Despite the public sector?s mixed views on the Private Finance Initiative (PFI), the scheme will be used to buy more than 20 per cent of central government?s IT requirements by 2000, at a cost of #500 million per year.
According to a recent report by government-focused researchers Kable, PFI helps save money for taxpayers? in the short term, but the value for money may be less obvious 10 or 20 years down the line when systems are upgraded or replaced.
Under PFI the private sector puts up all or most of the capital for projects and is paid on a usage or performance basis once the system is up and running. It was introduced in 1992 and has since been reviewed by the Labour government, which is attempting to streamline the tender and bidding processes.
?The major reason for the government choosing PFI is to save money, but for suppliers to be successful in winning bids requires a great deal of creativity and not a little patience. Suppliers may have to create unconventional alliances as well as go through protracted negotiation to win contracts,? said Kable research manager, Paul Smith.
Among the concerns that the government?s newly appointed PFI Taskforce aims to address is the risk that a department?s future capital fund will be slashed to reflect savings made through PFI. This means the department will have a smaller budget for the annual running costs of a deal, which rise year by year, or for a new deal. There is also a danger that, by the time the contract needs to be renewed, the taxpayer may still be paying for the old one. According to Smith, the Treasury has yet to be convinced of these concerns.
The government is also examining the cost of bidding for the supplier. Currently, users have to reduce the large number of bidders to a shortlist of two. They are then expected to invest money and effort in detailing how the contract would work and prepare a lengthy document outlining their competence, financial status and so on. Vendors argue that only one supplier should make it to this arduous stage.
Kable also believes more smaller suppliers will be able to gain market share, since they can negotiate with the prime contractor or other sub-contractors, instead of the government.
However,in the future there are likely to be fewer large projects but suppliers will bid in bigger consortia. The market leaders are BT, EDS and Siemens Business Services.
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