John Hemming's Web Log John's Reference Website
Wednesday, January 18, 2006
  Health PFI - Everyone plays "pass the parcel"
PFI has been TINA (There is No Alternative) for some time. There are a lot of games played with PFI.

The first one is that it is basically very expensive compared to traditional procurement. However, if the traditional method is found to be cheaper then PFI cannot be used. Because there is no funding for the traditional method it means that people "make assumptions" [fiddle the figures] to make sure that PFI looks cheaper.

The biggest fiddle comes from multiplying the traditional cost by a multiplier for notional increases in cost. However, the public sector comparator (as it is called) is still adjusted until it fits.

The second one is FRS5. There is a sort of ideological demand for the payments for a PFI project to be more than just leasing a building. Hence you have a demand to transfer the management of a service into the private sector.

This creates a massive conflict. There are two real things about PFI.

The first is that all the effort goes into specifying the project at the start rather than changing it as it goes along. This means the price is fixed, but also the project is fixed. The real problem here is that people often don't know what they want at the start, but then there is no flexibility.

The second is that there are margins needed both to cover tender costs and also all other risks. This really drives the price up.

The calculations for the Queen Elizabeth Hospital in Woolwich is that the additional annual costs as a result of PFI are £9 million. I commissioned research that found if the same proportion of capital amounts apply to all projects over £10m that were extant by Dec 2004 the total increase in annual costs is £422m - not trivial.

For NHS Foundation Trusts there is an additional complication that arises from the fact that they stand alone from government. Hence any contractor wants the payments to be underwritten by the Department of Health. The Private Finance Unit want to have certainty that the amount payable is "affordable". The Foundation Trust "Monitor", however, does not want to sign any contracts off as affordable. In particular Monitor has also raised concerns about the University of Birmingham NHS FT's PFI Scheme.

This puts us in catch 22 with the responsibility for PFI decisions being passed around Whitehall and Westminster.

The fact is, however, that the government have got us into this mess. Either they stump up the costs for PFI or they stump up the costs for a traditional new hospital. What they cannot do is cancel the new hospital.

They should "bite the bullet" and fund it properly. However, at the moment they are just dithering.
 
Comments:
Strangely, John, I agree with you on PFI. However, as usual you adopt a holier than thou attitude. If Labour has invested far more in the NHS than the Lib Dems even promised to do, which, let's face it, they could be pretty wild about because they knew they would never win, just exactly how would they have "bitten the bullet" and funded it?
 
Actually I estimate that the annual additional costs as a result of PFI in the Health Service are around £422 Million.

Just about the cost of a non-pfi UBH
 
So, that is all the PFI funding in the NHS = 1 hospital. So, have you an answer to where the money was coming from for all of the other hospital buildings given the funding gap in the Lib Dem 1997 and 2001 election pledges?
 
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