Carillion secured its business by bidding too aggressively. Anyone letting contracts needs to beware of the dangers of going for the lowest bid without the due diligence necessary to determine if it is the best bid.
That lesson aside, are taxpayers being ripped-off in the way that our newly rediscovered socialists claim?
(Just listen to the contempt in their voices when they spit out the word ‘profit’ as if it were a profanity).
The National Audit Office report does not say that we are getting poor value for the 10% of public services that are provided by through private finance. It does point out however, that capital projects like schools and hospitals cost up to 40% more than had they been financed by government in the traditional way. This is for the blindingly obvious reason that government borrowing costs are always lower than any credit that can be had by the private sector.
This points to the fault at the very heart of the Private Finance Initiative, indeed it’s in its very name.
The proper reason for turning to the private sector is to secure expertise, experience, skills, and a project management culture that might not be readily available in the public sector. The one thing that the public sector can always do better however, is to finance the undertaking more competitively.
I have made my belief clear in this column over many years that the original motive for the private finance initiative owed more to meeting the Maastricht criteria for joining the Euro than it did to sound public finance. The mission was to get the borrowing necessary for important capital projects off the government’s books, even if it cost more in the long run.
In the event we didn’t join, but by then we had fallen into this bad habit.