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22 January 2014
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Saving struggles

The Treasury may want councils to make savings in PFI deals, but some transparency around the cost-cutting process would be helpful
Following work undertaken by Local Partnerships, the Treasury thinks that savings of “over 5%” can be made across a range of local authority PFI deals. Indeed, the research sets out five key areas in which savings can be made – while also insisting that this is not an exhaustive list.

But what would no doubt prove most helpful to councils would be case studies and examples of where the government has already made savings in its PFI deals. According to the Treasury, £1.5bn in savings had already been achieved by the Autumn Statement in 2012 (just over a year after the programme was set up, and the figure represents the initial target for the scheme).

However, the government has been reticent to share that information, and has refused to disclose how those savings have been made, or even on which projects, citing the commercial sensitivity of such information. If the Treasury really expects to see significant savings being made by local authorities, it seems only right that it might share its own successes.

After all, the five key areas highlighted by this latest review do not build significantly on Lord Sassoon’s initial report. The idea of increasing occupancy, or reducing the frequency of non-essential services (ie hacking away at the gold-plated facilities management contracts) is nothing new. Most authorities looking for savings will have already done this.

Nonetheless, one finding of the review could provide a new line of attack for local authorities to reduce their PFI costs. According to the Local Partnerships study, even where external support is required by an authority to deliver savings, this need not be exorbitant and the average savings to cost ratio had been around £4 every year for the remainder of the contract for every £1 spent in the review.

Many authorities – and for that matter private sector partners – have been reticent to start employing external advisers, in the fear that they would end up spending much more on advisory fees than they could ever hope to save. If the Local Partnerships experience is borne out, it could result in many more councils choosing to bring in advisers to open up contracts in the hope of finding substantial savings.

For more on the government’s programme of operational savings in PFI contracts, see my feature in the December/January issue of Partnerships Bulletin, or click here.

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