As a pilot project, the contract for the Queen’s Hospital in Romford is being examined by a team of commercial, legal and technical experts to identify ways of reducing ongoing costs. 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 and so lessons can be shared across other schemes.
Lord Sassoon, Commercial Secretary to the Treasury, 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.”
Cabinet Office minister Francis Maude said: “As part of the recommendations arising from Sir Philip Green’s Efficiency Review this is the first of a number of pilot reviews of large contracts – including PFI contracts – with over £100 million remaining contract value. This pilot review will produce specific recommendations, looking particularly at how it can be made more efficient, flexible and cost effective as well as provide a replicable process which can be rolled-out to other relevant contracts.”
The purpose of the pilot is to identify the nature and level, both of savings and improved contract flexibility, that could be achieved in other accommodation based PFI projects. It is intended that the pilot will encourage contract managers to look across their PFI projects for savings in areas such as:
- Optimising contract and asset management
- Validating insurance cost/gain sharing arrangements
- Identifying where additional costs are being incurred for unnecessary service levels.
The Treasury published draft guidance on how to make savings in operational PFI contracts in January. This guidance, aimed at public sector contract mangers, intends to help them identify and implement savings measures in their own contracts, reducing costs while maintaining frontline services.
The guidance will be revised following completion of the pilot and measures implemented to roll out the findings and lessons learnt to all operational PFI contracts.
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