Method

Purpose

Literature review

We reviewed previous NAO reports and carried out a review of academic literature and publications of industry/market data.

To assess whether PFI investors bear project risk. Separately, we identified the incidence of loss-making projects.

Financial accounts

We extracted financial data from 80 sets of project company accounts.

To identify amounts and dates of investment, and to analyse the rate of return on equity obtained at the date of sale (sales are listed in Appendix Three, available on our website www.nao.org.uk/pfi-private-equity-2012)

Interviews and web survey

We carried out 19 interviews with fund managers and key participants in five projects.

We then sampled a further 34 operational PFI contracts, and conducted a web-survey. Key participants in each of the projects were the Authority, a director of the project company, a senior lender, and a services provider. The 34 contracts generally adhered to HM Treasury's code, the Standardisation of PFI Contracts versions Three or Four.

Appendix Two summarises findings and key investors and is available on our website www.nao.org.uk/pfi-private-equity-2012

To confirm in some depth how the participants in PFI contracts currently view the allocation and management of risk.

Web-survey questions included:

probability and impact of project risks materialising, such as life-cycle risk; investment management arrangements; and satisfaction with service delivery.

Semi-structured interview topics, included:

expectations of project risks materialising; contract management arrangements; adding value to PFI projects; satisfaction with service delivery and performance; and expected returns.

Workshop with technical advisers to review our descriptive analysis of perceptions of project risk in PFI contracts.

Workshop topics included:

probability of risks materialising in PFI projects; and real versus perceived impact of risks materialising.

Financial models

We explored selected financial models provided by authorities for the 34 PFI contracts in our sample.

To assess the market value, time value and performance value of investments and to conduct sensitivity analysis on the influence of lenders' requirements (see Appendix Four, available on our website www.nao.org.uk/pfi-private-equity-2012)