Press Release - Examining the value for money of deals under
the Private Finance Initiative
13 August 1999
Sir John Bourn, head of the National Audit Office, provided
Parliament today with a ground breaking report explaining the
National Audit Office’s approach to examining the value for money
of deals under the Private Finance Initiative (PFI). Having already
published eight reports on major privately financed projects Sir
John said the time was now right to explain the National Audit
Office’s approach to auditing these deals which are new and more
complicated than traditional procurement. He believed this would be
of tremendous value to both the public sector and the business
community who are negotiating these deals as well as to
auditors.
The report will be essential reading for everyone involved in
PFI transactions. It sets out how to assess the value for money of
PFI deals on a systematic basis using an analytical framework which
covers comprehensively the key value for money issues which arise
in these projects. The National Audit Office have consistently
stated that they will not stand in the way of well thought through
innovation and risk taking. Those involved in PFI deals will find
that the National Audit Office’s analytical framework will assist
them in thinking through the key issues and should help them to
make a success of the PFI.
The framework, and the National Audit Office’s accompanying
commentary, represents a comprehensive good practice guide. It
highlights approaches that have been successsful as well as
suggesting ways to combat the pitfalls and problems experienced in
some of the early projects.
The National Audit Office’s report focuses on four pillars which
contribute to the overarching aim of getting a good deal in a PFI
project:
-
setting clear objectives
Procuring departments need to think through, in advance of
commencing the procurement, exactly what they are looking for from
the proposed deal and how it can be expected to deliver that
outcome. These are issues for departmental top management.
-
2: applying the proper procurement
processes
Procuring a PFI deal is usually a major project in its own right
which needs to be managed as such. The choice of procurement
process is of vital importance: the process must comply with the
relevant law and regulations; and it must also be designed to
maximise the prospect of achieving a deal which is good value for
money. These are issues primarily for departmental project
management to consider.
-
III: selecting the best available deal
To achieve this the department must ensure both that the
procurement process delivers the best available deal in the market
for the PFI project, and that that position is maintained during
any period of exclusive negotiations with a preferred bidder. The
prime focus here is on the quality of the bids which are
received.
-
IV: ensuring that the deal makes sense
This applies throughout the procurement. At any point in the
process it may become clear that the market is not going to deliver
a deal on the terms envisaged at the outset. That could be a sign
that the project should be re-considered and either dropped
entirely or re-tendered on a different basis. Applying this
principle will mean that, at the moment before the procuring
department become committed to the deal, they need to be satisfied
that it is likely to deliver the service that they want on the best
available terms, and that it provides the best way of meeting their
objectives for the project. This issue is one that top management
will wish to ensure is examined.
Notes for Editors
- Press notices and reports are available from the date of
publication on the NAO website at http://www.nao.org.uk/ Hard copies can
be obtained from The Stationery Office on 0845 702 3474.
- The Comptroller and Auditor General, Sir John Bourn, is the
head of the National Audit Office employing some 750 staff. He and
the NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
- Further information on other PFI reports which the National
Audit Office have published is set out in the leaflet that
accompanies the report.
Press Notice 57/99
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