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The performance and management of hospital PFI contracts

The National Audit Office reports today that most PFI hospital contracts are well-managed and the evidence indicates that they are currently achieving the value for money expected when the contracts were signed. There continue to be risks, however, to the long-term value for money of these contracts.

Today’s report, which focuses on the stage of the contract once buildings are opened for use, not on the decision to use PFI as a procurement route, suggests that most contracts are performing satisfactorily or better and meeting the expectations of Trusts. The cost and performance of services such as cleaning, laundry and portering in PFI hospitals are similar to those provided in non-PFI hospitals. While catering is on average slightly cheaper in PFI hospitals, hospitals with PFI buildings spend more on maintenance annually to keep the buildings to a specified high standard.

Today’s report emphasizes the challenge involved in managing PFI contracts. Most Trusts are managing their contracts well day-to-day and understand the risks to value for money. However, risks remain and, while many Trusts have recently increased the resources they dedicate to managing PFI contracts, some Trusts are not devoting enough resources. Twelve per cent (9 of the 76) operational PFI contracts have no-one from the public sector assigned to contract management.

It is likely that Trusts will be expected to make efficiency savings over the next few years, but their ability to make savings from their PFI contracts is very limited. Because Trusts pay an index-linked fixed sum, it is difficult for them to make savings without cutting back on services. Contractors who secure economies of scale through managing multiple PFI contracts are rarely required to share these efficiency gains with Trusts.

The Department of Health is responsible for helping Trusts manage their contracts and, while good practice is spread among Trusts, there is a lack of central data on the performance of the PFI portfolio. The Department does not use the leverage over the market it possesses from having 76 contracts in force. With more information on Trusts’ projects, the Department could use this leverage to update contracts on common issues or facilitate performance and efficiency improvements.

"Our examination of PFI hospital contracts indicates that most are well-managed and achieving the value for money originally envisaged. This is a positive result. In the longer term, Trusts will need support from the Department of Health to ensure that the current good performance is maintained, that efficiencies are sought and that an appropriate share of benefit comes back to the public sector."

Amyas Morse, head of the National Audit Office

Notes for Editors

  • There are currently over 70 operational PFI hospitals in England, costing around £900 million a year and with a capital value of over £6 billion. PFI contracts are awarded and managed by local health Trusts with the private contractor providing funding to build and maintain hospital buildings and in some cases provide support services typically including catering, cleaning and portering. The Department of Health is responsible for approving new contracts with a capital value over £35 million or those that are high risk. It is also responsible for supporting local Trusts to manage their contracts.

  • Press notices and reports are available from the date of publication on the NAO website, which is at Hard copies can be obtained from The Stationery Office on 0845 702 3474.

  • The Comptroller and Auditor General, Amyas Morse, is the head of the National Audit Office which employs some 900 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.

PN: 31/10