PLANET PFI MoD off its rocker

From Private Eye no 1224 28 Nov 2008

PLANET PFI

DEFENCE

MoD off its rocker (and the WAG in bed with it)

The national audit office has sugared yet another PFI report - this time on the "allocation and management of risk" in Ministry of Defence PFI projects - with its standard introduction whitewash declaring that "deals are delivered satisfactorily, on time and on budget".

Only the small print reveals that they were only "on time and to budget following the contract signature". Given that costs frequently go through the roof in the 45 months it takes on average to get to this stage for deals worth more than £50m, the statement is therefore meaningless.

For example, the cost of the MoDs headquarters rocketed by £99m, or more than 20% of the value. Yet the NAO finding provides the perfect endorsement to please defence PFI enthusiasts such as MoD commercial director Amyas Morse (formerly of PwC which advised on the the HQ deal) and the various firms represented on the "expert panel" consulted for the latest study, including, er, PwC, KPMG, and BAE systems.

Elsewhere the report highlights the common absurdities of PFI contracts. Under a 20 year waste water PFI deal at Tidworth Garrison, for example, "foul sewerage flooding to the indoor premises would...incur a £150 penalty." One particular hair-brained scheme was the PFI deal to effectively privatise the Armoured Vehicle Training Service under which squaddies would learn how to drive and fire Challengers and other tanks. After 6 years and £5m in costs, in 2005 the deal was pulled with no contract in sight, amid confusion
over wheezes that could only exist on planet PFI, such as the "transfer of course pass rate risk" whatever that means. £13.5 million then had to be paid to the disappointed bidders, over half of it for "intellectual property rights" which have yet to be used.

Undeterred, as the Eye has reported, the MoD now plans a £12bn PFI deal to privatise defence training across all the services. Unsurprisingly about 30% of this plan has already been pulled and the rest is way behind schedule.

Incompetence turned into fraud, meanwhile on the "defence fixed telecommunications system" PFI contract with BT. The NAO reported that "staff in call centres operated under the contract were artificially inflating call numbers to meet targets for successfully completed calls". Though the filched "service payments" of £1m have been repaid, as has the £122K cost of an MoD police investigation, no compensation or fine has been paid and BT keeps its £200m a year contract. A few junior staff have been fired and the MoD is "confident that the current good working relationships can be maintained and that it has been resolved in a professional manner by senior staff" So that's all right then.

PS trustworthy BT is meanwhile also running the national medical record "spine" on a £1bn NHS contract.

No retreat

FROM PRIVATE EYE Latest! 14-27 Nov 2008 1223
The Ministry of Defence is increasingly desperate to save its faltering plan to privatise military training at a new defence academy at St Athan, SouthWales, despite having acknowledged that the £12bn PFI deal is unaffordable and poses rishs to the frontline (see Eye 1213)

With the credit crunch also having put costs up by £1bn, something has to give. So when defence minister Bob Ainsworth announced that the MOD was ploughing ahead, he pointed out that "considerable progress had been made in driving down costs". This will involve cutting the length of training courses by 25% through "compression, rationalisation and harmonisation". Officially that means cutting waste but those involved in defence training say there is nothing like the scope for 25 percent cuts.

So defence training will have to suffer to spare the PFI deal, even though the off-balance sheet allure of PFI - which defence ministers admitted was the reason for a PFI in the first place - has vanished as all PFIs are going back on the books.Could it be because the deal is so crucial to the companies lining up for it? Qinetiq, the defence research company privatised by the MOD but on which it remains reliant, admits in its 2008 accounts: "There is a risk that the MoD may materially change the final scope or delay or cancel the implementation of the programme, which would have a significant effect on the expected future growth of the group".

Other firms have already got their snouts in the trough. The programme has cost £35 million so far, of which £12m has gone in consultancy. The biggest earner, predictably, is PwC which has received almost £1m a year for advising the MoD. With the plan already well delayed, the MoD's commercial director, Amyas Morse, who joined from PwC in 2006, will be signing in its cheques for a while yet.