Sae Lay Kwor Ball Lar Essay

7751 Words Sep 11th, 2014 32 Pages
ISSN 1608-7143 OECD JOURNAL ON BUDGETING Volume 5 – No. 3 © OECD 2006

The United Kingdom Private Finance Initiative: The Challenge of Allocating Risk by David Corner∗

Since 1992, the United Kingdom has used a new type of public-private partnership for the delivery of public services: the Private Finance Initiative. In the design of PFI projects, the assessment of risk, and who is best able to manage it, needs to be carefully considered. Using data from government reports and case examples in the British public sector, this article explores aspects of procurement including, among other things, due diligence, public sector comparators, and the consequences of taking back the responsibility for delivering the service (taking back
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A total of 563 Private Finance Initiative contracts had been let by April 2003, with a total capital value of £35.5 billion (HM Treasury, 2002-3), and accounting for more than ten per cent of total investment in the UK public sector in 2003-4. This article explores the value for money of the Private Finance Initiative. It argues that there are powerful performance incentives in Private Finance Initiative contracts which at least potentially offer significant improved performance compared to past practices. It suggests that Private Finance Initiative contracts enable risks to be better estimated than in the past, but that the real success of Private Finance Initiative projects also depends on the degree to which risk is genuinely transferred from the public to the private sector and optimally shared. It also considers some of the difficulties this presents for accounting for Private Finance Initiative projects. It draws on the work of the United Kingdom National Audit Office and the House of Commons Committee of Public Accounts which have both examined and reported to the United Kingdom Parliament in detail on a number of individual Private Finance Initiative projects as well as other general issues arising from the initiative.1

2. Risk under conventional procurement in the public sector
Public service delivery is a risky

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