Crackdown begins on PFI overcharging

PFI contractors could be forced to hand over work on projects to rivals if they fail to agree prices for alterations with clients, under a government plan to slash its £180m-a-year bill for changes.

Measures ordered by the Treasury that allow extra contractors to be drafted in if a price for alterations cannot be agreed with the PFI contractor have been quietly added to contracts on the £45bn Building Schools for the Future (BSF) programme. Similar moves are being developed for other sectors including health and prisons.

Alterations have previously always been undertaken by the PFI consortium running the project, opening contractors up to allegations of overcharging.

Under the terms of a “change protocol” for BSF, contractors will have to negotiate the cost of alterations with clients within a price framework. This divides changes into three categories: up to £5,000; £5,000-100,000; and above £100,000.

In what many contractors will see as an attempt to squeeze profits, the protocol also states that a “large value change” (those above £100,000) deemed by the client to be “straightforward in nature” may be classified in the medium-value category. This would cut the amount a contractor can charge and potentially make it harder to agree a price.

In certain circumstances the council can engage another contractor Partnerships for schools

A spokesperson for Partnerships for Schools, the body in charge of delivering BSF, said: “In the event that the pricing cannot be agreed … then in certain circumstances the local authority can engage another contractor.”

Earlier this year it was revealed that a Balfour Beatty consortium was forced to repay £17,000 worth of fees on a £70m Blackburn Hospital PFI after it was accused of overcharging.

The unprecedented repayments emerged following a report by the National Audit Office which found many PFI consortiums used a legal loophole to charge a management fee for alterations, on top of the cost of the work.

In 2006 the public sector spent £180m renegotiating changes in PFI contracts for hospitals, schools and prisons.

One contractor said that overcharging was not an issue. He said: “On a PFI project the cost of a variation needs to include the maintenance and lifecycle costs, meaning that a sink may cost several hundred pounds as it has to be provided ‘as new’ at the end of the 30-year contract.”