Government pulls plug on PFI

The government has finally pulled the plug on the use of Private Finance Initiative (PFI) funding for major IT outsourcing...

The government has finally pulled the plug on the use of Public Finance Initiative (PFI) funding for major IT outsourcing contracts after a string of high-profile disasters.

PFI projects include Libra, the effort to link IT systems in magistrates courts, which cost nearly three times more than expected and has never delivered its core software.

Edward Leigh, chairman of the Public Accounts Committee, said, "The Libra project is one of the worst IT projects I have ever seen. It may also be the shoddiest PFI project ever."

Other problem-ridden PFI projects include Pathway, the disastrous £800m project to automate post offices and provide a swipe-card system to pay welfare benefits, Nirs2 the national insurance system, the Child Support Agency IT contract with EDS and the Passport Agency IT upgrade.

A key element in PFI contracts was supposed to be the transfer of risk to the private sector, but in most PFI projects that hit trouble suppliers escaped without paying heavy penalties.

Treasury officials are now drawing a line under the PFI in IT experiment. A report stated, "Underlying differences between IT projects and other infrastructure procurement suggest that it is appropriate to look again at the methods used to procure IT.

"This will involve ensuring that the forms of contract and financing used contribute to overall delivery success."

"As a result, the government will now adopt a presumption against the use of PFI in future IT projects," it said.

The report also outlined a number of reasons why PFI is unsuited to IT procurement:

  • The "fast pace of change" in IT makes it difficult for the public sector to define the outputs it requires in a long-term contract.
  • The high level of integration between IT and other business systems means that it is difficult to define clear areas of responsibility between the client and the contractor.
  • Costs in IT are dominated by ongoing running costs, rather than up-front investment.
  • There is a lack of third-party finance in the PFI IT market - this detracts from PFI's ability to deliver value for money for the public sector.

John Higgins, director general of the IT suppliers' organisation Intellect, said, "We're delighted that government has responded to the industry's concerns about PFI for IT projects.

"IT projects don't exist in isolation - they are usually a significant part of a process of complex business change for which PFI was rarely a suitable tool."

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