Effective management of contracts key to PFI savings, says Treasury pilot

The effective management of contracts is one of three principal areas where large savings in operational PFI contracts can be achieved, a Treasury-run pilot has concluded.

The review of projects at the Queen’s Hospital in Romford and two Ministry of Defence schemes – at Corsham and Welbeck Defence Sixth Form College – suggested that such an approach could save money in a range of ways, including by a reduction in wasteful energy consumption and through the public sector sharing in savings on insurance.

The other two strategies for making savings were through:

• The efficient use of space: “for example, from subletting or mothballing surplus building space”
• Reviews of soft service requirements: “so that the public sector does not buy more than it needs when specifying facilities management such as window cleaning and frequency of decoration.”

The Treasury said the pilot confirmed savings opportunities of around 5% of annual payments. If applied to the 495 operational PFI projects in England, as the government intends, this would deliver an estimated £1.5bn in savings.

The Commercial Secretary to the Treasury, Lord Sassoon, said the savings could be fully recycled into frontline services by the contracting authority.

A programmed to secure these savings will now be lead by the Efficiency and Reform Group in the Cabinet Office, supported by the Treasury and Local Partnerships.

The Treasury will also publish updated guidance and advice on its website on how savings can be made to support all PFI contract holders.

Lord Sassoon said: “We have identified every opportunity to find savings, tackling wasteful practice and gold plating in PFI contracts. The potential savings will vary from contract to contract, but the results are promising and we will support the wider public sector to find savings in complex contracts.”