NAO challenges value of PFI contracts

Aaron Morby 12 months ago
Share

The Government’s spending watchdog has given its verdict on PFI warning that there is a lack of evidence to show private finance projects offer better value than public procurement.

Carillion's flagship PF2 Midlands Metropolitan hospital where construction is a year behind and cost soared

The NAO warns that taxpayers will shell out nearly £200bn meeting agreed future charges on the existing PFI projects that are commissioned.

It says there is little evidence that PFI even delivers greater certainty of outturn cost during construction and warns that the cost of finance can be 2-3.75% higher than from state borrowing.

The critical report is a blow for the construction industry which enjoyed surging orders in the early years and has delivered 716 PFI/PF2 projects, with a total value of £60bn.

It was written before the collapse of Carillion, which held numerous PFI contracts and has swung the focus onto the value of operation maintenance and cost of construction on flagship projects for Government.

Repayment for these projects cost the taxpayer £10.3bn last year, the report found. Even if no new deals were agreed, the cost of these projects is forecast to reach £200bn by the 2040s, the report says.

The Department for Education, which delivers less risky projects, has found that the financing route has little or no effect on the construction costs of schools being built.

The NAO suggests that the risk of construction cost overruns could also be transferred using a shorter private finance contract that only covers the construction period but this option has never been pursued in the UK.

On claims that PFI bring operational efficiencies, the NAO said its survey of four Government departments last year revealed three considered operational costs were higher under PFI and the other department considered they were the same.

They tended to consider that maintenance standards were higher under PFI.

The NAO also said the Government had appeared to have cooled on PF2 with only six projects reaching financial close since it was launched in 2012.

These are the Priority School Building Programme, which will build 46 schools in five batches, and the Midland Metropolitan Hospital where Carillion was running over a year late on construction.

Despite the Government promising to deliver an expanded pipeline of PF2 there are currently no projects in procurement although Highways England is considering use of PF2 to finance the £1.3bn A303 Stonehenge tunnel and roads and the £1.5 billion approach roads to the Lower Thames Crossing.

“Decisions that have an impact on taxpayer-funded public services for decades need to be thought through,” said Meg Hillier, Chair of the Committee of Public Accounts. “There are lessons to be learnt and these need to be considered in the context of 20 years not just expediency today.”

Latest news

Buyer deposits repaid as Manchester’s tallest tower axed

54-floor St John's Place residential tower pulled in face of cooling demand
1 hour ago

Billionaire Warren Buffett targets UK construction insurance

Berkshire Hathaway Specialty Insurance enters market as contractors struggle for cover
1 hour ago

Skilled trades pay rates hit £1000-a-week in Midlands

Self employed workers enjoyed wage rises of 6.7% last year
2 hours ago

Kier boss leaves to become Rydon construction head

Mark Norris leaves operations director role at Kier after 13 months
18 hours ago

Go-ahead for £60m Nottingham HMRC hub

Bowmer & Kirkland believed to be in line to build Unity Square offices
2 hours ago

Crooked bookkeeper stole £100k from cladding contractor

Court hears how mother and daughter used company cash to fund their lifestyles
17 hours ago

£50m stands approved for Lords cricket ground

Builder ISG to start in August on new Edrich and Compton stands
20 hours ago

Roof trusses fall on labourer

Darlington Council fined for poor site management
2 hours ago

Union demands “period dignity” on construction sites

Multiplex first contractor to sign-up with campaign for better site toilets
24 hours ago

Boost your online presence – join the Enquirer Directory

New site for suppliers and buyers showcases products, services and latest stories
9 months ago

Van Elle profit warning after “challenging” quarter

Lower margin contracts drag down performance as restructuring continues
1 day ago

Balfour boss in Brexit blast at Chancellor

Leo Quinn highlights construction's fears in conference call with ministers
1 day ago

Wates wins £90m post-Grenfell reclad job

Work to start this summer on five tower blocks at North London's Chalcots Estate
1 day ago

Construction forecasters bet on delayed soft Brexit

Crystal ball gazers believe UK will avoid workload fall with sluggish growth in 2019
1 day ago

Plan for £300m Lincolnshire power station

Czech power firm plans energy from waste plant next to South Humber Bank power station
1 day ago

Fitzgerald returns Bovis Homes to record profits

Margins restored and completions up 3% after 18-month turnaround
1 day ago

Late payment bill boosts calls for project bank accounts

Second reading due as MP fights to protect subcontractors from Carillion-style collapses
2 days ago

Plant hire giant Hawk falls into administration

Administrators pledge to keep kit working on site as they look for a buyer
3 days ago

HS2 forces firms to use least polluting trucks and plant

Rail project raises bar to exceed London emission standards
2 days ago

Watkin Jones hits record profits as pipeline grows

Firm enjoys three-year pipeline of 24 student rooms and build to rent sites
2 days ago

South Eastern Electrical went down owing £4m to suppliers

Contracts sold by administrators to associated company SEE Rail
2 days ago

Carey wins £16m Stratford Waterfront civils package

Cladding and mechanical packages will come up for bid in next three months
2 days ago

Mace confirmed for £350m Paddington Cube

Erith, Keltbray, J Coffey and Getjar chase basement contract
3 days ago

Skanska Costain JV starts Euston Station HS2 demolition works

McGee will demolish two office towers over 10 months
3 days ago

Forrest collapsed owing £28m to unsecured creditors

Administrator warns even secured creditor banks will lose much of £17m they are owed
3 days ago

Calls grow for Carillion action one year after collapse

Trades union claims regulators have failed to do their job and calls for a criminal investigation
3 days ago

Shareholders pushing for Kier chiefs to be ousted

Investors want changes at executive team
3 days ago

McL&H lands London’s longest river pier build

Piling to start this week for Thames Royal Wharf Pier
3 days ago

Kier to start £100m Ascot hospital

Construction to start on new Heatherwood Hospital
3 days ago

Collinson appoints ex Willmott Dixon boss as chairman

John Frankiewicz takes up new role at Preston based construction division
3 days ago

Contractor services