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Treasury PFI efficiency claims 'unfounded'

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Published Date:
05 April 2007
TREASURY claims that the government's flagship private finance initiative projects are cost-effective and save public money are "unfounded", according to researchers from Edinburgh University.
In a study published in the Public Money and Management journal, the research team, led by Professor Allyson Pollock, has analysed five studies cited by the Treasury as proof of PFI efficiency.

Pollock yesterday told The Scotsman that grounds for
claims in the Treasury's policy statement 'PFI: Meeting the Investment Challenge' that nearly all PFI projects (88 per cent) were delivered on time and within budget - whereas 70 per cent of most public projects were delivered late with 73 per cent costing more than expected - were "either non-existent or false".

She added: "These findings are significant because government ministers have repeatedly justified the controversial PFI policy in terms of its greater efficiency and value for money savings compared with traditional methods of public investment. It would appear that comparisons are rigged in favour of PFI and that Treasury policy is not evidence-based."

She added that of the five reports cited as evidence by the government of PFI efficiency, two by the National Audit Office were based on interviews with managers of the PFI projects themselves. The NAO authors concluded that it was "not possible to judge from such evidence how the method of procurement affected the results".

A third study contained no comparative data at all to support claims of PFI effectiveness over non-PFI schemes, Prof Pollock said.

In the fourth study, researchers were even denied access, because the Treasury said the information was covered by commercial confidentiality, even though it had originally said it was happy to provide the information.

The only report out of the five to contain any comparative data was commissioned by the Treasury from a PFI consultancy and engineering firm, Mott Macdonald.

However, Prof Pollock's team found that this compared cost and time overruns in 39 public schemes, with just three out of the then 451 operational PFI schemes. They said the tiny sample was further biased by the exclusion of failed or troubled PFI schemes and the use of different baselines when comparing cost changes in non-PFI schemes with just three PFI schemes.

As a result, Pollock's team said cost increases known to occur in PFI were not taken into account while the cost of traditional public schemes was artificially inflated.

"It raises very serious questions about public accountability. There is just no evidence to support the Treasury claims of improved efficiency in PFI," Prof Pollock said.

A Treasury spokesman said: "The independent National Audit Office, not the Treasury, reports on the effectiveness of PFI projects, and it is them who state that PFI gives 'greater certainty'. PFI will continue to be used to deliver a small but important part of [government] investment, where it is shown to be value for money for taxpayers to do so."

TOP PFI PROJECTS


• £394m South Lanarkshire schools modernisation 2006
• £280.7m North Lanarkshire schools modernisation 2005
• £225m Glasgow City Schools modernisation 2000
• £194.2m Renfrewshire schools modernisation 2005
• £180m Lothian NHS Trust New ERI hospital 1998
• £170m East of Scotland Water Authority 1999
• £151.4 Argyll & Bute schools modernisation 2005
• £135m M77/Glasgow Southern Orbital Road 2003
• £124m East Ayrshire community schools 2006
• £124m Gt Glasgow NHS Stobhill and Victoris Ambulatory care 2006



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1

plord,

edinburgh 05/04/2007 01:45:29

maggie sold the silver and labour have put us in hock

2

Tim C,

Southern England 05/04/2007 07:15:27

PFI is a long con. And when all the sums are added up, the perpetrators will be long gone. There is something repulsive about politicians who imply that they are serving the country, while they are just maximising their own benefits.

3

Marian,

Edinburgh 05/04/2007 07:59:52

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”
Josef Goebbels. Hitler’s propaganda chief.

4

Scotland Expects,

05/04/2007 08:05:44

PFI/PPP is justified by Labour and Libs with something called a "public sector comparitor" PSC
However this in not a comparion with the actual public sector but is the rigged comparison the researchers are talking about, It is merely a formula that allows a 2% extra cost on the normal PFI costs.
The PSC is a red herring PPP should be tested not against red herrings but against normal council borrowing.

Back in 2002 Audit Scotland said “The PSC/PPP comparison on its own cannot provide decisive evidence of best value.”

So in short there are three figures
1.the real world borrowing cost
2.the PPP cost
3.the PPP + 2% = public sector comparator

so Lab/Lib politicans sit in a studio and compare 2 and 3 ignore 1 -the real world and say in "comparison to public sector" hence the handy name of the red herring. Public media fooled

result - wool over eyes and will only be discovered in 20 years

5

Calum10,

05/04/2007 08:19:20

PFI is both a rip off and a con.

Build now with cheap materials and poor design, pay later at a huge cost to taxpayers. Also all the risk lies with the public purse. A failing PFI ends up being brought back into the public sector at a huge buy-out cost.

6

.,

05/04/2007 08:44:45

I think the fact that the NAO, Audit Scotland, or the Audit Commission have been set loose to carry out a wide ranging VfM study says most of what you need to know about this topic.

Ultimately though, there are a lot of public sector assets that simply wouldn't exist were it not for PFI. Brown wouldn't borrow to fund them, but as PFI isn't strictly borrowing then the schemes go ahead.

7

Jamiem,

05/04/2007 10:08:15

The Government have screwed up spectucularly with PFI - they have no formal way of sharing in massive gains which the private sector partners get when they inevitably refinance the contract and have had to resort to bringing in a 'voluntary code' to encourage the private sector to share the profits with them!

8

Il Penseroso,

Inverurie 05/04/2007 10:38:13

Study after study and case after case has been well reported in the media and PFI/PPP (or however the Treasury dress it up) has been shown to be more than a debt collar round the necks of a generation to come. Yet again more creative accounting by Gordon Brown and his bean counters has been shown to be more mirrors and windows. The man is damaging his image and his brain is running away from reality. His once "prudent" reputation is being lost by his lust for power and his ambition to have his name in the History Books as a British PM, slowly disappearing.With a reality check he should return home, exercise his abilities in politics in a Scottish Parliament and contribute to the positive direction Scotland is now on.

9

Marian,

Edinburgh 05/04/2007 11:10:45

Anpther less publicised fault of PFI was reported by the National Audit Office who published a report in March 2007 that said that PFI is not attracting enough bids and costs are too high. What they meant was that there is only a finite number of organisations that can run these bids and the Government is losing out through a lack of competition. NAO went on to say that 'competitive dialogue' - whereby competing bidders have to work through to the detail desgn stage - is at the heart of PFI's failings. What is deterring bidder's is that they simply don't want to waste their time and money on this abortive work. As evidence of this NAO stated that that losers were found to be less likely to make future bids. The NAO also highlighted the degree of material changes during the negotiation stage when the discipline of competition had been removed - approximately a third of projects underwent significant changes to both scope and specification leading to greatly increased costs for the project.

10

Tormod,

Auld Reekie 05/04/2007 11:13:24

All excellent comments, when the full costs of PFI are finally placed onto the nations balance sheet, watch them make excuse after excuse for their incompetence.

11

Shug,

UK 05/04/2007 12:02:26

I am not a fan of PFI but there are a lot of misconceptions about how it actually works. Having worked in the industry I can profess to know a little about what really goes on.

The bad PR stems from the original schemes. The contracts involved were poorly drafted, the customer (Health Authority, Education Authority etc) got shafted, both in terms of quality of build and the all important re-financing.

The problem for the industry is that the press and those who are anti PFI still focus on these old problems. The contracts now being put in place have rigorous provisions re quality and most will include provisions to deal with the issue of refinancing. The documentation has evolved considerably.

That said PFI is still too expensive and those involved professionally, surveyors, lawyers, accountants etc milk it for all it is worth. Fact.

However, the other fact to bear in mind is that under PFI things get done. Schools, hospitals, universities, roads etc get built. It also forms a relatively small part of the total capital projects that are going on throughout the UK.

It is all very well whinging about the cost etc but if you want something now, as opposed to tomorrow (Wembley stadium anybody!!), you have to pay extra.

12

Landrover 79,

Scotland 05/04/2007 12:02:34

I have worked in the PPP/PFI sector for a number of years now, where I do agree in principle with the comments and statements above, the realisation of the current situation is that the buildings constructed and operated over the past few years would not have been in place otherwise. I believe children should learn in modern schools and patients be treated in the most to up date facilities, etc.
If the government had not opted for this route, and as stated had self financed via borrowed money, the facilities would not have been of as good a quality and possibly not included the new technology we are now seeing introduced.
A private company must deliver what it has signed up to deliver, within the agreed budget and after the 30year+ period, must hand over the facilities in the same condition as when they were first built. If you purchase a new house, you would not be able to go back to the builder in 30years+ and request that it should be like new!


 

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