3.3.1 In most major PFI procurements, the procurer will need suitably qualified and experienced external financial advisers. Currently, merchant and investment banks and the leading accountancy firms make up the bulk of what may be termed PFI 'financial advisers', although a number of multi-disciplinary professional firms, often from a 'technical' background, are also now beginning to compete in this field.
3.3.2 The key to the successful appointment of such firms is a thorough investigation of their financial skills and previous relevant experience. Departmental PFUs or the Treasury Taskforce may also be consulted about specific areas of expertise within individual firms. Some firms are stronger in certain areas of corporate finance, project finance or sectors of public activity than others.
3.3.3 A 'financial adviser' should have direct experience of project financing and should be able to explain the different risk and return appetites of different financial markets and instruments. It is, after all, private sector money that will be taking many of the risks.
3.3.4 Although not necessarily all will be required on any given project, a financial adviser should be capable of providing the following services:
• advice on scoping the potential PFI project;
• assistance with preparation of business case and/or investment appraisal;
• assistance in sounding out the market and raising the profile of the project (in conjunction with project managers);
• assistance in developing the reference project and the public sector comparator;
• advice on carrying out risk analysis, facility of risk workshops and the identification and quantification of risk (although this can often be under taken by procurers themselves in conjunction with technical advisers). Actuarial advisers may also be required to assess the value of final risk transfer or to advise on insurance issues;
• structuring and drafting the bid documentation to ensure good quality responses from the private sector (eg clarification of expected risk transfer);
• ensuring that the payment structures offer the optimum balance of risk and reward and checking that they are consistent with Taskforce model contract templates (due to be published later in 1998);
• providing detailed financial evaluation criteria (based on the procuring body's objectives);
• assistance with reviewing bids, including the deliverability of funding structures (reviewing and checking the accuracy of bidders' financial models, and assessing whether the bidders' assumptions are likely to be delivered on time without seeking further price variations);
• acting as PFI project managers (although procurers often choose to undertake this role themselves); and
• providing financial advice and support during negotiations with bidders to contract signing.
3.3.5 Crucially, the experience of the individuals put forward by the advisory firm in performing these tasks can often be more important than the reputation of the firm itself (See Section 5).
3.3.6 The procurer should obtain adequate confidentiality undertakings from financial advisers that information made available to them during the PFI process will not be used in the context of any other exercise (eg assistance to a potential bidder for the main contract in a subsequent competition). They should also ensure there is no existing or potential conflict of interest before appointing external advisers. Example of an Inappropriate Financial Advisory Role: A Central Government Department appointed a large accountancy firm as a financial adviser on a high profile PFI procurement. Among the tasks it was asked to perform, the adviser was requested to adjudicate between competing claims on Departmental resources ie a choice between expenditure on accommodation or additional programme delivery. The role of financial advisers should be confined to providing the commercial financial expertise that is not available to the procurer in-house. Procurers should resolve resource allocation issues themselves.