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AMA Research have published the first review of "PFI
in the Local
Authority Market Report 2002".
This report is a review of the UK Local Authority market, which includes
an analysis of the evolution and development of Local Authorities, current
procurement practice, and provides an insight into the future prospects for
Local Authority purchasing and procurement - Best Value, PFI and PPP.
This report is part of a series of reports reviewing the growing role of
PFI/PPP in the public sector and other published reviews include Social
Housing, Defence, Healthcare and a general overview of the role of PFI. In
addition, specific sectors of outsourcing have been reviewed including
Contract Facilities Management, Waste Management and Contract Cleaning.
The Local Authority Market is large and diverse, with wide ranging
responsibilities. The sector has political as well as economic influences
which are reviewed, though we have retained a focus on the commercial and
economic aspects of the sector.The report reviews market size, key trends, the role of the Private
Finance Initiative and Public Private Partnerships, the changing role of
social landlords and their sources of finance, as well as Buying and
Specification Processes for Housing Associations.
In the first three years since the local government PFI programme commenced
in 1997/98, over £3 billion of capital investment has been approved,
including council housing refurbishment, schools, police, fire, magistrates
court services, care and respite homes, IT systems, leisure centres and
waste management.
Local Authorities in England and Wales employ over 2.1 million staff and
spend £70 bn a year, which accounts for around 25% of public spending.
There are over 21,000 elected councilors serving on 410 local authorities.
Education is the largest service in expenditure and number employed,
accounting for £20 bn in England and £1.2 bn in Wales. Education employs
360,000 staff. Social Services account for nearly £12 bn of expenditure in
England and Wales and employ 200,000 staff. Social Service Departments
administer children's and old peoples homes and support people in their own
homes.
Local Authorities raise their income in a number of different ways;
council tax raised from council taxpayers and around 48% of expenditure
comes from central government grants. The non-domestic rate, which is set by
local government account, is 25% and the rest from local charges for
services. There has been a steady change from direct provision by the
Local Authority to the private sector controlled by the local authority,
while many functions have been taken away from Local Authorities and are now
controlled by central government bodies.
PFI has not achieved the growth that has been expected of it and
government expectations of the contribution towards the public services have
yet to be met. CCT has been replaced with Best Value, which requires
the Authority to ensure that they are delivering services in an efficient
and effective manner. The Government has required each Local Authority to
undertake a review using the following principles
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Challenge why the service is provided at all
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Question the quality and the cost of the service
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Compare the service given with the best providers of a similar service
The Government is experimenting with a new pilot scheme - local public
service agreements - which are negotiated between the authority and the
Government. It will identify the extra contribution the authority is
prepared to make over and above its requirements under Best Value to achieve
key national and local priorities. In return, the Authority will receive
greater freedom in the means of delivery. The process is designed to
encourage the Local Authority to constantly raise its standing with some
limited pump priming funding, which means that the authority can receive
extra money from the Government.
PPPs are promoted by government to take advantage of private sector
expertise to manage complex investment programmes. The intention is to
introduce private sector investors who put their own skills and capital into
the project - the public sector gets the benefits of commercial efficiencies
and innovations and the public should receive better value for money.
There are upwards of 38 signed PFI projects involving almost 500 schools
with a value of more than £1 billion. A further £1 billion has been
allocated to projects in various stages of development. The Government has
increased the amount of PFI credits for schools from £35 million in 1997-98
to a planned £850 million in 2003-04, with education by far the largest
sector of PFI funding in the local authority sector.
An increase in housing investment has also been announced and by 2003/04
annual capital investments in housing will be £4 billion compared with just
over £1.5 billion in 1997/98. Highway Maintenance has experienced great
changes over the last 30 years. CCT was introduced into Highways work in the
early 1990s and local authorities were obliged to separate the client
function from the direct labour organisations.
Partnerships between the public and private sectors have been used
extensively by Social Services Departments for many years. Local Authorities
have used the private sector to deliver services, and have also used the
voluntary sector. There has also been a progressive move in other areas like
Planning and Leisure Services to seek partnership agreements with the
private sector, and this has also been extended to the Fire and Rescue
Service.
The process for privatising services like refuse collection and highway
services which are tangible, has moved ahead at a pace, and it would seem
that all parties are comfortable with the working relationships. There have
been also moves to involve the private sector in services like the
management of housing benefits and some IT projects, which have generally
been less successful.
Participants in PFI projects complain about the length of time involved
from the initial OJEC notice until financial close. Although moves have
taken place which are designed to shorten the length of time e.g.
standardisation of procedures and documentation - nonetheless the more
complex projects are still requiring considerable amounts of time before
financial close, for example over two years. The delays and uncertainties
involved add to the costs involved and make it less attractive for
constructors.
Public Private Partnerships are at the heart of the government's attempts
to revive Britain's public services and they are keen to expand the range of
PPPs which are regarded as the best way to secure the improvements in public
services within a relatively short timescale.
There will be a continuing move to PPP/PFI schemes in both central and
local government services, but the majority of public works will remain
funded by central government funding and local taxes.
This report represents a
comprehensive review of past, present and future developments
within the UK Local Authority Sector.
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