3.3.2  Private Finance

To resolve the direct (commercial) and indirect (value for money) issues, the public sector will benefit from managing the PFI procurement process using the following principles:

•  Ensuring a range of suitable project options is considered at the outset, especially including the fit of potential projects into wider strategic objectives, and whether existing processes, practices or structures should be adjusted to reduce the level of project risk e.g. adopting a standardised method of working rather than developing software to deal with the many different ways of working

•  Making use of experienced and capable private sector expertise to advise the public sector

•  Using a well managed output specification process that involves key stakeholders in a meaningful way and results in key stakeholder sign-off to a specification that effectively captures what the public sector wants

•  Ensuring that projects are designed around benefit delivery

•  Using comparators effectively to provide:

  Clear assessments of how much a public sector, traditionally procured, alternative would cost throughout the project life-cycle

  Sufficient definition of the information required from tenderers to enable a robust tender evaluation procedure to take place

  Effective evaluation of bids: providing the public sector, in particular, with real negotiating information and a thorough understanding of what each bidder is really offering

  Benchmarks of key cost items to establish the real quality of asset and service being offered, and to allow refinement of bids during each negotiating round

  Effective value engineering decisions

  A real understanding of the costs of transferring risks to the private sector

•  Designing ITN (Invitation to Negotiate) and other bid documentation and processes to promote an effective flow of information, whereby the public sector can clearly understand what is being offered by the private sector and the private sector has a clear understanding of what it is committed to providing, thus ensuring a smooth transition from bid information to contract documentation

•  Considering the affordability of private sector proposals

•  Developing the payment mechanism pre-ITN and sign-off of the payment mechanism and associated performance measurement system before nomination of preferred bidder

•  Having realistic risk transfer expectations: i.e. optimum/appropriate risk transfer following the principle of "risk transferred to the party best placed to manage it"

•  Developing strategies to identify risks, avoid risks and manage risks owned by the public sector

•  Effectively managing project issues (i.e. risk occurrences) with appropriate stakeholder involvement at each stage of issue resolution (e.g. mobilising the right expertise and interfaces between stakeholders at the right time)

•  Developing robust processes pre- and post-financial close to ensure that assets really do meet the specifications laid out in the project agreement and supporting documentation

•  Insisting on early facilities management (hard and soft services) involvement in contractors' design solutions. Resulting in easily maintained facilities.

•  Taking account of funders' requirements in risk transfer and mitigation of risks at an early stage of the procurement process (when basic decisions are being made) to ensure that delays in achieving financial close, due to changes required by funders, are avoided.

PFI / PPP procurement has the potential to deliver significant benefits in the procurement of public sector assets and services. It is complex in terms of what it is trying to achieve (i.e. the complete resolution of issues associated with building and operating an asset over an extended period of time). However, there is no single aspect of PFI / PPP that is itself complicated. The issues that have arisen on PFI / PPP projects that have gone to financial close and beyond, have, with very few exceptions, occurred through flawed management of the interdependencies between different aspects of the process.