Lawyers and other advisers to review hospital PFI contract in Treasury savings pilot

A team of commercial, legal and technical advisers is to run the rule over a PFI contract for a hospital in Romford in a Treasury pilot aimed at identifying the scope for potential savings on similar accommodation-based projects.

The government expects the pilot – the first in a series of reviews of large contracts with more than £100m remaining contract value – to make specific recommendations on how to make projects more efficient, flexible and cost effective. Ministers also want it to provide a replicable process that can be rolled out to other relevant contracts.

Contract managers, the government said, would be encouraged to consider the potential for savings in areas such as:

• Optimising contract and asset management
• Validating insurance cost/gain sharing arrangements, and
• Identifying where additional costs are being incurred for unnecessary service levels.

The PFI contract for the Queen’s Hospital in Romford was signed in 2004 and has a remaining contract value of £835m.

Launching the review, Lord Sassoon, Commercial Secretary to the Treasury, said the lessons learned would be used to deliver savings across the full portfolio of PFI contracts. The public sector is expected to spend more than £8bn on such contracts in 2011/12.

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.”

The reviews are being launched in response to recommendations contained in Sir Philip Green’s Efficiency Review, which was published in October 2010.

Health Minister Simon Burns said: “The focus must be to find efficiency gains and savings within the PFI contract itself, allowing the quality of care and patients themselves to remain the priority.”

The announcement follows the Treasury’s publication last month of draft guidance on how to make savings in operational PFI contracts. This guidance will be updated following completion of the Romford pilot.