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Treasury announces plans to find £1.5 billion savings across PFI contracts
A plan to deliver at least £1.5 billion savings across the 495 operational Private Finance Initiative projects in England was announced yesterday by the Commercial Secretary to the Treasury, Lord Sassoon. These savings can be fully recycled back into frontline services by the contracting authority.
The Government is committed to ensuring taxpayers get value for money from PFI contracts and the announcement is part of an ongoing programme of reform to improve the cost effectiveness and transparency of PFI contracts - a procurement method often employed by the last UK government, which uses private sector expertise and resources to deliver public sector infrastructure and/or services, in return for a contract to manage the building over a number of years - typically 30.
The plans follow pilot projects, at the Queen's Hospital in Romford and two Ministry of Defence pilots, at Corsham and the Welbeck Defence Sixth Form College, which have confirmed savings opportunities of around 5% of annual payments.
The Efficiency & Reform Group in Cabinet Office, supported by experts from the Treasury and local partnerships, will now lead a programme to secure the savings across the public sector. A team of PFI experts and specialist negotiators will be drawn from across Government to work around the country to deliver savings. Updated guidance and advice on how savings can be made will be published on the Treasury website to support all PFI contract holders.
The savings pilots have confirmed that the three main areas of savings in operational PFI contracts are:
* Effective management of contracts, for example, through reducing wasteful energy consumption and through the public sector sharing in savings on insurance.
* Making efficient use of space, for example, from subletting or mothballing surplus building space.
* Reviewing soft service requirements, so that the public sector does not buy more than it needs when specifying facilities management services such as window cleaning and frequency of decoration.
The Government has already taken other significant steps to improve the cost effectiveness and transparency of PFI, including:
* At the Spending Review, the Government abolished PFI credits to create a level playing field for all forms of public procurement.
* In April, the Government introduced new guidance to departments to strengthen the approvals process of all projects. All major projects outside of a department's delegated authority now need to go through three approval points.
* This month for the first time the Government included PFI liabilities in the unaudited Whole of Government Accounts. This complements the PFI statistics published on the Treasury website.
The Government will continue to look for ways to deliver the best possible value for money from existing and future PFI contracts.
The Department for Education have also announced today, a major procurement programme for new privately financed schools, the Priority School Building Programme. Lessons from the savings pilots will be factored into this and other future procurements from the very beginning.
Announcing the moves, the Chancellor, George Osborne, said:
"We are determined to reform PFI contracts to protect the taxpayer. Today's announcement, to find savings of £1.5 billion, is one of a number of ambitious steps to secure better value for money in PFI contracts. This is just the beginning and we will continue to look for innovative ways to improve the delivery of private finance in the public sector."
The Commercial Secretary to the Treasury, Lord Sassoon, said:
"We have identified every opportunity to find savings, tackling wasteful practice and gold plating in PFI contracts. The potential savings will vary from contract to contract, but the results are promising and we will support the wider public sector to find savings in complex contracts. I am confident that we will achieve our aim of delivering £1.5 billion savings. These savings will be available in full to recycle into frontline services."
Minister for the Cabinet Office, Francis Maude said:
"Savings from Private Finance Initiatives form an important part of this government's ongoing challenge to reduce cost and waste so that we can protect vital jobs and services on the front line.
With this new programme we plan to save £1.5bn from PFI contracts. We will need to be tough with ourselves and tough with our suppliers if we are to deliver these savings, but we have the discipline required to do so. We are working hard to identify programme areas across government where there could be room for increasing efficiency while reducing overhead costs, so we can direct funds to support and maintain the services we all rely on."
The savings guidance can be found on the Treasury website: www.hm-treasury.gov.uk
21st July 2011