PFI 'forcing public service cuts'

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Some councils are being forced to cut services because private firms are exploiting a flagship Treasury scheme to push up prices, MPs have said.

The public accounts committee said a lack of competition for private finance initiative (PFI) contracts was making the public sector "vulnerable".

Committee chairman Edward Leigh said the bidding process had got worse since MPs last examined it four years ago.

But the Treasury said extra investment from PFI had been "worthwhile".

The committee found that tendering for PFI contracts had to be competitive to ensure value for money.

Rising costs

But a third of recent projects only had two viable bidders, it added. There are 800 PFI contracts with private suppliers, which will be worth a total of £155bn up to 2032.

But the committee said the Treasury had failed to learn lessons from mistakes which were made in the past.

Mr Leigh, Conservative MP for Gainsborough, said: "PFI deals were supposed to give us certainty about the long-term costs of providing public services.

"The reality is different. Benchmarking and market testing of the costs of delivering ongoing services under PFI deals - such as catering and cleaning - have in practice led to increases in prices of up to 14%."

He added: "The lack of PFI expertise among the public sector procurement teams is resulting in poor negotiating with bidders who often have the whip hand.

"The public sector must not be placed in this vulnerable position."

Mr Leigh said there were signs that "market interest is weakening, with fewer serious bids for recent deals".

'Woefully bad'

Acting Liberal Democrat leader Vince Cable said the Government had proved "woefully bad" at putting PFI contracts out to tender.

"As the public sector develops a reputation as a bad buyer, fewer and fewer private companies want to become involved in PFIs, making the whole process less competitive.

"If PFI projects are to regain public trust and show themselves to be viable in the long term, ministers must learn from their mistakes and ensure that such deals are completed quickly and competitively, allowing a genuine transfer of risk and giving value for money to taxpayers."

The CBI insisted the scheme was crucial for delivering public services despite costs tending to rise.

"Most PFI projects suffer from changed specifications and avoidable delays, which adds to costs and puts potential bidders off," said director of public services Neil Bentley.

"But the PFI will continue to be crucial to building new infrastructure such as schools, hospitals and waste plants and so the public sector must do more to develop its procurement skills to get the best out of the model."

Upfront investment

A Treasury spokesman insisted that achieving value for money often meant "investing time and effort".

"The procurement times under PFI reflect the upfront investment needed to ensure the long term success of the project," he said.

"Evidence that this investment is worthwhile is given by previous National Audit Office findings that show PFI has been successful in delivering facilities on time and on budget."

The spokesman also rejected the criticism of the "benchmarking" system for ensuring money was well spent, saying the sample of 11 cases examined by the committee was too small to draw "negative conclusions" about PFI as a whole.