VALUE FOR MONEY

72. It is possible for Departments to argue that good value for money has been obtained in privately financed projects where (1) procurement has been highly competitive, giving assurance that the best available private finance deal has been selected, and (2) the resulting deal has been evaluated favourably with a public sector alternative. In the Skye case these conditions were not fully satisfied.[57]

73. In the absence of these clear benchmarks as to value for money we asked the Department how they had assured themselves that the benefits of the project were worth the price they were paying for them.

74. The Department said[58] that part of the value to them was risk transfer, though they had not tried to quantify this benefit. On the absence of a public sector comparator to help evaluate the deal, they said that to have prepared a comparator based on a comparison with a publicly financed bridge would have been false and misleading since it would have left the impression that the Department was seriously considering that option.

75. The Department carried out an economic appraisal which assessed the project against the ferries.[59] As this could not demonstrate that the price to be paid by users and the Department was reasonable,[60] we asked the Department whether, on the basis of the comparators which they had prepared, they believed the project was good value for money. They said[61] that the taxpayer did not have very much money in it and that the main investment in the bridge was the private sector.

76. In response to our further suggestion that a public sector comparator might have made an illuminating comparison which would not have been costly to prepare, the Department said[62] that they would now seriously look at what could be done in that direction were they to consider such a project now.

77. We asked whether, in considering alternatives to building a bridge, the Department had evaluated the possibilities of allowing the ferry operator to develop ships that would overcome the problems for which the bridge was built. The Department said[63] that their economic evaluation compared the economic benefits between the options of a bridge or continuing an existing ferry service, and had concluded the benefits of a bridge were substantial. They said that there would be difficulty in providing any ferry service which could compete with the convenience of a bridge.

CONCLUSIONS

78. The Department decided against calculating a public sector comparator for this project on the grounds that such a comparison would have been false and misleading since they had no intention of funding the Skye Bridge except as a privately financed project. But it is highly unsatisfactory that a Department can seek to avoid having to carry out a thorough comparative evaluation of a proposed project merely by asserting that public finance would not be available for a conventional solution.

79. The Department took a narrow view of the amount of taxpayer's money in the project, looking only at their direct contribution to the project. But the project involved the public sector forgoing the income from the former ferry service, which was generating profits at a rate of 1 million in its last year of operation, to the benefit of the taxpayer. We expect Departments to consider the full implications of projects for the taxpayer, including not just direct expenditure but also indirect costs, such as income forgone. We also expect Departments to seek good value for those users, whether or not taxpayers, who will be required to pay for monopoly services.

80. Because every decision to proceed with a privately financed project must involve rejecting some alternative, systematic comparisons are the key to prudent decision-making in this area. We criticise the Department for not having carried out such a comparison. We note their assurance that, in similar circumstances, they would now look carefully at preparing a comparator.

81. In the absence of such a comparison, and given that competitive tension did not apply in the final stages of the negotiation of this deal, a question mark must remain over the extent of value for money obtained by the taxpayer and the toll payer from this project.

57   C&AG's Report para 4.2 Back

58   Q10-11 Back

59   Q11 Back

60   C&AG's Report para 4.5 Back

61   Q12 Back

62   Q51-53 Back

63   Q109  Back


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