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Axe poor-value PFI deals, says NAO

The Government must be ready to axe or renegotiate major Private Finance Initiative (PFI) contracts where they are not providing value for money, according to the National Audit Office (NAO).

In a report into lessons that should be drawn from PFI schemes, the spending watchdog also insisted that civil servants should use the state's huge buying power to obtain better deals, and boost their skills to avoid being outwitted by private sector counterparts.

"The use of private finance has brought useful disciplines and a framework of support which are applicable to other forms of procurement," the watchdog said. "Our recent reports on PFI and other major projects have, however, highlighted that Government needs to act as a more intelligent customer in the procurement and management of projects."

It added: "Value for money will be improved through officials being proactive in: collecting data to inform decision-making; ensuring they have the right skills; establishing effective arrangements to test, challenge and, if necessary, stop projects; and using commercial awareness to obtain better deals.

"In the current climate, PFI may not be suitable for as many projects as it has been in the past. The lessons from PFI can, however, be applied to improve other forms of procurement to help Government achieve its aim of annual infrastructure savings of £2-3 billion."

The report calls for "robust, impartial scrutiny of the business case" for PFI projects, and warns the mechanism could be tempting as the coalition seeks to tackle the deficit.

The NAO said the Government had tried to improve commercial skills among public servants since 2009 but added: "Despite this, the public sector's skills are generally not as well developed as their private sector counterparts, which puts value for money at risk."

A Treasury spokesman said: "The Government welcomes the findings of the NAO's report on Private Finance Initiatives and will respond in due course. The Government is taking steps to address some of the problems previously identified in PFIs.

"Going forward, all PFI projects will be considered in line with new guidance issued for major projects, this is based on the value and risk associated with the project, so ensuring all projects receive a suitable level of scrutiny.

"In the Spending Review, the Government chose to strengthen the spending framework, by transferring responsibility for the revenue costs of local government PFI projects from local government to the sponsoring department to remove incentives for projects to be delivered through PFI. The Government is also examining ways of reducing ongoing costs in PFI contracts."

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