Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

Major variations in PFI returns found across govt departments

Significant variations in the rates of return enjoyed by companies involved in private finance initiative contracts across different government departments is set out in research published today.

A study by the Association for Consultancy and Engineering found average unitary payments received by the private sector per pound of capital investment varied between departments by up to 680 per cent.

The analysis of Treasury figures showed an average contractor return from Department of Energy and Climate Change PFI projects of £3.34 per pound invested, compared with £23.1 from a Crown Prosecution Service job.

The report’s author, ACE senior economist Graham Pontin, said: “There is a big difference, but the figures do not break down the amount for operating costs, so it is difficult to reach judgements about value for money.”

Some of the variation in returns in PFI deals may reflect differences in the amount of risk transferred to the private sector, he added.

But the report did indicate that the government had managed to bring down the costs of PFI projects to the public purse.

Between 1996 to 2000 and 2001 to 2005, the average cost of unitary payments fell from £7.45 to £4.03 per pound invested by the private sector.

A rise in the following five years was attributed to higher borrowing costs and a loss of experience in government teams.

“These results anecdotally suggest that if government were to centralise the procurement it could achieve a saving by improving the performance of the deal it could negotiate,” the report said.

Other findings suggested the PFI model delivered similar rates of return per pound invested across all sizes of project.

And it argued that negative stories about some PFI projects should not obscure the fact that the model was sustainable, constituting less than 3 per cent of resource spending limits for departments.

The report said that between now and 2049, government departments have commitments of £242.5 billion in unitary charges for current PFI contracts.

But it said: “While this figure is sizeable, it does not necessarily mean it is unsustainable.”

 

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.