Watchdog savages Lex's PFI vehicle fleet deal with RAF

A FLAGSHIP contract awarded to Lex Vehicle Leasing under the Private Finance Initiative (PFI) to provide the Royal Air Force's entire fleet of non-combat vehicles was sharply criticised yesterday by the National Audit Office.

The parliamentary spending watchdog ruled that the savings achieved by contracting out the service were one-third of those claimed by the Ministry of Defence.

The NAO also criticised the Ministry of Defence for failing to give itself room to negotiate with bidders and for not fully testing the amount of risk that could be transferred to the private sector.

Under the five-year contract, awarded in July 1996, Lex bought the RAF's fleet of 2,800 non-combat vehicles and agreed to service, repair and replace them as necessary in return for being paid a monthly service charge per vehicle. The MoD estimated that the cost saving to the taxpayer of contracting out the job would be pounds 17m.

However, the head of the NAO, Sir John Bourn, said that the more accurate figure, discounted to reflect the time value of money, was pounds 5.8m.

The NAO also said that the MoD had failed to take advantage of standard good practice for PFI deals by contracting the fleet maintenance work on an outsourcing basis.

This restricted the ministry to inviting tenders against a detailed specification, limiting the scope for negotiation with bidders.

The MoD also chose to judge the bids on the basis of the number of vehicles supplied, rather than how well the bidders were able to meet its transport requirements.

"Together, these missed opportunities meant that the procurement process did not test fully the scope for innovation and risk transfer from the ministry to the private sector. Had these aspects been tested, a better deal might have resulted."

The NAO report includes a long list of recommendations for future PFI deals, which the MoD has taken on board for the letting of five further contracts for non-combat vehicles.

These include following procedures that allow negotiation with bidders and arranging payment mechanisms that give the private-sector operator an incentive to minimise the number of vehicles needed.

The MoD is also organising future deals so that they cover vehicles used by all three branches of the armed forces.