Lord Sassoon,
Commercial Secretary to the Treasury, today 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.
22/11
Notes for Editors
1. The pilot is part of a wider review of public sector
contracts following from Sir Philip Green's efficiency
review and is being led by HM Treasury's Infrastructure
UK, working in collaboration with the Cabinet Office's
Efficiency and Reform Group, the Department of Health and the
Barking, Havering and Redbridge University Hospitals NHS Trust.
2. The Queen's Hospital, Romford PFI project was signed
in January 2004 and has a remaining contract value of £835m1. The
contract has been selected for the pilot on the basis that it is
likely to be representative of the broad population of PFI
contracts. This means that it is likely that lessons learned from
the pilot can be shared across the wider accommodation based PFI programme.
3. Examples of how savings may be made in PFI projects are set
out in 'Making savings in operational PFI
contracts' which can be found on the HM Treasury website
at: http://www.hm-treasury.gov.uk/d/iuk_making_savings.pdf.
The purpose of the pilot is to test these examples.
4. It is currently anticipated the results from the pilot will be
provided to Ministers in the spring.
5. At the Spending Review the Government announced that it was
transferring responsibility for the revenue costs of central
government support for local government Private Finance Initiative
(PFI) projects from a ring-fenced fund to the
sponsoring
department to remove perverse incentives for projects to be
delivered through PFI.
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on issues raised and proposals made in the document via e-mail
:infrastructurecomments@hm-treasury.gov.uk
Media enquiries should be addressed to the Treasury Press Office.
1 This figure is the net present value (NPV) of the projected
nominal unitary payment for 2011-12 to 2041-42 per www.hm-treasury.gov.uk/ppp_pfi_stats.htm.
It uses a nominal discount rate of 6.09% in accordance with the
Green Book (3.5% real discount rate and assumes 2.5% general deflator).
Contacts:
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