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Examining the value for money of deals under the Private Finance Initiative

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:

  1. 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. 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.

  3. 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.

  4. 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

  1. Press notices and reports are available from the date of publication on the NAO website at https://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 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.
  3. Further information on other PFI reports which the National Audit Office have published is set out in the leaflet that accompanies the report.

PN: 57/99