Skip to main content
Home > Publications
Share this: Share on Facebook Share on Twitter Share on Linkedin

Press Release - Improving the PFI tendering process

 

8 March 2007

 

The NAO has concluded in a new report published today that the tendering process for PFI projects needs improvement. During 2004-2006, PFI projects took an average of almost three years (34 months) to tender. Although there was substantial variation between sectors with schools, in particular, taking significantly less time to close deals (25 months), the average tendering period was no better than in the period 2000 – 2003 for any of the sectors examined.

 

Today’s report to Parliament by the NAO looks at all central government department PFI deals finalised between April 2004 and May 2006 and follows up a 2003 report by the Public Accounts Committee which found that PFI tendering did not, in all cases, follow good practice and was potentially risking value for money. The report focuses on the process for tendering and agreeing a deal and how this might be improved.

 

Tendering times can be too long for conventionally procured projects, of course, and cutting timescales without regard for value for money can be counterproductive. But value for money is most at risk during the final stage of negotiations with a single, preferred bidder, after the competitive process has finished.

 

For projects finalised between 2004 and 2006, this final stage lasted 15 months on average. One in three projects examined by the NAO made significant scope and specification changes both upwards and downwards to the project during this period - amounting to 17 per cent of the total project value. This should become less common in the future, however, owing to the application of new EU procurement rules.

 

PFI projects are also receiving fewer developed bids than previously. Evidence in the report suggests the private sector is becoming more selective in bidding: 85 per cent of PFI projects that closed prior to 2004 received three or more developed bids. For projects that closed between 2004 and 2006 this had reduced to 67 per cent of projects. One reason given for this is the length and cost of tendering.

 

The report describes the measures taken by the Government to improve the PFI tendering process: including the development and enforcement of standardised contractual guidance and, in the schools sector, the creation of Building Schools for the Future, a programme which brings together all future PFI school projects. Most recently, the Treasury’s March 2006 publication, PFI: Strengthening Long Term Partnerships, set out proposals to improve public sector skills and procurement support and to reduce tendering times and costs.

 

Recommendations in the NAO report add to these, calling for the introduction of testing target times backed up by improvements in project management and better use of existing expertise across government.

 

Sir John Bourn, head of the NAO, said today: 

 

“The tendering process is a vital part of the whole PFI deal and the recommendations in my report need to be acted on to secure better tendering and value for money.”

 

Notes for Editors:

  1. Press notices and reports are available from the date of publication on the NAO website, which is at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474.
     
  2. The Comptroller and Auditor General, Sir John Bourn, is the head of the National Audit Office which employs some 850 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.
     
  3. The Private Finance Initiative (PFI) was launched in 1992. Since then successive governments have continued to negotiate projects that draw on private sector expertise, including the raising of finance, to provide services which had been provided directly by the public sector. In total, over 750 PFI deals have now been signed with a combined capital value of £55 billion.
     
  4. The Public Accounts Committee published a report in 2003 that considered the collective value for money issues raised by published NAO reports on PFI projects, including issues surrounding the PFI tendering process: 28th report from the Committee of Public Accounts, Delivering better value for money from the Private Finance Initiative (HC 764, Session 2002-03).
     
  5. The NAO examined the process from market advertisement to final negotiations for all central government department PFI projects in England, including all hospital and school deals finalised between April 2004 and May 2006 (a combined capital value of £7.75bn). The report does not comment on the overall value for money of these PFI projects.
     
  6. Tendering periods for PFI deals with a capital value of over £20 million that closed between 2004 and 2006 averaged 34 months. Between 2000 and 2003, the comparable figure was 33 months. There were variations between sectors, with the average times for schools, hospitals and other deals being 25, 38 and 47 months respectively. The shortest overall tendering period was 16 months and the longest 73 months.

Press Notice 11/07
All enquiries to Neil Gadhok, NAO Press Office:
Tel: 020 7798 7020
Mobile: 07796 940 746