In attempting to answer this question, we need to consider two very different types of risk. There is demand risk and there is the risk that the construction cost will overrun the contracted value.
As far as hospitals are concerned, there is little demand risk in the sense that the consortium financing the hospital will be paid irrespective of whether the hospital is used or not (Sussex 2001, 73).
On the other hand, it is argued that the consortium financing and building the hospital bears the risk of an overshoot on the construction cost. Pro-PFI supporters claim that the private consortium that agrees to take on the construction and financing contract carries a considerable risk of the costs overshooting. In support of this argument they might point to the near-bankruptcy of Jarvis as evidence of the risk carried by the private sector.
Jarvis is a company which, while being heavily involved in PFI projects, got into financial difficulties. It was reported, in January 2005, to be contributing £51 mn to finance the completion of the contracts in which it had been involved (Guardian, January 31 2005). Pro-PFI people might argue that Jarvis is bearing the cost of carrying the risk of PFI projects. An alternative view is that the problems faced by Jarvis have arisen because the company was simply too greedy. In July 2004, Jarvis was involved in 30 PFI projects (see Guardian, February 3 2005) and in January 2005, Andy Friend, the chief executive of John Laing (another company heavily involved in PFI contracts) was reported as saying that his company would not fall into the trap of troubled rival, Jarvis, and that he had learned from others trying "to realise too much [value] too quickly" (see Guardian, January 2005). In July 2005, Jarvis itself reported that;
"A period of significant debt-financed growth from 1995 to 2003, accompanied by overly aggressive PFI bidding policies left the group financially stretched and with a misaligned cost base for its size" (Guardian July 16 2005).
Unfortunately the cost of Jarvis's greed is high and not just to the shareholders. For, even if the costs of completion are covered by Jarvis, there are inevitable delays as the contracts are transferred given the large number of agents involved in the project companies - the special purpose vehicles. Alan Lovell, the chief executive of Jarvis stated in January 2005 that the transfers "were extraordinarily complex operations" (Guardian January 31, 2005) and in December 2004, he had admitted that, in the meantime; "very little work is going on at all [PFI} sites" (Guardian, December 7 2004).
Another example of a major company getting into difficulties with a 'Public-Private-Partnership' (PPP) is Metronet, a company charged with a £17 bn upgrade of the London underground network. This PPP was introduced in 2003 despite strong criticism from the then Mayor of London (Ken Livingstone) who wanted the project to be funded 'in-house' by the public sector but who failed in a High Court challenge to have the PPP scrapped. Since then, Metronet is reported as generating "a £2bn funding gap fallowing a series of high-profile slip-ups" and was reported as heading for administration (Guardian July 17, 2007). The reported worry of opponents of PPP is that the taxpayer has been left to clear up the mess - at a cost of up to £2 bn - and in spite of over £500 mn being spent on lawyers' and advisers' fees in drawing up the contracts (Guardian July 17 2007 and December 16 2007).
Clearly there is considerable controversy about whether risk is transferred to the private sector for PPP and PFI projects. Certainly comments from the financial markets would seem to indicate that the risk carried by the private sector is quite small. For example Standard and Poor's, in a report for the capital markets, stated that the PFI companies carry little effective risk (Standard and Poor's 2003, cited in Edwards P et al 2004, 7). By contrast those who argue in favour of PFI contracts, argue that there is high risk involved. What is this and how big is it?