Treasury looks to PFI projects for savings

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.

The pilot project follows Sir Philip Green’s Efficiency Review and is the first of a number of pilot reviews of large contracts – including PFI contracts – with over £100m remaining contract value. The Treasury said it “underlines the Government’s determination to ensure that no stone is left unturned in tackling the £148.5bn deficit. The public sector will spend over £8bn 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 a 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.

The Queen’s Hospital, Romford PFI project was signed in January 2004 and has a remaining contract value of £835m. 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. The construction and maintenance PFI contract was won by Lend Lease.

Commenting on the pilot scheme, 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.”