Stuck with PFI? Think about your options

05-12-2017

Paul Carey-Kent, Policy Manager, CIPFA

It’s easy to assume that little can be done now about the raft of PFI deals concluded in the early 2000s. Do they simply represent a cost you’re stuck with, so why waste your effort trying to make savings?

At a recent event, CIPFA considered a number of aspects worth examining that provide organisations with a potential to make savings. There are also options that could improve the service, whether or not the original deal represented good value for money.

PFI contracts shouldn’t be left simply to run themselves – if they are, it is highly likely to be to the contractor’s advantage. There needs to be proactive involvement and challenge from the health or local government client to look at the following main opportunities:

  • FINANCING: is the agreed financial model actually being followed in practice? Where, as is usual, there are hedging arrangements to smooth out interest rate fluctuations, are the agreements correctly applied? Can tweaks be applied to generate savings, for example by adjusting the risk transfers occurring? Is there potential for a win-win through refinancing? Are the payment and indexation mechanisms agreed consistent with what is actually happening?
  • FACILITIES MANAGEMENT: Are helpdesk records checked to ensure they match the reported information through which contractual performance is judged? Are building condition reports being carried out frequently enough to assess whether life cycle action is adequate? Are statutory fire and health and safety standards being met? Are deductions correctly informed and calculated? 
  • LEGAL ISSUES: Are variation processes and enforcement actions applied in an appropriately solution-driven way? Is there scope to negotiate changes to specifications? Does enforcement flow optimally into the scope for variation? Is a holistic view taken before issue are raised in order to enable the client to gain maximum leverage in bringing about meaningful improvements? 
The event was attended by finance managers and heads from health authorities and trusts and who were able to give examples where reviewing along these lines had already led to substantial savings and performance improvements within their PFI deals. Every CFO should be satisfied that these questions are being asked by their team and that appropriate action is then being taken.

There’s nothing to stop the issues being examined internally, but CIPFA is one of three framework contractors who have formed partnerships to help public bodies make the most of opportunities for savings. Working with specialist partners in financing, financial management services and law the team can help organisations to get the best value from on-going PFI deals.

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