Skip to main content

PFI is it value for money?

PFI costs a lot as the BBC have found (hat tip Bob Piper) - see link.

The government claim it is value for money. The problem is that it is not.

It is only calculated as being value for money by using an adjustment to the alternative public sector procurement cost. This is called optimism bias.

I have explained this a number of times. The last time in the house was here

We have a similar problem with the funding costs of private finance initiatives. The great difficulty is comparing all the figures involved in what is called optimism bias. I asked the Government what the optimism bias figures were for a number of different PFI projects, and they came back with a wide range of figures. Let me explain a bit about optimism bias, for those hon. Members who are not aware of it. When a PFI project is put together, there is an assumption that, if it could be done through the public sector, it would be done through the public sector, so it must therefore be done in the most cost-effective way. A calculation is made of what the public sector project would have cost, but an optimism bias is then added to it, on the assumption that the public sector calculation is optimistic and therefore too low. That is then compared to a PFI cost without an optimism bias.

The interesting thing is that people are told to pick their own optimism bias, and if the optimism bias is such that undertaking the project through the public sector is cheaper, they must do it through the public sector, but there is no money for that so it will not go ahead. Inevitably, people pick an optimism bias figure that means that the PFI looks cheaper, when it is not. Such things have been going on substantially around the country. Although the clear line of sight project is a positive move, we need to go further.

Comments

Popular posts from this blog

NHS reorganisation No 3,493,233

Followers of my blog will have seen the NHS question about how many reorganisations have we had. We've yet another. The number of PCTs (Primary Care Trusts) nationally is to halve. This means merging East and North. (and then probably HoB and south). It would be nice if people would stick with one structure. There is a quotation ( Which sadly does not appear to be a true quotation ) We trained hard . . . but it seemed that every time we were beginning to form up into teams we would be reorganized. I was to learn later in life that we tend to meet any new situation by reorganizing; and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency, and demoralization. But has to have been originated by someone. The web link shown goes through the derivation which appears to be more linked to an anonymous British Soldier WW2 than any Roman or Greek General called by a name perming 2 out of (Gaius, Galus, Petronius and Arbiter). From the...