PFI has had its fair share of bad press over the last few years with some notable headlines on poor value for money. For the most part, though, the private sector has only played by the rules of the contract. These contracts, we should not forget, were initiated and largely drafted by the public sector.
However, there is one principle of PFI that seems to have escaped the spotlight in the furore over high debt costs, poor management or refinancing benefits: the principle of honesty.
What constitutes honesty?
Few would argue that the private sector shouldn’t make a profit out of what they do as long as they do it well. Private sector profit does not equal public sector loss.
Equally, wherever we sit on the ideological spectrum, we can all agree that fraud or misrepresentation is dishonest and should be punishable under the contract, which of course it is.
But there is a gulf in between these two ends of the spectrum in respect of how we expect people to behave, an area we have seen highlighted by recent notable issues such as what MPs should properly claim as expenses, what constitutes improper tax avoidance, or even whether tradesmen should be paid in cash.
So how is this relevant to PFI? Well, one of the underlying principles of PFI contracts is that of self-monitoring by the private sector.
The private sector, under most existing PFI contracts, have an obligation to report where they have not done something correctly; whether this be a performance failure or a breach of contract.
Does this happen? No one will be surprised to hear that the answer is an emphatic “no”. If anyone were to suggest the abolition of breathalyser tests by the police on the basis of self-regulation by alcohol consumers, they would be held up to ridicule. So why should PFI be any different?
Because this is what the private sector has agreed to do. Indeed, it is one of the things that the public sector is paying for under their PFI unitary payments. In many cases the private sector have overlaid high management fees on top of service delivery costs against their obligations to monitor performance.
The only answer in the long run, of course, is for the public sector itself to monitor performance of the contract. The NAO recently suggested that the public sector should be spending, on average, one per cent of the costs of PFI on monitoring. Unfortunately, in many instances, either the public sector will find this unaffordable, or it may not have the in-house resources to monitor areas of the contract that are not purely service performance related.
However, if the public sector is already paying for something that isn’t being done, increased monitoring is not the complete answer. So what is?
There are two options for the public sector:
The first is to vary the existing contracts to omit this obligation, thus clawing back the costs of this obligation from the private sector. Unfortunately, this is unlikely to work as the private sector will argue that they still need to monitor performance as a separate duty to the project lenders, or for their own purposes, and thus will offer back negligible savings against the omission. This will be both difficult to counter and, arguably, self-defeating in the sense that we should expect the private sector to monitor performance. In many cases it is not the monitoring that isn’t being done; rather it is the failure to honestly impart the results of the monitoring that is at fault.
The second option is to leave the obligations alone, but to properly enforce the contracts where the private sector does not self-monitor or report properly. Too often, when fault is found, the public sector’s expectation is to either just be grateful that the issue is fixed, or for small performance penalties to be levied.
We are not advocating a raft of litigation for breach of contract but, rather, a radical shift in behaviours, both from the private sector in terms of their honesty and integrity, but also from the public sector contract monitoring teams who must be given the support and advice to properly use the contract terms for the betterment of long term delivery.
However, there is one principle of PFI that seems to have escaped the spotlight in the furore over high debt costs, poor management or refinancing benefits: the principle of honesty.
What constitutes honesty?
Few would argue that the private sector shouldn’t make a profit out of what they do as long as they do it well. Private sector profit does not equal public sector loss.
Equally, wherever we sit on the ideological spectrum, we can all agree that fraud or misrepresentation is dishonest and should be punishable under the contract, which of course it is.
But there is a gulf in between these two ends of the spectrum in respect of how we expect people to behave, an area we have seen highlighted by recent notable issues such as what MPs should properly claim as expenses, what constitutes improper tax avoidance, or even whether tradesmen should be paid in cash.
So how is this relevant to PFI? Well, one of the underlying principles of PFI contracts is that of self-monitoring by the private sector.
The private sector, under most existing PFI contracts, have an obligation to report where they have not done something correctly; whether this be a performance failure or a breach of contract.
Does this happen? No one will be surprised to hear that the answer is an emphatic “no”. If anyone were to suggest the abolition of breathalyser tests by the police on the basis of self-regulation by alcohol consumers, they would be held up to ridicule. So why should PFI be any different?
Because this is what the private sector has agreed to do. Indeed, it is one of the things that the public sector is paying for under their PFI unitary payments. In many cases the private sector have overlaid high management fees on top of service delivery costs against their obligations to monitor performance.
The only answer in the long run, of course, is for the public sector itself to monitor performance of the contract. The NAO recently suggested that the public sector should be spending, on average, one per cent of the costs of PFI on monitoring. Unfortunately, in many instances, either the public sector will find this unaffordable, or it may not have the in-house resources to monitor areas of the contract that are not purely service performance related.
However, if the public sector is already paying for something that isn’t being done, increased monitoring is not the complete answer. So what is?
There are two options for the public sector:
The first is to vary the existing contracts to omit this obligation, thus clawing back the costs of this obligation from the private sector. Unfortunately, this is unlikely to work as the private sector will argue that they still need to monitor performance as a separate duty to the project lenders, or for their own purposes, and thus will offer back negligible savings against the omission. This will be both difficult to counter and, arguably, self-defeating in the sense that we should expect the private sector to monitor performance. In many cases it is not the monitoring that isn’t being done; rather it is the failure to honestly impart the results of the monitoring that is at fault.
The second option is to leave the obligations alone, but to properly enforce the contracts where the private sector does not self-monitor or report properly. Too often, when fault is found, the public sector’s expectation is to either just be grateful that the issue is fixed, or for small performance penalties to be levied.
We are not advocating a raft of litigation for breach of contract but, rather, a radical shift in behaviours, both from the private sector in terms of their honesty and integrity, but also from the public sector contract monitoring teams who must be given the support and advice to properly use the contract terms for the betterment of long term delivery.
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