Flagship PFI scheme criticised
The operation of HM Customs & Excise and Inland Revenue’s flagship PFI scheme has been sharply criticised by a leading parliamentary committee.
The Public Accounts Committee said there were serious weaknesses in the STEPS estate management deal which four years on are still not fully rectified.
In 2001, HM Customs & Excise and Inland Revenue, signed a 20-year PFI estate management deal with Mapeley. It transferred the ownership and management of most of their estates to the private sector consortium in a deal expected to increase flexibility and reduce running costs.
Mapeley was by far the lowest bidder and was also lower than the estimated cost of retaining the estates in the public sector.
But, seven months into the deal Mapeley demanded extra money from the department, saying it was facing a severe cash flow shortage.
The department refused, and is still in negotiation over outstanding claims and the committee concludes that the performance management system “is not yet working satisfactorily”.
There has already been significant criticism of the deal because Mapely immediately transferred the freehold and long-leasehold properties to a Bermudan company, meaning that any capital gains made by the company will not be taxable under UK law.
PAC chairman in the last parliament, Edward Leigh, said the committee concluded that the savings represented by Mapeley’s bid “far outweigh the potential tax loss.”
“Nonetheless, it is incredible that the Inland Revenue, of all departments, did not during contract negotiations find out more about Mapeley’s structure. Departments entering PFI arrangements need to know more about whom they’re doing business with and ensure that potential losses to the Treasury are taken into account when assessing overall costs and benefits.”
He added that the low price offered by Mapeley was “clearly attractive but there were significant weaknesses in the way the deal was negotiated which should be avoided in future PFI arrangements.
“The low price offered by Mapeley reflected, in part, its desire to get a foothold in the property management business. It left little room for manoeuvre if the company’s fortunes took a turn for the worse, which came to pass. Faced with Mapeley’s financial difficulties in 2001-02, the first year of the contract, the departments found they had not looked at possible termination scenarios or developed a fall-back position to ensure business continuity.”
Mr Leigh concluded: “Matters are still not straight. Four years into the contract there remain outstanding issues and the performance measurement system, vital to any PFI arrangement, has yet to be fully implemented.”
