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PFI contracts under the Government spotlight

The Treasury has launched a squeeze on contracts signed under the private finance initiative in the hope of finding savings worth millions of pounds.

Chancellor George Osborne is sending a team of accountants and lawyers into an Essex hospital to go through its the £835 million PFI contract with a fine-tooth comb, looking for savings which can be applied at public sector buildings across the country.

Under PFI, private firms build, operate and maintain public facilities like hospitals, schools and courthouses under contracts lasting as long as 35 years. The public sector will spend more than £8 billion on PFI contracts in 2011/12 alone.

But the arrangement has been criticised as too generous to private contractors. One hospital was reported to have been charged £333 by a PFI firm to change a lightbulb, while a school was charged £300 for an electricity socket.

Commercial secretary to the Treasury Lord Sassoon announced a pilot project at the Queen’s Hospital, Romford, which will see a team of commercial, legal and technical advisors going in to identify ways of reducing ongoing costs on behalf of the local NHS trust.

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 frontline 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 Romford project will be the first of a number of pilot reviews of PFI contracts with remaining value of £100 million or more. Results are expected to be provided to ministers in the spring.

Health minister Simon Burns said: “This pilot is great news for the hospital - we want to make sure that NHS does everything possible to find savings that can be reinvested into frontline patient care.

“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 findings from the work at Queen’s Hospital can be shared with all those trusts with PFI projects.”

But there were warnings from business that a squeeze on PFI profits might jeopardise future public sector infrastructure projects.

Elizabeth Fells, head of public services reform at the CBI, said: “The Government is right to look at making savings from all avenues as part of its deficit-reduction plans.

“But it needs to maintain private sector confidence in the market, otherwise it could jeopardise future investment in infrastructure projects.

“PFI has already successfully delivered hundreds of hospitals, homes and schools, with the majority built on time and on budget. The Government needs a variety of financing options, including PFI, and newer models, such as tax increment funding and pension fund financing.”