Press Release - Allocation and management of risk in
Ministry of Defence PFI projects
30 October 2008
Most Ministry of Defence projects funded by
PFI deals are delivered satisfactorily, on time and on budget. In
six of the eight projects examined by the NAO, the Department has
generally achieved value for money through effective allocation and
management of risks. Failures to identify and manage risks reduced
the value for money achieved from the other two projects reviewed
by the NAO.
Most MOD PFI projects are now providing
important support to military and civilian staff. They cover a
portfolio of more than 50 projects delivering a broad range of
services such as equipment, buildings, training and communications.
The Department has developed commercial disciplines for
scrutinising the value for money of its PFI procurements and has
extended these into other projects.
While the MOD allocates and manages many of
the project risks effectively, it does not always have the robust
data necessary to understand the risks it is asking the private
sector to bear. In at least seven projects, the decision to use PFI
has been reversed. It may be that, in some of these cases, risks
were not fully understood at the outset. In one case, six years
elapsed before the MOD aborted a planned PFI procurement for
Armoured Vehicle Training Services (AVTS), at a cost to the
taxpayer of £15 million. Half of this cost relates to the purchase
of Intellectual Property Rights which the Department intends to
exploit. The Department estimates that the alternative solution
subsequently procured will lead to savings of some £30 million over
the next ten years in live ammunition.
There is scope for improving procurement
times. Overall, the PFI projects surveyed by the NAO took an
average of 37 months to procure compared with the PFI average
across government of 34 months. And larger PFI projects with a
capital value over £50 million took the MOD an average of 45 months
to procure. This longer procurement time reflects the complexity
and special requirements of the Department’s projects compared with
repeat projects such as hospitals or schools but there is also some
scope for the Department to improve the speed at which it closes
larger deals. It is seeking to do so through improvements to the
oversight of its capital procurements.
The NAO also highlight the risk that
contractors may incorrectly report performance which would
otherwise lead to payment deductions. Staff of BT inflated the
number of calls handled in the Defence Fixed Telecommunications
System. The MoD subsequently recovered £1.3 million from BT.
Tim Burr, head of the National Audit
Office, said today:
“Most of the private finance projects
in its portfolio of more than 50 have been delivered successfully
by the Ministry of Defence. But the Department needs to be more
alert to the risks that can emerge once the project is up and
running, such as inaccurate performance reporting. It could also
reduce procurement times by speeding up its decision-making, and by
collecting better information at the outset on current and
prospective use of the service and the condition of
assets.”
Notes for Editors
- The Ministry of Defence is one of the biggest
users of PFI in central government, spending over a £1 billion a
year on PFI projects. These span buildings, training, equipment and
communications
- 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.
- The Comptroller and Auditor General, Tim Burr, 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.
Press Notice 45/08 All enquiries to Phil
Groves,
NAO Press Office: Tel: 020 7798 5339
Mobile: 07770 678477