Grouping will hear evidence on cost effectiveness of different procurement methods

The Treasury Committee is to hear evidence today on the future of the Private Finance Initiative, amid criticisms that it has not provided sufficient value for money for British tax payers.

A National Audit Office report earlier this year found that the case for using private finance needs to be scrutinised more as the cost of debt finance increased by 20% to 33% during the credit crisis.

However, wiith the public sector looking for greater levels of efficiency savings, private sector finance is expected to constitute a key element of the mix in terms of funding new projects.

Key issues the committee will be looking at include:

  • What are the strengths and weaknesses of different public procurement methods?
  • If PFI debt had been on-balance sheet rather than off-balance sheet would PFI projects have been used as much? How should PFI deals be accounted for?
  • How far can risk really be transferred from the public to the private sector?
  • Are there particular kinds of risk which are particularly appropriate for transfer through PFI deals, or particular projects which are suited for PFI?
  • What state guarantees are explicit or implicit in PFI deals?
  • In what circumstances are PFI deals suitable for delivery of services?

Some contractors have recently sold their stake in projects they have been involved generating profit for their businesses. Last month Kier cashed in on its share in Oldham and Norwich schools to make a £4.3m profit.

The stakes were sold to a joint venture between HICL Infrastructure Company and Kajima Partnerships for £9.2m.

Kier – which built the schools – will continue to provide FM services for a further 21 years at Norwich and 22 years at Oldham.

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