Belfast Telegraph

Call for review of PFI contracts

A public spending watchdog has called for a review of lucrative government private finance contracts in Northern Ireland which are costing the taxpayer £375 million a year at a time when many departments struggle with massive cuts.

Public Finance Initiatives (PFIs) are deals signed with businesses which build properties like office blocks then lease them to the public sector for many years. Significant flaws have been found in flagship agreements like Belfast Metropolitan College's Titanic Quarter campus.

Stormont's Public Accounts Committee (PAC) said greater savings could be achieved and recommended taking steps to improve transparency.

"Given that Northern Ireland departments have to make annual savings each year, the private sector should be expected to contribute to this.

"However, in Northern Ireland, there is no strategic programme to review PFI contracts and maximise the opportunities to realise value for money savings."

Many jobs in education and the arts are threatened by public spending cuts while ministers have warned services like winter gritting may stop and public transport fares may rise as part of a squeeze across the civil service.

The Ulster Orchestra is also facing a funding crisis.

The PAC acknowledged that the Executive increased its spending power and supplemented its funding of capital investment from the block grant with private sector funding using PFI contracts and accessing borrowing under the Reinvestment and Reform Initiative.

Both give rise to long-term inescapable financial commitments. The costs of meeting these commitments are substantial, at approximately £375 million each year until 2030, the report said.

Servicing these is a first call on the Executive's budget requiring it to make substantial annual payments that can extend for up to 30 years into the future.

MLAs said: "Clarity in terms of the quantum and impact of these commitments is an important part of the decision making process and is critical to the understanding and scrutiny of future public sector budgets.

"It is important that the affordability of the long-term spending implications of Reinvestment and Reform Initiative borrowing is taken into account by the Executive and visible to the Assembly and its committees.

"However, currently there is no published and transparent borrowing strategy underpinning the Executive's budget process.

"The significant cost of borrowing will further increase depending on any decision to continue to access borrowings beyond planned levels to 2016."

The committee said it had taken evidence on numerous occasions on projects where business case costs have been under-estimated and where, post the appointment of a preferred bidder, there have been significant changes to the scope and costs of projects.

The committee criticised aspects of a Public Private Partnership agreement to build the Titanic Quarter campus, which opened in 2011.

"When the additional costs of consultancy, internal staff costs of the college and Department (for Employment and Learning) and, in particular, the significant shortfall in receipts from the sale of the surplus properties are taken into account, this was a costly project.

"In the committee's opinion the project does not represent good value for money."

The public sector injected £20 million into the project, including £5 million to purchase the sub-lease for the Titanic Quarter site, MLAs said.

The sale of the college's surplus properties at Brunswick Street and College Square East was intended to cover these capital contributions.

However, proceeds from the sales this year were £5.6 million, leaving a shortfall in excess of £14 million.

The report said: "The college failed to adequately manage the consultancy contract for this project which put the project completion in jeopardy."

Advisers appointed by the college were allowed to exceed the original budget of £300,000, incurring costs of around £2.2 million. A settlement figure of £1.5 million was subsequently agreed.

"In the committee's view this is indicative of the inadequate governance; and poor financial and management controls operating at the college following the merger of BIFHE (Belfast Institute of Further and Higher Education) and Castlereagh colleges in 2007 and during the procurement phase of this project.

"The committee also considers that this reflects on the inadequacies of the department's oversight of the college and this project in particular."

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