Competitive tendering and public
private partnerships
Jordan, Sophie & Emily
What is it?
The Private Finance Initiative (PFI) is the method of
funding used to finance Public and Private
Partnerships (PPP).
It is the Government’s favourite way of funding
projects such as new hospitals.
For example, the Labour government financed 15
major PFI hospital schemes in England and 3 in
Scotland.
Who’s involved in the scheme?
PFI operates with a group of companies including a
financial backer, a construction company and a
management contractor.
The group agree a contract to build and maintain a
hospital over a period of time.
The NHS agree to pay a fixed annual fee to use the
hospital.
If the NHS decides it no longer needs the hospital, it
must continue payment of the agreed fee until the
contract’s expiration.
Who works for who?
In a PPP hospital, the NHS will employ the medical
staff.
Catering, porters, security and maintenance staff
will be employed by an outside contractor.
Crucially, medical provision will remain free,
however patients will have the option of paying for
better food or a private room.
Benefits?
The Government can have hospitals built without
the high costs being met out of current taxation or
cuts in services elsewhere.
The Government refuses to diverge the cost of PFI
contracts, citing ‘commercial confidentiality’.
However, the profits made by private consortiums in
other PFI contracts show that 200% plus is not
unusual.
Disadvantages?
PFI’s will cost taxpayers far more in the longterm.
The companies building the hospitals have to borrow at
higher rates than the Government can and will make a
profit.
Both these things will be reflected in higher fees.
They may also cut costs to create higher profits, and this
may result in inferior provision.
Another concern with PFI contracts is that medical staff
may find the developments more commercially driven
than medically driven.
Profitable activities may take more priority over the
actual needs of the local community.
Non medical staff may find pay and conditions squeezed
in the interest of saving money and this will affect morale
and efficiency.
Recent Example
In the UK, two-thirds of the London Underground PPP
was taken back into public control in July 2007 after
only 4 and a half years at an estimated cost of £2
billion
The remaining one-third was taken back into public
control in May 2010 after 7 and a half years for a
purchase price of £310m.
The Government had paid advisers £180m for
structuring, negotiating and implementing the PPP and
had reimbursed £275m of bid costs to the winning
bidders