Taxpayers have lost another pile of money on another bungled PFI project. This time it was the scheme to rebuild the National Physical Laboratory.
Despite supposedly being a fixed price contract, after years of delays and cost over-runs, the suppliers effectively threw in the towel: indeed, the lead contractor exited the construction business altogether.
The upshot is that taxpayers have now taken over an unfinished building which is running six years behind schedule. We've had to stump up £122m for a shell that's worth only £85m, and which still needs an estimated £17m to complete: and that might well be an underestimate because it covers all the hard bits that have caused the problems.
According to the NAO report, the project was fatally flawed from its inception in 1998. In particular, there were grave doubts about whether the contractors- John Laing Construction- were capable of delivering the complex and demanding specification, which included very precise requirements for laboratory temperature and noise supression.
Particularly shocking is the fact that the DTI pressed ahead and signed the deal even though its own project team had expressed serious reservations. The NAO describes the whole procurement process as "weak": with only one and a half serious bidders, there was lack of the competitive tension essential to driving a good deal.
It's quite true the private sector suppliers have lost a ton of money on the deal, but that's no comfort to taxpayers.
We've blogged about the pitfalls of PFI many times, and the NPL fiasco once again highlights some key points:
- A half-baked deal was bulldozed through by pressure from the top: Brown's Enron drive to borrow off-balance sheet was the fundamental cause
- Commercial naivety led the public sector to put far too much faith in the letter of their fixed price contract, rather than grasping the underlying reality: their deal counterparty was a thinly capitalised "special purpose vehicle" (Laser) which did not have the financial capacity to deliver the guarantee, and eventually folded
- Fixed pricing does not guarantee timely delivery: this supposed three year project is running six years late, and we've all seen the delays at Wembley
Think about this, think about the multi-billion Olympics, and shudder. The quangocrats building that giant bonfire reckon they will deliver it on budget and on time using fixed price contracts just like this one.
Hold on to your hollyhocks.