Hospitals and schools are being fleeced by contractors charging as much as £300 to install an electrical socket and £486 to fit a lock, the public spending watchdog says today.

A highly critical report from the National Audit Office (NAO) says that some companies are profiteering by charging ten times more than others for simple electrical or building alterations. It suggests that millions of pounds could be saved when changes are made to existing Private Finance Initiative (PFI) contracts if public authorities ensure that all new work is put out to tender.

The cost of changing an electrical socket, for example, ranged from £30.81 to £302.30 and fitting a new lock could cost anything between £15 and £486, says the report. The price paid for a key ranged from £4.26 to £47.48 and the labour costs of putting up a new shelf from nothing to 149.71.

The NAO found that the prices were in many cases much higher than industry benchmarks. For example, the highest cost of installing a new electrical socket was three times the benchmark of £51 to £100, as recommended by the Royal Institute of Chartered Surveyors.

There are already 500 PFI projects, including hospitals, schools and town halls, with a combined value of £44 billion, but because many of these are more than ten or fifteen years old some now require alterations. In other cases, contracts are altered after a few years because the authority could not afford the initial full specification. Last year more than £180 million was spent on changing PFI contracts, but the NAO claims that the bill could have been much smaller.

In more than two thirds of cases the new work, which can cost more than £100,000, is not put out to competitive tender, allowing the existing contractor to charge higher-than-market rates. Where tenders have gone out, prices can be slashed by as much as 30 per cent, says the report. Companies are also charging “unjustified” management fees of 5-10 per cent, totalling £6 million in 2006.

Edward Leigh, the chairman of the Public Accounts Committee, said that changes to PFI contracts of 25 to 30 years were inevitable but should not be costing the taxpayer “an arm and a leg”. He urged public authorities to employ full-time contract managers to ensure that the best deals were reached. “The public sector has allowed itself to be taken for a ride,” Mr Leigh said.

Where changes to PFI projects were needed, public sector managers should be a lot more streetwise, he added. “In the case of larger changes they must insist on at least three competitive tenders and for smaller changes there must be procedures to check the proposed costs, rather than simply paying out whatever the contractor asks. For all changes, they must be eagle-eyed [to ensure] that the contractor is not charging inappropriately high fees.”

The NAO report includes a list of the more expensive PFI alterations, which have cost over £100,000, accounting for more than 90 per cent of total expenditure. These include £300,000 spent by the Home Office on installing 300 new desks.

At one unnamed PFI building, the authority wanted to take down smoking shelters. The base cost for removing the shelters was £750 but the PFI contractors were paid an extra £2,600 a year “on the assumption that removing the shelters would result in a greater spread of cigarette butts around the site, adding to the cost of cleaning”, the report says.

The report also gives cost comparisons between changes on PFI contracts and in-house projects in Somerset. The cost of altering a courtroom on a PFI project in Worle, for example, was more than 30 per cent greater than that for altering a similar but conventional project in Bridgwater. The Worle PFI alterations, which cost £162,000, included a basic cost of £96,000 plus £31,000 in fees and £17,000 for an initial report, plus £18,000 in miscellaneous costs. In Bridgwater, the £111,000 cost included £100,560 in basic costs plus £10,560 in fees.

The NAO report recommends mandatory tendering with three companies for larger contracts, renegotiation of existing contracts to eliminate private-sector fees, sharing more information across authorities and ensuring that contract management teams are adequately funded.

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