Page last updated at 14:46 GMT, Tuesday, 14 June 2011 15:46 UK

PFI is 'inefficient' and 'expensive' MPs have heard

The Private Finance Initiative (PFI) is "inefficient", "expensive" and has "stifled innovation", MPs have heard.

The Treasury Committee was taking evidence from academics and a number of senior executives involved in delivering PFI projects on 14 June 2011.

Economist Dieter Helm told MPs that the government will "always" use the private sector to build infrastructure and provide services, but said he believed PFI projects to be expensive and inefficient.

But Richard Abadie from PricewaterhouseCoopers, a company which has advised on hundreds of public sector contracts, argued that PFI provides investment that would otherwise not exist.

He added that the scheme had played an important role in building social infrastructure such as schools and hospitals.

When questioned by Conservative MP Mark Garnier about whether companies like his had benefited from the "excessive profitability" of PFI projects, he admitted that may have been the case in the past, but insisted that projects are now "very tightly" contracted.

Under the PFI scheme, private consortiums, usually involving large construction firms, are contracted to design, build, and in some cases manage new projects.

Contracts typically last for 30 years, during which time the building is leased by a public authority.

Labour MP John Mann raised concerns about the long-term nature of contracts, arguing that they made it difficult to implement changes to an original agreement.

Professor Helm agreed, saying that projects were often "fixed" and that large amounts of money had to be paid to make "trivial changes".

But Anthony Rabin from construction firm Balfour Beatty disagreed, describing contract renegotiation as "feasible and desirable".

"We want to give our clients value for money, and if that means contract renegotiation that's fine," he told MPs.

Jo Webber, Deputy Policy Director for the NHS Confederation, told MPs that many hospitals were committed to large, high value buildings such as wards that were difficult to make changes to.

Professor James Barlow agreed - pointing out that developments in healthcare moved rapidly, adding that it was difficult to predict what hospital buildings would be needed in 30 years' time.

When pressed by Conservative MP Jesse Norman about whether PFI has produced better hospitals, Professor Barlow disagreed, said the scheme had "stifled innovation" in the NHS.

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