1. Reconfiguring services - PFI/PPP affects all staff and services
* The Welsh Assembly blocked a bid by the Conwy and Denbighshire Health Trust in March 2001 to include 23 renal nurses and ward clerks in a PFI project for a new renal and diabetic unit at Glan Clwyd District General hospital. The full business case had been approved by the Trust and the North Wales Health Authority. Staff would have transferred to Fresenius Medical Care had the move not been blocked.
* The government is holding discussions with the private sector over the possible private management and operation of the new NHS fast track centres.
* The Department of Health has established a joint venture company, NHS Local Improvement Finance Trust (NHS LIFT) with Partnerships UK PLC (see Section 11) to finance primary care facilities. The DoH will invest £175m in the company over the next four years with matching equity from Partnerships UK. It will own and lease local health facilities, premises for GPs, dentists and chemists and will initially concentrate in inner city areas. It will extend the principle of PFI/PPP to community facilities. "NHS LIFT is a catalyst for change with the aim of stimulating long term interest amongst a wide range of investors" (DoH website).
* The outsourcing of LEAs, City Academies and the takeover of ‘failing’ schools by private contractors is likely to lead to private companies employing all school staff, including teachers.
2. PFI/PPPs are often more expensive than publicly financed projects.
3. Escalating project costs
4. Whose value for money?
5. PFI projects commit future governments to a stream of payments
PFI contracts commit public bodies to revenue payments for 25-35 years.
• Increased revenue payments committed to PFI projects frequently mean cuts in other services
• Dartford example where three hospitals were closed to provide for the PFI hospital and after the new hospital opened the NHS Trust plans to close a community hospital
• Impact on corporate spending priorities
• The OBC for the Wakefield street lighting project showed a £729,000 increase in the annual street lighting budget (£18.2m over 25 years), a 35.3% increase on current expenditure.
7. PFI is subsidised by government
8. High transaction costs
Because each party has a battery of legal, financial, management and other advisers and consultants, fees are substantially greater than those incurred in market testing. Any disputes during a 25-year contract are likely to bring in another flurry of invoices from advisers.
* The adviser’s costs of the first fifteen NHS PFI hospitals were £45.2m, which consisted of £20.4m fees for lawyers, £14.6m for financial advisers and £10.2m for management consultants and other advisers. Adviser’s fees represented between 2.4% and 8.7% of the capital cost of the projects (Hansard, Written Answer, 28 February, 2000).
* The Home Office alone spent £5.3m on legal and accountancy fees between May 1997 and March 2001 for PFI schemes in the Prison Service and various IT projects (Hansard, Written Answer, 23 March 2001).
* The cost of public sector staff time in developing PFI projects and the cost of the procurement process is rarely taken into account. This means the actual transaction costs are substantially higher.
9. Public sector comparator flawed
11. Transforming the funding of capital expenditure
12. Changing nature of risk
13. Lack of democratic accountability
The performance of the major computing PFI/PPPs has been less than successful. The catalogue of failures and cost overruns is summarised in Table 3. This provides evidence of project delays, cost overruns, service failures and a failure to transfer risk. In addition, 14 local authority housing benefit and revenue contracts outsourced to private contractors have caused havoc for service users, elected members and managers in 1999-2001. Five contracts have been terminated.
The Treasury has commissioned a report from the Office of Government Commerce to identify the savings and efficiency of contracting out (outsourcing). But there is a large body of detailed evidence of the impact of outsourcing and privatisation over the last 20 years.
15. Public sector lose control over assets and services
16. Private sector dictating social and public needs
17. Two tier workforce transforming the labour process
18. Impact on in-house services
19. Best Value
A good practice approach to Best Value and PFI/PPP should include the following:
* If PFI/PPP proposals are included in service review option appraisals they should be fully assessed alongside public sector and other options.
* The service review must be able to justify a decision to use a PFI/PPP approach and must be subjected to District Audit and Best Value Inspectorate assessment.
* The entire PFI/PPP planning, procurement and operation phases must be subjected to Best Value consultation with users and community organisations, employees and trade unions and the wider community. This should be accompanied by full information disclosure.
* Best Value service reviews should not be run in parallel with PFI/PPP procurement.
* PFI/PPP contracts should include detailed proposals for the achievement of continuous improvement over the contract period including regular service reviews and monitoring of performance.
20. Refinancing PFI/PPP projects
21. New form of contractor organisation
22. Loss of public interest
23. Long procurement and negotiation process
24. Shifting the balance between capital and the state
25. A new age of corruption