Does PFI produce perverse incentives?
The MoD has shown a disturbing willingness to rig the bidding processes to ensure that it achieves its short-term financial goals. Particularly egregious was the 2003 privatization of QinetiQ, which advises the MoD on the procurement of equipment. QinetiQ was bought, in part, by the Carlyle Group. A 2008 investigation by the Public Accounts Committee found that: The Department began the competition for a strategic partner when market conditions were poor and before the terms of QinetiQ’s most significant contract had been agreed. It also eliminated the only trade bidder at a very early stage. These decisions weakened the competitive process for selecting a strategic partner…. The Department relied on Carlyle to design the incentive scheme but did not put safeguards in place to protect its interests…. QinetiQ’s management were consequently able to influence the design of their incentives before Carlyle were appointed preferred bidder.[30] The committee also found that the MoD drove
