PFI, or the Private Finance Initiative was introduced by the Conservative Government in the 1990s. Instead of paying, for example, £20 million upfront to build a new hospital, the Government or other procuring authority agrees to pay a private firm an annual fee over a period of between 25 and 30 years - to take responsibility for the design, construction, funding and operation of the facility.
The private firm makes a profit on the fee and the procuring authority passes risks such as cost over-runs, defects and delays in providing the facility to the private sector - which provides better value for money in the long term. The range of projects in which PFI has been used has extended beyond schools, hospitals and roads with which it is usually associated.
The report, "PFI: Meeting the Investment Challenge", only relates to PFI investment in England, and details the approach proposed by the Government following a detailed assessment of the performance of PFI so far. PFI investment in Scotland, Wales and Northern Ireland has been devolved to their respective Parliaments.
The problems with IT projects have suffered a high profile, with bodies such as the Child Support Agency and Criminal Records Bureau experiencing well publicised failures as their new IT systems were brought on-line.
In terms of the research carried out by the Treasury, a sample of 16 public sector projects showed that 75% of these fulfilled or exceeded their users' expectations. However, only a fifth (22%) of projects actually delivered 80%-100% of the benefits they were initially expected to deliver.
The conclusion, according to the report, is that "IT PFI may not be able to consistently offer value for money benefits. In particular many aspects central to IT procurement do not fit well with the central requirements of PFI".
The report confirms that "the best performing projects were those that renegotiated their contracts after signature to obtain greater ongoing flexibility and looser output specifications, moving away from the PFI model."
The use of PFI is particularly difficult in connection with IT because of the fast moving nature of the industry and its technology, the short life span of its products, and the fact that IT investment is dominated more by running costs than huge capital investments. All of these factors create problems in defining the investment right at the start.
Another difficulty is the fact that an IT system integrates into other business systems to such a degree that it is very hard to define areas of responsibility.
Finally, there is the practical problem of obtaining a true third-party investor. There is, according to the Treasury, no market for investment in IT PFI.
The government has therefore decided to use conventional means of procurement for IT projects in the future.
Intellect, the UK based association representing Information Technology, Telecommunications and Electronics organisations, welcomed the move.
Director General John Higgins commented,
"We're delighted that Government has responded to the industry's concerns about PFI for IT projects. IT projects don't exist in isolation. They are a usually a significant part of a process of complex business change for which PFI was rarely a suitable tool. Removing complexity from financing structures is another positive step to ensuring a more competitive market and ultimately that tax-payers get a better return on public sector investment in IT."
The report is available here