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The use of PFI to provide capital requirement for the public sector has
only a relatively short history within the UK. Although developed by the
Conservative government in the 1980's, it has only been in the late 1990's
that significant progress has been made in its adoption as a procurement
solution within the public sector.
This has also been true for the Ministry of Defence (MOD), who are a
significantly large purchaser of a wide range of goods, equipment and
services. The use of PFI was only adopted by the MOD in the mid 1990's but
has since grown to be a large and significant part of the defence
procurement process. The level of
estimated capital expenditure for signed PFI projects within the Ministry
of Defence for financial year 2000/2001 was £828 million.
The type of PFI contract has also altered considerably since 1995/6
when the first contract was for the supply of RAF white vehicles fleet for
a period of five years. Both the contract life span and the extent of
contracts have changed since the mid 1990's with contracts now offered for
between 10-40 years and on a Tri-Service or MOD wide basis.
The real impetus for the use of PFI in MOD procurement arrived in the
late 1990's and was accelerated by the Strategic Defence Review (SDR) of
1998, which examined all aspects of the MOD operation. Recommendations of
the SDR included the need to provide a front-line defence service for the
UK and enhance the role of the UK's armed forces in the wider
international arena in order to adapt to changing requirements for defence
forces on a global scale.
The procurement procedures of the MOD were also examined under the SDR
and the recommendation that cost effective purchasing process that
provided value for money is attaining requirements were recommended - the
Smart Procurement Initiative was born. Although the MOD had experimented
with PFI previous to the SDR, it was the review that provided significant
further impetus for wider adoption of the process. By the late 1990's the
MOD was seeking to procure a wider range of capital goods and services
under this purchasing procedure.
The most significant aspect of the adoption of the PFI solution in
defence procurement has been the alteration in the way that the MOD
conducts its business. Traditionally, the MOD had been used to prescribing
detailed contract specifications and seeking interest from a select number
of preferred bidders. The use of PFI has meant that the MOD now deals in
requirements and has to provide more information to bidders by mechanisms
such as the Public Sector Comparator (PSC) and by holding industry days
prior to the bidding process. Potential bidders are also given more
freedom in the detailing of how the requirements will be met and are
involved in a higher level of negotiation at the later stages of the
procurement process.
Reviews of the use of the PFI process in defence procurement have on
the whole been relatively favourable to date. The majority of instances
have shown that the MOD has struck a good deal and cost savings have been
demonstrated by the use of PFI rather than the method that would have had
to have been used if PFI did not exist. However, a number of lessons have
also been learnt and include the framing of contracts, fairness of
competition to bidders and the need to ensure that the performance of the
contract continues to ensure value for money whilst allowing the
contractor to derive allowable, but not excess, profits.
As the extent of the potential for the use of PFI contracts has
increased within the MOD, so has the scale of the projects involved. Some
projects under consideration are very large scale such as Allenby/Connaught,
with current estimated capital expenditure in excess of £1 billion for a
single project.
The MOD is fully committed to using PFI to provide requirements in the
future. Its current stance is that the private sector should be further
encouraged to take a more active role in the provision of capital
equipment, facilities and services for projects that are not involved in
front-line defence areas. In addition, the MOD has also stated that it
will only consider other Public Private Partnership (PPP) procurement
methods when the PFI solution has been effectively ruled out.
Although the MOD has adopted a significant level of both PFI and PPP
solutions to procurement contracts it still uses a number of more
traditional methods of procurement for equipment such as strategic
weapons. In addition, the MOD has also encountered resistance from a
variety of sources for privatisation of resources that it considers to be
non front-line. The prime example of this was the proposed privatisation
of the Defence Evaluation Research Agency (DERA) which generated
opposition from a number of areas within the UK including trade unions,
MP's and most significantly sustained pressure from the USA.
The range of contracts offered by the MOD under PFI have ranged from
the supply of vehicles, through to buildings and accommodation services
and the building and maintaining of bespoke training facilities and
training courses. This has resulted in a large number of organisations
operating in various different fields being included as significant
suppliers to the MOD. In addition, the use of consortia in the larger
contracts has extended the number of organisations involved in any one
contract as organisations pool their specialist capabilities in order to
fulfil the requirement of the contract. Leading suppliers to the MOD under
PFI have included AMS - Alenia Marconi Systems, CAE Systems, Flagship
Training, EDS, Integris, Bombadier Services, Aviation Training
International, Amey/Kvaerna and Morrison Construction.
The future prospects for the use of PFI within UK defence procurement
are reasonably optimistic. Proposed contracts that are currently at
differing stages of the procurement process, have a current estimated
capital expenditure value in excess of £13 billion. In addition, regular
review processes of MOD requirements continue to highlight new
areas/projects for which PFI might be suitable.
However limiting factors do exist and include the successful take-up of
PFI extending the life-span of contracts, leading to decreases in the
number and value of contract available in future years. Another issue is
the influence that any change in government may have which may result in
an opinion swing against PFI as a public sector procurement process.
Although very successful within the UK MOD, the PFI procurement process
has yet to make any significant progress in the field of international
collaborative procurement.
List
of Companies Mentioned
Arthur Anderson, Enterprise LSE, Alenia Marconi
Systems, CAE Systems, Flagship Training, EDS, Integris, Bombadier
Services, Aviation Training International, Amey/Kvaerna, Morrison
Construction, Alaska Food Diagnostic Ltd, Circus Captital Technology,
Birkitt Enterprises, MAFF, Porton Down, Great Western Commerce &
Enterprise, New Sarum Enterprises, CAE Electronics, Vega Group plc, Serco
Ltd, CVS Aircrew Training plc, Westland Helicopters, Augusta Westland
Company, FR Aviation Ltd, Cobham Group, Bristow Helicopters, Offshore
Logistics Inc, Bombadier Inc, Kvaerner A.S.A, Morrison Construction, AWG
Project Investments, Barlow Handling.
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