Managing the relationship to secure a successful partnership in PFI projects

future financeThe Private Finance Initiative (PFI) is now established as a major form of Government procurement. It is used to procure a wide range of public services, including hospitals, prisons, roads, computer systems and Government accommodation. There are over 400 PFI contracts currently in force committing departments to future finance expenditure of around £100 billion.

Although there is now considerable experience of the PFI procurement process, there is much less experience of the issues that arise once the contract has been let. Most PFI contracts are still in their early stages. It is important, therefore, that initial lessons arising from the management of these contracts, some of which relate to how the contracts were procured, are identified and disseminated quickly to authorities so that they can be taken into account in current and future projects.

This report highlights key issues which authorities need to keep in mind when developing and managing relationships with private sector PFI contractors.

Our study has been based on surveys of authorities and contractors responsible for managing 121 PFI projects where contracts had been let prior to 2000. It is the first major examination of central government PFI projects in progress. The key question we have sought to answer is whether authorities manage their PFI relationships to secure a successful partnership. A successful partnership allows the participants to work together to achieve their objectives to their mutual benefit: the public sector receives a service that represents value for money; and the contractor delivers that service for a reasonable return.

The methodology we adopted to undertake the study, which included obtaining views from contractors as well as authorities, is set out in Appendix 1. The information presented in this report is based, except where otherwise stated, on the views of the authorities and contractors at the time of our survey (late 2000). Details of the projects surveyed are set out in Appendix 2. In the course of our study we also obtained the views of the Office of Government Commerce and various other public and private sector bodies active in the PFI field. We are grateful to all those who responded to our survey and contributed their views as our study progressed.

The study focussed on how authorities and contractors were managing the PFI contracts they had entered into. But how easy it is to create a successful partnership often depends on decisions made during, and often early in, the procurement process. Although this study did not examine in detail how the authorities procured their projects some of the results of our survey identified issues relevant to the procurement process.