MPs demand ‘radical’ PFI changes

The Commons public accounts committee’s report into PFI equity investment claimed “excessively high returns” are being made by investors and said the Treasury must take greater care when approving business cases to ensure value for money.

“When a public authority chooses to fund a project using private finance it must be able to demonstrate that this was the best way to deliver real value for money for the taxpayer, not just a way to keep the project off the balance sheet,” said committee chair Margaret Hodge.

The criticism came despite comments from Carillion’s Robin Herzberg at the oral evidence session pointing out that net returns across the construction industry for PFI deals are around 1.75%.

Hodge also criticised the “inflexibility” of PFI deals. “Thirty-year contracts are inflexible and don’t allow managers to alter priorities or change services that have become outdated,” she said.
The report recommended the Treasury should consider separating the procurement process for the building from that of the service provision “to ensure that operation and maintenance services are based on actual requirements”.

The Treasury was also urged to look at the vast cost of bidding for PFI contracts, as the MPs pointed out the financial resources required have “restricted the number of companies bidding”, meaning competition has been limited.