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.