20 June 2018

Graham Atkins sets out three tests to ensure that any new government review of private finance builds a better picture of whether it is good value.

This morning, a report by a committee of MPs found that the Government lacks the basic information to judge whether its private finance initiative (PFI) contracts are good value. The Public Accounts Committee has called on the Treasury to collate the necessary information and let its members know by April next year whether it thinks PFI, in principle, provides value for money.

The committee’s concern is not unique to PFI, and its recommendation is sound. Successive governments have shown a lack of interest in ensuring they have sufficient data on cost, quality and performance to manage public service markets. This shortcoming includes vital basic information about how many contracts they have, who provides services in those contracts, at what cost, and to what effect.

It is not acceptable that the Government has relied simply on assertion to defend using private finance. Although there are data gaps due to the nature of past contracts and the requirements placed on private providers, there is quite enough to begin evaluation. As we argued last year, if the Government wants to make evidence-based decisions, it needs to collect and collate data on when and where, if at all, private finance is good value.

Despite several previous government reviews of private finance, there remains “institutionalised fuzzy thinking”, in the words of committee chair Meg Hillier. For the Government to truly understand whether it is good value, it must now do three things.

The Infrastructure and Project Authority must take responsibility for collating data on private finance

The Public Accounts Committee criticised the Treasury specifically, for not collecting the necessary data to judge if private finance is good value. The Treasury has argued that collecting data is the responsibility of individual departments.

Both are right. Individual departments are better placed to collect data on specific projects. But assessing the value of private finance requires a cross-departmental view. The Infrastructure and Projects Authority (IPA) – a joint Treasury-Cabinet Office body and the centre of the civil service’s project finance specialism – should provide that overview.

Disagreement within Whitehall over responsibilities will undermine attempts to gather the evidence. This is why the IPA should mandate that departments that have used private finance to deliver schools, hospitals, and roads should measure the whole-life costs and quality of these assets when they return to public sector ownership, and then review that data itself. Otherwise, data is unlikely to be collected, and evaluation is likely to fall by the wayside.

It is encouraging that the IPA is collating data on the cost and quality of private finance projects – but this is not the only relevant question.

The Government must publish the results of the Infrastructure and Project Authority’s review

The Government must not be allowed to bury the results of reviews it doesn’t like – as is rumoured to have happened with the Prime Minister's Strategy Unit’s 2001/2 review of private finance contracts.

In general, the IPA’s transparency has been commendable. Its annual report on the Government’s major projects, including its assessment of the likelihood of projects achieving their objectives on time and on budget, is a positive improvement compared to its previous lack of transparency. 

Unfortunately, the Treasury has confirmed that the IPA will not publish its new work on private finance data collation and analysis in a single report or review. This is not a good sign. The Government should commit to publishing the IPA review – otherwise there is a risk it will be able to simply ignore the evidence.

The public sector must write transparency clauses into new contracts

Collating the data on existing contracts will build a clearer picture but the Government needs to be proactive in future contracts. One problem, as the IPA admits, is that in some cases data on cost, quality and performance in private finance projects does not exist – or it cannot be retrospectively retrieved from the private companies which manage private finance projects.

Where the data required to evaluate projects is held by the private sector (investors or construction contractors), the public sector should write data disclosure requirements into contracts, to avoid getting into this undesirable situation in the future.

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