Treasury launches pilot to achieve savings in PFI projects

Published on Wednesday, 16 February 2011 12:08
Posted by Scott Buckler

Lord Sassoon, Commercial Secretary to the Treasury, today(Feb 16th) launched a pilot project to identify the scope for achieving savings in operational Private Finance Initiative (PFI) contracts

This pilot project underlines the Government's determination to ensure that no stone is left unturned in tackling the £148.5 billion deficit. The public sector will spend over £8 billion on PFI contracts in 2011-12 so PFI must be examined for savings.The contract for the Queen's Hospital in Romford will be examined by an experienced team of commercial, legal and technical advisors to identify ways of reducing ongoing costs in this contract on behalf of the local NHS Trust. The lessons will then be used to drive savings across the full portfolio of PFI contracts.

Lord Sassoon, said

"PFI contracts are not immune from savings. The launch of this pilot, along with our next round of engagement with industry on a PFI code of conduct, indicates our determination to drive out costs while ensuring front line services are maintained."It is critical that Government urgently addresses every opportunity for savings across all contracts, no matter how complex they may be. We owe it to the taxpayer to eliminate wasteful practice and gold plating in contracts."

Minister for the Cabinet Office, Francis Maude said:

"As part of the recommendations arising from Sir Philip Green's Efficiency Review this is the first of a number of pilot reviews of large contracts - including PFI contracts - with over £100 million remaining contract value. This pilot review will produce specific recommendations, looking particularly at how it can be made more efficient, flexible and cost effective as well as provide a replicable process which can be rolled-out to other relevant contracts."

Health Minister Simon Burns said:

"This pilot is great news for the hospital - we want to make sure that NHS does everything possible to find savings that can be reinvested into frontline patient care. The focus must be to find efficiency gains and savings within the PFI contract itself, allowing the quality of care and patients themselves to remain the priority."Our plans to modernise the NHS will already save the NHS £5bn over the next five years but the NHS must continue to seek savings in big ways and small. The findings from the work at Queen's Hospital can be shared with all those trusts with PFI projects."

The purpose of the pilot is to identify the nature and level, both of savings and improved contract flexibility, that could be achieved in other accommodation based PFI projects. It is intended that the pilot will encourage contract managers to look across their PFI projects for savings in areas such as:

  • Optimising contract and asset management;
  •  Validating insurance cost/gain sharing arrangements; and
  • Identifying where additional costs are being incurred for unnecessary service levels.

The Treasury published draft guidance on how to make savings in operational PFI contracts in January. This guidance, aimed at public sector contract mangers, intends to help them identify and implement savings measures in their own contracts, reducing costs while maintaining frontline services.The guidance will be revised following completion of the pilot and measures implemented to roll out the findings and lessons learnt to all operational PFI contracts.

Government continues to seek a voluntary code of conduct with industry - investors, contractors and lenders - to ensure their positive engagement in reducing the cost of contracts and addressing issues likely to be generic across sectors such as agreement to updating older contractual provisions and enhancing transparency of financial reporting.

Source: ©HM Treasury

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