The recommendation by the committee followed an examination of a PFI arrangement between Exchequer Partnership – Bovis Lend Lease, Stanhope and Chestertons International – for refurbishing the Treasury Building in Whitehall for £170m.
A funding competition secured a saving of £13m and lead to the firm recommendation, agreed by the Treasury, that funding competitions should always be considered in PFI procurements.
MPs pointed out the private sector cannot borrow as cheaply as can the government – a potential drawback to the use of private finance.
But they said the Treasury ‘surprisingly suggested no additional net costs in PFI deals might result, providing differences in risk between PFI and conventional projects were taken into account’.
The committee said funding competitions would help minimise external financing costs, but added: ‘It cannot simply be assumed that the resulting costs of private finance will be no more than that of public finance after allowing for risk.
‘If PFI deals are to be justified on the basis that the benefits of private finance outweigh the costs, then we would expect the Treasury to have a clear idea what the extra costs of private finance are.’
The Treasury response insisted the two clear choices were between supply by the public sector and by the private sector using their own capital.
The concern was with the costs to the public sector, so the public sector discount rate was used to capitalise both cost flows.
It said: ‘One of those cost flows, that of the private sector option, will necessarily include the private sector’s capital costs.’
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