MPs question PFI value for money

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The Commons Public Accounts Committee found that some services in hospitals had been cut to meet the rising cost of private sector contracts.

Under the Private Finance Initiative (PFI) there are now 800 contracts worth £155 billion up to 2032 but the committee's Tory chairman Edward Leigh said public authorities often failed to strike a good deal.

He said: "The process by which PFI projects are tendered has not improved since our committee last reported on the topic, four years ago. In some respects, it has got worse. If the public sector is to get value for money from the deals, then the market must be truly competitive. What we find instead is that a third of recent projects attracted only two viable bids. This may well become an even bigger problem than it is at present."

He said a lack of PFI expertise resulted in "poor negotiating with bidders who often have the whip hand", placing the public sector in a vulnerable position.

Many contracts for services such as catering or cleaning have the option to renegotiate after five to seven years, with public bodies able to compare current suppliers with their competitors.

But the committee's report found that instead of lowering the cost, the process had in practice increased prices by up to 14%.

The report said: "There is evidence that, faced with price increases, public authorities had to cut back on services in hospitals, including portering, to keep the contracts affordable.

"Where such cutbacks have been made so far the authorities believed that they would not compromise the service to the users though cutting services could, in some situations, impact on users."

Mr Leigh said: "PFI deals were supposed to give us certainty about the long-term costs of providing public services. The reality is different. Benchmarking and market testing of the costs of delivering ongoing services under PFI deals - such as catering and cleaning - have in practice led to increases in prices of up to 14%. The value for money is in some cases uncertain."