DESIRABILITY

DESIRABILITY An increasing body of evidence has shown that better risk management in PFI results in a greater proportion of assets being delivered on time and to budget. By integrating the life-cycle and operation costs with design and construction, PFI can provide better risk management and incentives to develop innovative approaches to output delivery. Consistent high quality services can be achieved through performance and payment mechanisms. However, risk transfer is priced into the contract. The purpose of this question is to consider whether the benefits of PFI are likely to outweigh this additional cost.
Issue	Questions	Observations
Risk management	Does the project involve the purchase of a significant capital asset, where the risks of cost and time over-runs are likely to be significant?	Where significant waste management infrastructure is being built, the associated complexities can give rise to significant construction risk
	Does the project involve the purchase of a significant capital asset, where the risks of cost and time over-runs are likely to be significant?	The risk of time and cost overrun will be increased if a significant element of the waste management infrastructure being provided has to be consistently available
Innovation	Does a preliminary assessment indicate that there is likely to be scope for innovation? To what extent are the project's scope specification and operation pre-set or open to negotiation with the private sector?	The Output Specification for waste projectscan be drafted to ensure that there is scope for innovation in terms of the way in which services are managed and delivered, allowing for the use of different technologies and configurations of assets and sites.
Service provision	Are there good strategic reasons to retain soft service provision in-house?	Without approval from the Secretary of State, the Authority is not permitted to provide waste disposal services and therefore would need to provide these services externally, whichever procurement route is followed.
	Is soft service transfer essential for achieving the overall benefits of improved standards of service delivery?	For most projects, the progress from design through construction to soft FM delivery is logical and makes strategic sense in terms of optimal risk transfer.
	Where soft services are not transferred, is this consistent with the Prime Minister's commitment to flexibility of service provision?	Indicate the extent to which any soft services not being transferred is attributable to flexibility of service.
Incentive and monitoring	Can the outcomes or outputs of the investment programme be described in contractual terms that would be unambiguous and measurable?	Refer to operational waste PFI schemes and 4Ps standardised documentation.
	Can the service be assessed against an agreed standard?	Refer to the standardised output specification. The 4Ps PFI payment mechanism, for example, increases payments to the private sector for enhanced service levels.
	Would incentives on service levels be enhanced through a PFI payment mechanism?	The PFI payment mechanism could link the standard of service provided to financial deductions.
Lifecycle costs and residual value	Is it possible to integrate the design, build and operation of the project?	Refer to historic experience.
	Is a lengthy contract envisaged? Will a long-term contractual relationship be suitable (or advantageous) for the service?	A long term contract would be more likely to mirror the underlying economic life of the key assets likely to be deployed within a contract and the period over which banks are prepared to lend to a contractor.
	Are there significant on-going operating costs and maintenance requirements? Are these likely to be sensitive to the type of construction?	Typically the combined costs are, in relative terms, significantly higher in waste schemes than in other PFIs, as the operational costs are a larger proportion of the contract. Typically, the operating and maintenance costs will be sensitive to the type of construction, as will processing efficiency. (i.e.) the proportion of waste input that is diverted from landfill will depend on the technology employed.
OVERALL DESIRABILITY	Overall, is the accounting officer satisfied that PFI would bring sufficient benefits that would outweigh the expected higher cost of capital?