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Thursday, 11 July, 2002, 13:09 GMT 14:09 UK
Taxpayers cash 'wasted' on PFI
Royal Infirmary of Edinburgh
Edinburgh's Royal Infirmary was built with PFI funds
Not enough effort is being made to ensure that private-sector deals to provide public services are continuing to offer value for money, MPs have warned.

Taxpayers' money is being wasted because government departments and local councils are "taking their eye off the ball" after signing the Private Finance Initiative (PFI) contracts, according to a report by the influential Commons public accounts committee.


This report is a damning indictment of the PFI process and shows what a giant waste of taxpayers' funds it is

Dave Prentis
Unison
More than 400 PFI contracts, worth more than 100bn, are currently in force.

But the MPs reveal that more than one in five public bodies (23%) claim the deals represent worse value for money now than they did when they were first signed.

Some 55% had to modify contracts - often resulting in extra costs - while 58% had penalised contractors for under-performance.

'Hidden costs'

PFI is a key plank in Labour's programme of reform for the public services.

But public sector union Unison claimed the report showed how public service cash was being diverted into the pockets of private contractors and financial advisers.


In too many cases, value for money declines after contract letting

Edward Leigh
General secretary Dave Prentis said: "This report is a damning indictment of the PFI process and shows what a giant waste of taxpayers' funds it is.

"All this money lost on hidden costs and extra charges and the expensive accounting games that go on to maximise contractors' profits are at the expense of people using public services."

Public bail outs?

The report suggests that contractors have overcharged for extra services during the operation of projects and have been protected from the risk which is supposed to be transferred to them under PFI.

The bailing out of high profile projects, including the Channel Tunnel Rail Link and the Royal Armouries Museum in Leeds may have given some firms the impression that if they fail, public money is there to save them, the MPs say.

"Contractors should expect to lose their investment in PFI projects when things go wrong and be rewarded reasonably when things go well.

"It will undermine an essential commercial discipline if contractors generally are given the impression that the government will always bail them out."

Concern

Edward Leigh, the Tory committee chairman, said: "Significant effort and expertise is deployed by public bodies in negotiating PFI contracts.

"But we are concerned that in some cases they seem to take their eye off the ball once the contract is set.

"In too many cases, value for money declines after contract letting and the approach of too many authorities to managing their contracts is seriously deficient."

The report - entitled Managing the Relationship to Secure a Successful Partnership in PFI Projects - argued that contracts should contain mechanisms to ensure value for money is maintained during the lifetime of a project.

Only 50% of contracts currently have such mechanisms.

'No cure-all'

Mr Prentis said the government was "taking taxpayers for a ride" and argued for the scrapping of PFIs.

"At the end of the day, the risk of service failure still falls on the public sector," he said.

"The answer is directly-funded public services run by people in the public sector who put the service-users first every time, and not shareholders."

Liberal Democrat David Rendel, a member of the committee, said PFI was "not a cure-all for all public services".

"In many cases PFI turns out to be poorer value for money than it was expected," he said.

"There is always something unforeseen that is missing from a PFI contract.

"When something goes wrong that is not in the contract, the taxpayer ends up having to pay more to remedy it."

But Labour former paymaster general Geoffrey Robinson argued that while some people disliked PFI for political reasons, he believed the concept had "much going for it".

"It seems quite axiomatic to me that bringing together private capital, private building skills, together with public requirements and over all public over-sight in these matters is a form of public partnership that in principle must commend itself," he told BBC Radio 4's the World At One.

The government's plans for future spending are published on 15 July

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23 Apr 02 | Health
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