The Challenge of Public–Private Partnerships
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The Challenge of Public–Private Partnerships

Learning from International Experience

Edited by Graeme A. Hodge and Carsten Greve

The aim of the book is to investigate how PPP reforms function in comparison to the more traditional methods of providing public sector services and infrastructure and who typically experiences the successes and failures of these reforms.
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Chapter 3: The United Kingdom Private Finance Initiative: the challenge of allocating risk

David Corner

Extract

3. The United Kingdom Private Finance Initiative: the challenge of allocating risk David Corner INTRODUCTION The United Kingdom (UK) has been at the forefront of the development of innovative approaches to engaging the private sector in the delivery of public services. In 1992 the UK embarked upon a new type of public–private partnership, known as the Private Finance Initiative (PFI). Under the Private Finance Initiative, private sector firms take on the responsibility for providing a public service including maintaining, enhancing or constructing the necessary infrastructure required. 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 chapter 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...

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