By Max Clarke

Lord Sassoon, Commercial Secretary to the Treasury, today launched a pilot project to identify the scope for achieving savings in operational Private Finance Initiative (PFI) contracts. This pilot project underlines the Government's determination to ensure that no stone is left unturned in tackling the £148.5 billion deficit. As £8 billion will be spent on PFI contracts by the public sector in 2011-12, the PFI must be examined for its savings potential.

The contract for the Queen's Hospital in Romford will be examined by an experienced team of commercial, legal and technical advisors to identify ways of reducing ongoing costs in this contract on behalf of the local NHS Trust. The lessons will then be used to drive savings across the full portfolio of PFI contracts.

"PFI contracts are not immune from savings" said Lord Sassoon:
"The launch of this pilot, along with our next round of engagement with industry on a PFI code of conduct, indicates our determination to drive out costs while ensuring front line services are maintained.

"It is critical that Government urgently addresses every opportunity for savings across all contracts, no matter how complex they may be. We owe it to the taxpayer to eliminate wasteful practice and gold plating in contracts."

"As part of the recommendations arising from Sir Philip Green's Efficiency Review this is the first of a number of pilot reviews of large contracts - including PFI contracts - with over £100 million remaining contract value” said Minister for the Cabinet Office, Francis Maude.

“This pilot review will produce specific recommendations, looking particularly at how it can be made more efficient, flexible and cost effective as well as provide a replicable process which can be rolled-out to other relevant contracts", she continued.

Health Minister Simon Burns said:

"This pilot is great news for the hospital - we want to make sure that NHS does everything possible to find savings that can be reinvested into frontline patient care. The focus must be to find efficiency gains and savings within the PFI contract itself, allowing the quality of care and patients themselves to remain the priority.

"Our plans to modernise the NHS will already save the NHS £5bn over the next five years but the NHS must continue to seek savings in big ways and small. The findings from the work at Queen's Hospital can be shared with all those trusts with PFI projects."

Commenting on today’s PFI pilot announcement, Elizabeth Fells, CBI Head of Public Services Reform, said:

“The Government is right to look at making savings from all avenues as part of its deficit-reduction plans. But it needs to maintain private sector confidence in the market, otherwise it could jeopardise future investment in infrastructure projects.

“PFI has already successfully delivered hundreds of hospitals, homes and schools, with the majority built on time and on budget. The Government needs a variety of financing options, including PFI, and newer models, such as tax increment funding and pension fund financing.”