"The Department for Communities and Local Government has
pursued the PFI funding route for improving housing stock with only
limited evaluation of the value for money of the programme. It
should now carry out such evaluation.
"The Department should assess,
as a matter of priority, whether its current and planned PFI
projects are delivering value for money. It should at the same
time, assess all its past projects. This assessment should be based
on hard numbers as well as qualitative
factors."
Amyas Morse, head of the National
Audit Office, 25 June 2010
The use of PFI by local authorities to improve
housing, usually in areas with a high need for housing and where
stock condition is particularly poor, has had a measure of success.
However, according to a report today by the National Audit Office,
risks to value for money of the programme have not been
managed.
In the context of this programme, PFI has been
a flexible and useful funding route for local authorities to
improve existing housing and build new stock. However, the majority
of projects required significant increases in central funding prior
to contract signature and all have suffered delays. One early
project cost the Department for Communities and Local Government
over three times more than expected in its business case. Twenty
one of the 25 projects which have been signed to date have
experienced cost increases, with 12 of these over 100 per cent.
The Department did, however, take steps to
ensure funding increases were valid and there have been no
increases in central government funding for projects following
contract signature. All signed projects, for which the NAO
was able to obtain data, were delayed, on average by 2 years and 6
months. For early projects this was partly because PFI was
new to the housing sector and the Department had to develop its
understanding of stock condition issues. A particular complexity
for the Department and all parties involved was achieving a robust
cost for projects at the outset.
Local authorities have reported that their
initial choice of PFI was driven by the funding structures of the
Department and policy constraints rather than a pure focus on value
for money. Some local authorities themselves have concerns that PFI
procurement can be excessively costly and takes too long when
compared with other routes. At the programme level, the Department
has undertaken only limited evaluation of whether housing PFI
delivers value for money compared to alternative investment
routes.
The Department’s programme management for
early projects was also weak and under-resourced. Some local
authorities and private sector contractors expressed concerns over
the capacity of the Department and the Homes and Communities Agency
(which took over responsibility for delivering the overall housing
programme in December 2008) and the level of expertise among some
staff. While there have subsequently been steps to address these
issues, they have posed a risk to effective delivery of
projects.
The limited evidence available to allow the
NAO to compare costs of housing projects funded using PFI with
those using alternative forms of funding raises concerns about the
value for money of the PFI housing programme. While the capital
cost of PFI housing projects is similar to other developments, the
Department’s evaluation to date has not taken account of the full
costs. Procurement also tends to take more time, which can increase
procurement and tender costs for local authorities and bidders.
Publication details:
HC: 71, 2010-2011
ISBN: 9780102965285