week).   

The NAO states that it hopes that its paper will act as a catalyst for further discussion of these issues; we can only agree. 

The competitive dialogue procedure

A key tool in the delivery of PFI, the CDP, also now appears to be the subject of scrutiny with an HM Treasury branded survey being carried out by PricewaterhouseCoopers.  The survey asks numerous questions about:

• The structure of the CDP.
• The number of bidders generally involved.
• The down-selection process during the course of the CDP.
• The comparative cost of running a dialogue to the negotiated procedure.
• The effectiveness of the solutions produced by the CDP compared to the negotiated procedure.
• Specific experiences of using the CDP relating to its competitiveness, the resources available to undertake it and the difficulties of not being able to make substantive changes to a project after the dialogue has closed.
• The number of actual and threatened legal challenges to projects that have used the CDP.

The reasons for carrying out the survey are unclear.  Can we expect the joint Treasury/OGC guidance on using the CDP to be updated or is a relaxation of the blanket ban on using the negotiated procedure being contemplated?