NAO challenges value of PFI contracts

Aaron Morby 9 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

Sisk edges into UK profit after two years of losses

UK revenue drops by over half to £188m from 2015 peak
26 mins ago

Jacobs to sell energy and chemicals arm for £2.5bn

US consulting giant continues business shake up
1 hour ago

Hill bags £300m Aldershot and Farnborough town centre revamps

Four major schemes will deliver 750 new homes
1 min ago

Bid race for £25m Poynton Relief Road

Cheshire East Council calls up firms for 3km relief road project
2 hours ago

Morgan Sindall appeals to construction career breakers

Contractor offers return to people who have taken time out from the industry
1 hour ago

Huge fit-out team starts work on £333m Aberdeen centre

More than 850 people working on interior of event complex
30 mins ago

Cemex trucks become mobile safety warnings

Vehicles carry campaign message aimed at pedestrians
50 mins ago

Bouygues profit warning over biomass plant problems

Two UK power jobs drag down results at group construction division
3 days ago

Site virtual reality swings London skyscraper planning appeal

48-storey Isle of Dogs tower secures planning at appeal
3 days ago

Boost your online presence – join the new Enquirer Directory

New site for suppliers and buyers will showcase their products, services and latest stories
6 months ago

Gatwick Airport sets out £500m runway upgrade plan

Standby runway to be moved 12m to bring into routine short-haul service
3 days ago

Engie wins £195m Kingston Uni student halls revamp

Work to start on student accommodation upgrade next June
3 days ago

First iKozie micro-home community gets thumbs up

Sixteen micro-flats to be built in Worcester
3 days ago

Plans for £450m Leeds hospital expansion

A new children's hospital and day patient block will be built at Leeds General Infirmary
4 days ago

Tool theft hits half of construction companies

Project delays and cost overruns caused by crime wave
4 days ago

Betting Spy: Chelsea and Fulham to land double

West Londoners can both come good this weekend at 3/1
3 days ago

RG Group starts tallest building in Yorkshire

Landmark student skyscraper will rise to 37 storeys
5 days ago

Government calls for fire tests on high-rise spandrel panels

Spandrel panels now under the spotlight as fire spread risk in tall buildings
4 days ago

Surveyors report rising workloads but Brexit fears loom large

Workloads up in Q3 but credit squeeze is becoming a major issue
4 days ago

Voice controlled windows tint on command

Latest tech means you can talk to your windows
5 days ago

Suffolk council to renew £750m East of England framework

PQQs published next month for revamped public building framework
4 days ago

Police swoop on Romanian site slave labour gang

Eight arrests in east London as police target construction human trafficking
5 days ago

£248m awarded to reclad 135 unsafe housing blocks

Government releases first tranche of £400m recladding fund
5 days ago

Crest Nicholson sounds profit warning

Build rates to be slowed down as London and the south suffers from lack of buyers
5 days ago

Welsh ministers look to rebid £1.3bn M4 relief road

Cost-saving plan to split 23km Costain/Vinci motorway scheme into three contracts
5 days ago

Bouygues confirmed for £250m Cavendish labs

Cambridge University signs contract for 354,000 sq ft physics complex
5 days ago

Balfour Beatty renews £2.1bn Scape UK civils deal

Contractor reappointed as sole supplier for infrastructure across the UK
5 days ago

Muirfield boss banned after creaming cash from failed firm

Ex chairman gets nine-year director disqualification after siphoning off £880,000
5 days ago

Ex-Bouygues director joins Speller Metcalfe

Martyn Chaplin joins the Midlands builder after 15 years with Thomas Vale and Bouygues UK
5 days ago

Warden Construction wins £26m Sheffield student job

Work to start in February on 289-bed scheme in St Vincent’s Quarter
5 days ago

Contractor services