14 September 2006

Sweeping up the fairy dust

More evidence that sprinkling private-sector fairy dust onto a public-sector project doesn't actually work:

iSoft Plc is a software provider that's been working on the huge NHS IT project.

Because the public sector is wasteful, the project was contracted to companies like iSoft. iSoft was to provide the software for a fixed price, so if it all went wrong that would be iSoft's problem, not the government's. Hooray, no more risk!

What rubbish. As soon as the contract was signed, iSoft became part of the public sector. The project had to be completed, therefore iSoft had to be able to complete it, therefore iSoft could not be allowed to fail.

Private Eye questioned iSoft's accounts - they were accounting for payments to be paid under the contract, despite the fact that delivery was behind schedule, or something like that. iSoft's solvency came under question.

Since the government needed the project, they had to make sure iSoft stayed in business. So they advanced some of the cash, for products not yet delivered. iSoft currently has £43.9m in advance payments.

You can't blame the DoH for making the advance payments. They had to be made, because without them the project could not have gone ahead. The error was in ever believing that "public-private partnership" reduces risk.

There is one difference between this type of arrangement and a pure public-sector approach. If the project had gone exceptionally well, and cost less than expected, the government would not have seen the savings - the shareholders would have. To be completely fair, that's not entirely a bad thing, because it at least creates some incentive for the job to be done efficiently. Of course, it also creates incentive for the job to be cowboyed, provided the letter of the contract is met. This is why there are two common outcomes of PFI projects:

1) Business as usual, job is done over budget and behind schedule.
2) Job is successful but a large proportion of the government expenditure goes to "windfall" profits for contractors.

The second is more common where it is easier to say what activities the contractor should perform than what end result they should deliver (because then the contractor can cut corners and deliver crap), the first where it is easier to say what should be delivered than how it should be done.

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