In line with belt-tightening across the board, the Treasury has issued a draft guidance note on "Making Savings in Operational PFI Contracts". It aims to assist PFI Contract managers, in both central and local government, identify and implement measures that will "reduce costs while maintaining frontline services". As a pilot project, the contract for the Queens Hospital in Romford will be examined by a team of legal, technical and other professional advisors to look at where costs can be cut and money can be saved. It is anticipated that the draft guidance will be updated to reflect the success, or otherwise, of this pilot scheme, the results of which are anticipated in the spring.
The guidance can be viewed here.
So what is required to make these cost savings? Well, according to the draft guidance it could be any number of things, and not all of these involve changes to the PFI contract itself.
Firstly, it is important to ensure that the contract, in its current form, is working as efficiently as possible by, for example managing the existing contract properly (e.g. ensuring staff are properly trained or having one management team looking after a number of similar projects). Another example given in the guidance is looking at the insurance cost sharing provisions.
Next, authorities may want to consider altering the contract itself; however, it is important to ensure that savings are not outweighed by the cost of implementing the changes; whether legal costs, those of technical advisors, or otherwise!
It is important to remember that changing the contract itself can have a number of legal or technical implications. For example, suitable cost transparency measures must be in place, as well as an agreed protocol for making any variations. It is also important to ensure that the OJEU or OJEC was drafted in sufficiently wide terms to cover the proposed change (i.e. the change does not, in effect, result in a whole new contract).