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You could almost hear the sighs of relief emanating from Whitehall departments and contractors' boardrooms. Last week, the National Audit Office announced that the PFI – the cornerstone of the government's spending plans and an essential contributor to the construction industry's bank balance – offered good value for money.

In the first comprehensive survey of PFI contracts, the NAO found that 81% of public bodies thought that the PFI offered better value for money than projects procured with public funds.

Good news about the PFI has been thin on the ground over the past few months, as the unions and media portrayed the initiative as a scam designed to enrich greedy contractors. Bureaucrats in Brussels also waded in, threatening to declare PFI anti-competitive and slap onerous conditions on tendering rules.

Now the outlook is much brighter. The NAO's glowing report came hot on the heels of news that Brussels is tempering its opposition to PFI tendering. And on 22 November, health secretary Alan Milburn announced a deal with the unions over the employment of ancillary staff in PFI hospitals, ending a row that had threatened to hold up the entire NHS building programme.

"We have weathered the storm," says Norman Rose, director general of the Business Services Association, which represents contractors involved in PFI. "The critics of PFI have been confounded."

It was all very different back in the summer. ºÃÉ«ÏÈÉúTVpapers published almost daily reports of shoddy hospitals with too few beds and leaking roofs, blaming the problems on the procurement route and accusing PFI consortiums of making excessive profits. Coming hard after Blair's triumphant election victory – in which the modernisation of public services had been the party's main promise – the anti-PFI campaign caught the government, and the construction industry, off-guard.

Ministers feared the backlash would dent industry and investor confidence in the PFI, and derail Labour's rebuilding plans. Insiders talk of increasing paranoia in big-spending departments and heavy-handed attempts to prevent government-funded agencies criticising the PFI over the summer. Meanwhile, the construction industry failed to get its own message across.

But the NAO report, which examined 121 of the 400-odd central government PFI projects, has done the job on the industry's behalf, giving the lie to claims that the initiative is a rip-off.

The NAO report, which examined 121 of the 400-odd government PFI projects, gives the lie to claims that the initiative is a rip-off

"The NAO report is great news for PFI," says Bill Tallis, chief executive of the Major Contractors Group. "What we had in the past was uninformed comment because there was no data available to measure the performance of PFI projects. It was a new process, and some time had to pass before that data became available. It is here now and it proves that the PFI represents good value."

Jeff Morris, director of consultant Mouchel, agrees: "The findings of the NAO report are great news and it will be interesting to see how the press now handles PFI as a subject."

Many in government and the industry suspect that the negative press coverage was orchestrated by public sector unions Unison and the GMB as part of their campaign to prevent their members being forced to switch over to private sector contracts in PFI hospitals. The compromise hammered out by the health secretary should deter the unions from calling all-out strikes. Under the deal, catering and cleaning staff will remain directly employed by the NHS rather than the PFI operator, which will only employ managerial staff.

"The trade unions flexed their muscles and made life difficult for us, but the government never wavered [in its enthusiasm for PFI]," says the BSA's Rose.

Despite the deal, Unison this week said it would continue its opposition to the PFI. The union last month launched a £1m anti-privatisation advertising campaign, which highlights a Mori poll it commissioned that found that 83% of the public is opposed to private firms running public services. "We are still opposed to PFI contracts – they are more expensive in the long term, they are unwieldy and they are a drain on the NHS," says a Unison spokesperson.

But one PFI contractor claims the effectiveness of the unions' campaign is diminishing. "It's beginning to become repetitive – the unions are dragging out the same old examples of nightmare projects. People are losing interest."

Milburn's deal is not exactly what the construction industry wanted. "The decision to employ ancillary workers through the NHS is not good news," says the MCG's Tallis. "It creates problems for the private service companies, whose staff don't actually work for them. It's just another complication to manage."

Employing ancillary workers through the NHS creates problems for the private services companies

Bill Tallis, Major Contractors Group

But with the unions appeased, the government has a green light to press ahead with its spending plans – it is perhaps no coincidence that chancellor Gordon Brown's pre-budget statement last Tuesday contained a £1bn cash injection for the NHS.

Meanwhile, the industry and the government seem to have seen off another threat to the PFI: proposed changes to European legislation that would have outlawed the preferred bidder stage of tendering.

European Union officials were worried that this stage – in which the client finalises details of a project with a single consortium prior to the award of a contract – was anti-competitive. Under draft proposals to amend the European procurement directive, it would have been replaced by a "competitive dialogue" stage, in which all those shortlisted would be able to discuss their bids with the client right up to the award of the contract.

Companies claimed that the proposals would add millions to their bidding costs and lead many to abandon PFI tendering. Although no announcement has been made, industry lobbyists believe the EU is going to drop the plans.

The proposal was never designed to thwart PFI; instead, it grew out of bureaucrats' ignorance of how this peculiarly British procurement initiative operates. But with PFI and public–private partnerships increasingly catching on across the Continent, European lawmakers have listened to government and industry lobbying with some sympathy.

However, John Bromley, the Construction Confederation's director of European affairs, warns that it is too early for the industry to celebrate victory.