Post-decision Project Evaluation Systems of PFI in the NHS
On risk valuation and allocation the AA Report highlights the sensitivity surrounding this process as well as the need for clear guidance to be derived: ‘Of the 17 projects, the projection that the project would deliver value for money is entirely dependent upon the risk transfer valuation in six cases. In three of these six cases … a 20% reduction in the risk transfer valuation would have led to a different decision about whether the PFI option offered better value for money. Risk Transfer valuations accounted for 60% of the total cost savings forecast for the 17 projects … We consider it is important that individual departments should issue guidance from time to time on the valuation of risk transfer, particularly with regard to construction cost overruns on traditionally procured projects (including post completion rectification and maintenance costs) within the sector. The figures used in PSCs should relate to the actual experience of projects with similar characteristics. Project managers should be expected to use these valuations within their PSCs unless they can point to substantive justification for employing a different figure.’ (Arthur Andersen (2000) paragraphs 5.9 and 2.7, pages 54 and 4) Clearly the NHS has done more than many Government departments to address this concern but the argument of the AA Report is that there is still much to do. Risk valuation and allocation needs to become more accurate very largely because of its immense importance for the value for money judgement. This also needs to be considered in the light of the need to revise the PSC over time – a similar point applies to risk valuation and allocation. Finally, the AA Report returns to the importance of monitoring the more non-financial benefits and tracing the linkages of these to the financial costs and benefits over time. Drawing from the comments of Project Managers the AA Report concludes: ‘… the jury is still out on the extent to which PFI contracts will deliver the benefits promised. We think there are reasonable grounds for optimism. But a lot more work needs to be done on gathering operational information. This should cover several areas: ● the level of penalties being incurred by contractors in relation to performance that is deemed to be below the required standard. This will help understanding of whether incentives are working in practice; ● logging the performance of individual contractors and making it known to other procuring authorities whom are the best and worst performers. It is in the public sector’s interest that success should breed success and that the lessons learned are captured and fed into the procurement of new projects …
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● capturing information on actual costs and benefits compared to the business case assumptions; and ● sharing practical information on best practice in measuring and incentivising performance. We are not aware of any systems in place on a central basis to capture this information both within and across sectors. We would recommend that the benefits and practicalities of such a benchmarking system be investigated. The ongoing measurement of performance on PFI contracts will be critical in demonstrating value for money to taxpayers over the term of these contracts.’ (Arthur Andersen (2000) paragraphs 4.41 and 4.44, pages 29 and 30) Again the AA Report makes clear that value for money is not a once off judgement but one which needs to be made over time and not just in terms of directly financial benefits and costs. They make clear that one of the key elements in making this value for money judgement has to include the way the PFI contract is operationalised particularly in relation to the effectiveness of the facilities management provision to the NHS Trusts over time. Whilst the AA have defined in broad terms what might form the basis for the design of a PPE system further developments are provided by the Institute for Public Policy Research (IPPR) in their major Commission on Public Private Partnerships (PPPs) (2001). The overall thrust of their argument is apparent at the start of their report where they maintain that in judging VFM ‘… prejudice and anecdote have tended to dominate analysis and evidence’ (IPPR (2001) p.1). Their approach is to avoid two ‘intransigent perspectives on public-private relations’ (IPPR (2001) p.1) and hence the ‘blind alleys’ of the ‘privatisers: private good, public bad’ and the ‘monopolists: public good, private bad’ (IPPR (2001) p.20, 21 and 23). Instead the IPPR present a four step ‘evidencebased’ approach: first, to remake ‘the case for public funding of services’ which is to prevent the doubters that being open to experiment is intended to deny the fundamental importance of public provision of public services; second, to ‘distinguish funding from provision’ and so to concentrate on service quality rather than the funding route; third, to be ‘open minded about the case for partnership and diversity’ to avoid dogged entrenchment and fourth, to be clear to establish the ‘criteria for assessing partnerships’ so that meaningful judgements can be made (all quotes from Chapter 1 of IPPR (2001)).