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Companies should sign code of conduct on private finance, warns auditor

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Companies which build privately-financed government offices in Northern Ireland should sign a voluntary code of conduct to help reduce costs to the public purse, a spending watchdog said.

Greater transparency and scrutiny is needed of Private Finance Initiatives (PFI) which are expected to cost an average of £245 million a year until 2030, the audit office said.

The agreements mean investors cover the upfront cost of constructing new offices in exchange for regular payments from the public purse for a fixed period of time.

Auditor and comptroller general Kieran Donnelly said: “It is important that the wider Assembly, including statutory committees, are made aware of their impact on departmental budgets and that they remain within affordable and sustainable limits.”

The auditor said the use of PFI and the Reinvestment and Reform Initiative, which allows borrowing of up to £200 million a year from the Treasury, helped deliver improvements in public services and infrastructure.

Lending by the Exchequer has reached £2 billion. Annual repayments doubled in the last five years to £100 million last year and are expected to peak at £140 million a year from 2016-2021.

PFI was used to deliver the Invest NI headquarters in Belfast, which was ready for occupation in 2005.

The financial tool means governments avoid large one-off bills and can defer the cost until many years in the future.

However, since the method was adopted in 1992 it has accrued significant spending commitments against future budgets, estimated at over £7 billion and averaging £245 million a year until 2030.

The contract may run for 30 years but departments’ budgets are set over fixed terms of up to four years. This creates a risk that service levels may not be maintained due to the need to keep up PFI repayments during a period when wider budgets are being reduced.

The cost of PFI is not collected centrally and information is not given directly to the Assembly or committees of MLAs which scrutinise departments, the audit office said.

Its report highlighted the need to test the cost and quality of services to ensure value for money was achieved during the life of the PFI contract.

While other UK regions have begun assessing the scope for savings, there is no similar programme in Northern Ireland. The report commended some public bodies which have identified efficiency savings but concluded there was significant scope for greater efficiencies.

Mr Donnelly added: “A coordinated efficiency review programme of operational PFI contracts will maximise the opportunities to realise value for money savings.

“This needs to be started, with regular reporting of outcomes and savings to the Assembly.”

The report made seven recommendations including that finances be more transparently and robustly analysed. It said departments should launch efficiency review programmes, including PFI projects in their arms length bodies, and knowledge should be shared between different PFI managers.

It recommended that departments engage with PFI investors, sub-contractors and lenders to seek agreement to improve transparency in older contracts through voluntary codes of conduct.

In June Westminster published its code of conduct for Public Private Partnerships which seek to reduce costs. A number of private firms have signed up, including some working in Northern Ireland.

The report said: “We recommend that OFMDFM should consider the applicability of this code of conduct and promote the voluntary use of this or a similar code by departments and the private sector companies involved in PFI.”

 

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