PFI delays force MoD to rethink contracts

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THE MINISTRY of Defence is to overhaul the way it handles contracts awarded under the private finance initiative after the severe delays that have hit a pounds 13bn order for new air-to-air refuelling tankers.

The project, the biggest single PFI contract ever undertaken by the Government, was awarded a year ago to the Air Tanker consortium but it has still not been named as preferred bidder and the actual signing of the deal is not now expected until the end of this year.

Lord Bach, the Defence Procurement minister, announced yesterday that a new private finance unit is to be set up within the MoD headed by Nick Prior, a senior executive on secondment from Partnerships UK.

The aim of the new unit is to improve working relationships between the ministry and private industry and assess the viability of projects well before they are considered by the MoD's investment approvals board. This, in turn, should lead to a reduction in the time taken and costs of negotiating PFI deals, the ministry said.

The Air Tanker consortium, which is led by the Franco-German defence group EADS, is replacing the RAF's current air-to-air tankers with a new fleet of Airbus A330 aircraft.

It will also manage the fleet over the 29-year life of the contract, but Air Tanker has clashed with the MoD over the amount of risk the private sector should take if there is a shortfall in revenues from commercial use of the fleet when it is not in military service.