NAO challenges value of PFI contracts

Aaron Morby 1 month 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

Lagan puts construction arms into administration

Up to 200 jobs at risk as construction and building divisions hit be delays and disputes
7 hours ago

Carillion directors ‘contemptuous’ of pension funding

Carillion trustees alerted watchdog twice over pensions shortfall to no avail
11 hours ago

Civils to start on £160m Yorkshire shopping centre

Advanced highways and infrastructure work to start this summer
11 hours ago

Highways England calls bids for £326m Area 10

Hunt starts for maintenance and response contractor in north west
9 hours ago

Boost your online presence with the new Enquirer Directory

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

Liverpool advances £700m Festival Park redevelopment

Willmott Dixon to carry out enabling works around Festival Garden dome base
1 day ago

Consultant Dar to build new Holborn HQ

Hunt on for contractor as Currie & Brown owner plans UK expansion
10 hours ago

Another 152 Carillion staff axed taking job toll to 1,141

Staff told to pack up as fresh wave of job cuts unveiled today
1 day ago

Mace lands £350m Stevenage town centre revamp

Council picks winning developer for major town centre regeneration
1 day ago

Construction cartel whistleblowers offered £100k for tip-offs

Competition and Markets Authority targets construction in latest crackdown
1 day ago

Balfour sells another stake in M25 for £42m

Cash will be used to pay down borrowings as sell-off of infrastructure assets continues
1 day ago

Major Carillion shareholder considered suing directors

Enquiry hears how investors were "fleeing for the hills" before board admitted problems
1 day ago

Breedon in talks to buy majority of Lagan Group

Aim-listed materials group in talks to buy part of Belfast-based group.
1 day ago

Blaze engulfs Icon job in London’s West End

Fire destroys much of a £50m luxury apartment scheme in Great Portland Street
1 day ago

Sheffield Hallam Uni seeks single construction partner

Selected contractor and consultant will deliver £220m first phase of estate plan
1 day ago

Scape calls up firms for £2bn civils framework

Balfour Beatty faces fight to keep civil engineering framework place as bidding starts
2 days ago

Kier wins £22m London student halls revamp

University College London's Ramsay Hall student blocks will be refurbed and extended
1 day ago

Carillion liquidator pledges 7-day redundancy service

Government sets up specialist team to process staff
4 days ago

Carillion Aberdeen bypass project team transferred

57 of 63 staff taken on Balfour Beatty and Galliford Try
4 days ago

MPs demand more evidence from Carillion bosses

Directors face further scrutiny over late payment claims
4 days ago

Scaffold clip falls 20 metres hitting passer-by

Victim left with broken nose and damaged skull
4 days ago

Contracts up for grabs in Birmingham building boom

Big names want to meet new suppliers: Register now
4 days ago

Nearly 80 housing projects win kick-start funding

£45m cash injection to support building up to 7,280 homes on council-owned land.
4 days ago

Are you the best in construction? – Enter the Enquirer awards now

Enquirer awards are voted for by your staff and supply chain
4 days ago

Robertson wins £19m Belper care home

Work to start in April on Derbyshire care home and library project
5 days ago

London’s biggest Boxpark approved

Capital’s third shopping container mall in Wembley gets green light
4 days ago

Axed Carillion staff slam PwC over redundo claims delay

Worried ex-staff face losing their homes
5 days ago

Tribunal victory “blows a hole” in agency payroll model

Unite vows to step up campaign against bogus self-employment
5 days ago

Procure North West issues £2bn build framework bid alert

Bidding to start next month on Liverpool and Manchester building framework
5 days ago

Cladding firms risk fitting poor ACM in post-Grenfell confusion

UK's biggest cladding distributor pulls all systems failing to reach A2 standard
5 days ago
Vivalda Group plc

Contractor services