MPs criticise inflated management fees for PFI changes

The House of Commons Public Accounts Committee has slammed public authorities over their handling of private finance initiative (PFI) projects, and criticised the Government to failing to provide them with adequate support.

It also called on the public-sector authorities to keep the private contractors "on their toes" by refusing to pay inflated fees for changes to the contracts in its 36th report of this session, which is published today.

The Tory MP Edward Leigh, the PAC's chairman, said: "The evidence is that many public-sector authorities are not doing a good job of managing operational PFI deals." He added that many of the managers "do not have enough commercial expertise and the management of the contract is frequently not sufficiently resourced".

The PAC's report, Making changes in operational PFI projects, drew attention to several issues, including projects being under managed, insufficient central support for contract managers, weighty management fees and a lack of competition on changes to contracts. The PAC recommended that the Treasury, government departments and Partnerships UK – a body set up by the Treasury to support and advise the public sector on PFI – should increase training over changes in PFI projects. It added that rival bidders should be encouraged to pitch to carry out the contract changes and Partnerships UK should draw up guide prices for companies.

It also called on The Operational Taskforce, run by Partnerships UK on behalf of the Treasury, to enforce the removal of management fee charges altogether for PFI contract changes, as they cost the taxpayer more than £6m a year. The committee said a PFI contract that is good value for money for the taxpayer not only depends on the original deal, but how well it is managed by the public-sector authorities over the next 25 years. However, it said that changes to a contract were "inevitable" over such long contracts.

It added that the public sector "needs centrally provided guidance on what prices are reasonable for common minor changes to projects".

A PFI involves the public sector signing a long-term contract with a company from the private sector to build, finance and operate projects such as schools and hospitals. The committee said there are more than 500 projects on the go, worth £57bn, with future payments of £181bn.

To highlight the under management of some projects, the PAC cited a survey carried out by the National Audit Office (NAO) in January, which found that more than 15 per cent of the contracts are not being managed full time. The NAO survey found that up to 500 PFI projects had terms changed at a cost of over £180m to the taxpayer in 2006, and that the moves had not always provided value for money. Of those, 90 per cent cost more than £100,000 each and 30 per cent of the changes, which could have been tendered competitively, simply went to the existing contractor.

It found a third of contract managers at PFI hospitals and a sixth of PFI schools surveyed were described internally as under-resourced.

The PAC scrutinises public expenditure, although it does not consider the creation or the merits of a particular policy, which is carried out by departmental select committees. It focuses on whether the policies have provided value for money based on economy, effectiveness and efficiency.