Treasury rules out PFI for IT

The government will no longer use Private Finance Initiatives (PFIs) to fund public sector technology projects because they are not sufficiently flexible, according to research published by the Treasury this week.

PFIs require contractors to make the necessary capital investment, which is then recouped over time based on the success of the venture.

The model is used in a range of sectors including health, education and defence as well as IT.

But technology projects require flexibility and integration with internal business processes that make them unsuitable for PFI, the report states.

"IT PFI projects were moderately successful but the majority of more successful projects renegotiated their contracts after signature to achieve ongoing flexibility, moving away from the mainstream PFI focus on contractually defining outputs," it said.

"This finding was in line with qualitative research on IT PFI, which identified a number of important differences with PFI in other sectors, including a greater need for project flexibility, a higher level of integration with public sector business systems, and little or no market for third-party finance."

Over the summer the department will work with Whitehall buying arm the Office of Government Commerce to draw up guidelines for suitable contract models for technology programmes.

The guidance will set out contract models offering a greater degree of flexibility, tackling the handling of IT integration risk and addressing questions such as when it is appropriate for the public sector to own technology assets.

The reforms aim to encourage more suppliers to bid for government IT contracts, according to the Treasury.

"By encouraging greater market access, the government aims to create the conditions for more competitive choice, thereby delivering good value for money in procurement," said the report.