Auditors warnof risks in PFI

A warning note on the private finance initiative was sounded yesterday by the Audit Commission, which called for public bodies to assess schemes rigorously.

Based on a study of 26 PFI schemes in prisons, higher education, health and the police, the commission's report says deals can bring innovation and private sector expertise to bear on the provision of public services.

However, Andrew Foster, controller of the Audit Commission, warned that "with large amounts of public money at stake, decision-makers in public bodies must ensure that risks are identified and an effective control framework put in place to achieve best possible value for money".

Diligence in assessing risks is therefore crucial, says the commission, especially since PFI schemes are often the biggest commitment a public body will ever undertake.

"The cost and benefits of private funding should be compared with the cost of the public body providing the services in other ways," says the report. Public bodies should ensure that a scheme will deliver benefits in both the short and the long term to the communities they serve.

Details of the annual and total financial commitment to PFI projects should be attached to annual financial statements approved by councillors and board members and included in any summary made available to the public.

The commission says that even where a PFI deal has been delivered, public bodies remain responsible for the provision and quality of a service. The report says: "Services need to be monitored against clear performance, standards. Penalties should also be made for poor performance including the ultimate sanction of contract termination."

With PFI schemes often involving hugely complex negotiations and agreements, public bodies should ensure they fully understand the developing nature of PFI, says the commission. "In addition those responsible for key decision-making on PFI schemes must be sure of their own legal powers and position."

According to the Higher Education Funding Council for England, eight PFI schemes have so far been signed in higher education with a capital value of Pounds 200 million. A HEFCE spokesman said: "The principles laid out in this report are a summary of good PFI practice and we would encourage higher education institutions to follow similar practices."

Taking the Initiative:A framework for purchasing underPFI can be obtained from The Audit Commission, 1 Vincent Square,London SW1 2PN. Website:www.audit-commission.gov.uk