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Editor's blog Wednesday 16 February 2011: Treasury's NHS PFI review - a nice idea, but probably a waste of time

A Treasury press release announces the news that the a pilot project is to review the Queen's Hospital Romford PFI as a representative example of the genre, to see what generic learning can be rolled out across the NHS.

This comes in the light of the Public Accounts Committee's highly critical recent report on PFI.

The review aims to report to ministers in the Spring (which is quite odd, because with the daffodils and crocuses appearing, I always think we're pretty much there).

The announcement states, "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 release also flags up the Government's "next round of engagement with industry on a PFI code of conduct ... 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".

Voluntary? Oh, OK.

You mean, like banks lending more and cutting bonuses?

Because we definitely need more self-regulation in the financial sector.

Never mind the facts that PFI - pure financial illiteracy - made no meaningful transfer of risk to the private sector; that the public sector comparator figures were utter bullshit; that the Government can always, always borrow more cheaply than financial markets.

We are where we are: billions of pounds in PFI debt.

That being the case, this effort is - in principle - the right thing for the Treasury to do.

In low political terms, it also works for the Coalition Government, highlighting the staggering absurdity that, once the depth of the financial crisis was clear, the previous Government did not make such (or indeed, any) moves on PFI.

Perhaps the embarrassment factor was too much: Ed Milliband was certainly a staunch defender of PFI during his campaign for the Labour leadership.

Problems in practice
The generalisability of any lessons in practice, however, may be a different matter.

The June 2010 National Audit Office report found that 12% of NHS PFIs do not have an NHS staff contract manager.

Tellingly, the NAO report also found that "thirty-three per cent of Trusts are dissatisfied with at least one of the services they receive under their PFI contracts. None rated all services as excellent. Problems with performance have varied and do not suggest a single set of systematic issues".

Shall I repeat that last line again?

"Problems with performance have varied and do not suggest a single set of systematic issues".

The NAO report also states, "Managing PFI contracts is a challenging task ... Trusts are likely to be expected to make efficiency savings over the next 14 few years, but their ability to make savings from their PFI contracts is limited ...

"There are several reasons why it is difficult for Trusts to further reduce their PFI spend or get service improvements through sharing in efficiency savings:

"Unlike refinancing gains, the contracts do not require investors or contractors to share gains they can generate through more efficient management or service delivery in individual contracts, or groups of contracts, where these gains are not reflected in prices offered in the value testing reviews.

"We saw little evidence of partnering work between contractors and Trusts aimed at driving down costs and producing mutual benefits.

"Although maintenance services are subject to competitive tension in the tendering process, Trusts have not been able to benefit from any efficiencies in building maintenance which contractors achieve over the contract’s life. This is because these services are not value tested and contractors do not share with Trusts information on their maintenance spend".

Ah well. Hope springs eternal. Just don't drink the water.