The economic efficiency of accommodation service PFI projects: Dissertation

In 1992, the UK Government introduced the Private Finance Initiative (PFI) as a policy to allow and regulate privately financed public projects. However, PFI is better understood as an innovative procurement method. PFI involves a private sector entity taking the responsibility to design, build, finance and operate (DBFO) an asset used in the provision of a public service for a contract period of up to four decades. It is widely propositioned that PFI procurement leads to improved value for money (VFM) and profit for the public sector clients and private sector actors respectively as a result of improvements in economic efficiency. The aim of this research is to generate a detailed understanding of how the economic efficiency of an accommodation service PFI project is determined in its development through contract whole life cost (CWLCP) minimisation. This research consists of two case studies on large and complex accommodation service PFI projects. It focuses, in particular, on the effects of PFI procurement on the heating and ventilation design solutions of the project-facilities. The data obtained is self-report interviews, public and private sector issued project documentation and expert opinions. The data is subjected to solution, incentive, opportunity and perception analyses. The research unexpectedly identifies only a small number of design solutions that are incorporated in the project-facilities with the aim of achieving CWLCP reductions. In other words, the research finds that the economic efficiency improvement in the procurement of public accommodation services due to the adoption of PFI is considerably smaller than proposed by economic theory. This, however, does not suggest that the economic efficiency of PFI accommodation services is found to be worse than those procured traditionally. The research establishes that the limited improvement is because of: the guidance documentation used to govern the design of PFI project-facilities; the market testing mechanism used to adjust the payment for the service provision in the operational phase; the organisation of the private sector actors in the project development; and the lack of good quality data to estimate expected CWLCP reductions. The research develops possible strategies to rectify the identified problems. The adoption of these strategies should enable the economic efficiency of future accommodation service PFI projects to be improved through CWLCP minimisation.