VIABILITY

For PFI to be viable the investment objectives and desired outcomes need to be translatable into outputs that can form the basis of a contract and a sound payment mechanism; for example the quality and quantity of the outputs need to be ones that can be measured. Many service areas can be described in contractual terms, but some areas will be inherently 'non-contractible' as outputs.

Issue

Question

Project level outputs

Is the project delivery team satisfied that a long term contract can be constructed for this project? Can the contractual outputs be framed so that they can be objectively measured?

Is the requirement deliverable as a service and as a long term arrangement? Can the contract describe the requirements in clear, objective, output-based terms?

Can the quality of the service be objectively and independently assessed?

Is there a good fit between needs and contractible outcomes?

Can the contract be drafted to avoid perverse incentives and to deliver quality services?

Does the project require significant levels of investment in new capital assets?

Are there fundamental issues relating to staff transfer? Would any transfer be free from causing any loss of core skills that have strategic and/or long term importance to the procuring authority?

Is service certification likely to be straightforward in terms of agreeing measurable criteria and satisfying the interests of stakeholders?

Does the project have clear boundaries (especially with respect to areas of procuring authority control)? If there are interfaces with other projects are they clear and manageable?

Can the service be provided without the essential involvement of Authority personnel? To what extent does any involvement negate the risk transfer that is needed for VfM?

Is the contractor able or likely to have control/ownership of the intellectual property rights associated with the performance/design/development of the assets for the new service?

Will existing or planned elements within the scope of the project - or interfacing vitally with it - be complete before the start of the new service?

Operational flexibility

Is there a practical balance between the degree of operational flexibility that is desired and long term contracting based on up-front capital investment?

What is the likelihood of large contract variations being necessary during the life of the contract?

Can the service be implemented without constraining the delivery of future operational objectives?

Is there confidence that operational flexibility is likely to be maintained over the lifetime of the contract, at an acceptable cost?

(See also para. 4.33)

Equity, efficiency and accountability

Are there public equity, efficiency or accountability reasons for providing the service directly, rather than through a PFI contract?

Does the scope of the service lend itself to providing the contractor with "end-to-end" control of the relevant functional processes? Does the service have clear boundaries?

Are there regulatory or legal restrictions that require services to be provided directly?

Is the private sector able to exploit economies of scale through the provision, operation or maintenance of other similar services to other customers (not necessarily utilising the same assets)?

Does the private sector have greater experience/expertise than the procuring authority in the delivery of this service? Are the services non-core to the procuring authority?

Is a PFI procurement for this project likely to deliver improved value for money to the department as a whole, considering its impact on other projects?

OVERALL VIABILITY

Overall, in considering PFI, is the department satisfied that suitable long term contracts can be constructed, and that strategic and regulatory issues can be overcome?

DESIRABILITY

PFI can provide better risk management and produce incentives to develop innovative approaches to output delivery.Consistent high quality services can be incentivised through performance and payment mechanisms. However, risktransfer is priced into the contract. The purpose of these questions is to consider whether the benefits of PFI are likely to outweigh any additional costs and disadvantages.

Issue

Question

Risk management

Bearing in mind the relevant risks that need to be managed for the programme (See Box 3.2) what is the ability of the private sector to price and manage these risks?

Can the payment mechanism and contract terms incentivise good risk management?

Innovation

Is there scope for innovation in either the design of the solution or in the provision of the services?

Does some degree of flexibility remain in the nature of the technical solution/service and/or the scope of the project? Is the solution sufficiently free from the constraints imposed by the Authority, legal requirements and/or technical standards?

Does a preliminary assessment indicate that there is likely to be scope for innovation in the programme?

Could the private sector improve the level of utilisation of the assets underpinning the project (e.g. through selling, licensing, commercially developing for third party usage etc)?

Contract Duration & residual value

How far into the future can service demand be reasonably predicted? What is the expected life of the assets? What are the disadvantages of a long contract length?

Are there constraints on the status of the assets after the contracts end?

Given the possibility of changes to the requirement, the assets and the operating environment, is it possible to sustain value for money over the life of the contract utilising as appropriate, mechanisms such as benchmarking and technology re-fresh?

(See also para. 3.10)

Incentives and monitoring

Can the outcomes or outputs of the investment programme be described in contractual terms, which would be objective and measurable?

Can the service be assessed independently against an agreed standard?

Would incentives for service delivery be enhanced through a PFI payment mechanism?

Lifecycle costs

Is it possible to integrate the design, build and operation elements of the project?

Are there significant ongoing operating costs and maintenance requirement? Are these likely to be sensitive to the type of construction?

OVERALL DESIRABILITY

Overall, is the accounting officer satisfied that PFI would bring sufficient benefits that would outweigh the expected higher cost of capital and any other disadvantages?

ACHIEVABILITY

While PFI may allow a more efficient and effective combination of public and private sector skills, determining the rules that will govern the relationship between the two sectors does involve significant transaction costs. In particular, the procurement process can be complex and involve significant resources, including senior management time which may be required for project development and the ongoing monitoring of service delivery. Authority capacity and capability, together with private sector deliverability will have direct consequences for procurement times and the level and quality of market interest. PFI needs a robust competitive process to deliver fully its benefits and so the choice of procurement route should be informed by an assessment of the likely market appetite.

Issue

Question

Market Interest

Is there evidence that the private sector is capable of delivering the required outcome? 

Does a significant market with sufficient capacity for these services exist in the private sector?

Is there likely to be sufficient market appetite for the projects in the programme? Has this been tested robustly? Is there any evidence of market failure for similar projects?

Have any similar projects been tendered to market? Has the procuring authority's commitment to a PFI solution for this type of project been demonstrated?

Does the nature of the project suggest that it will be seen by the market as a profitable venture?

Are the risks associated with design, development and implementation manageable bearing in mind the likely solutions to the project?

Other Issues

Is the procurement feasible within the required timescale? Is there sufficient time for: resolution of key Authority issues; production/approval of procurement documentation; staged down-selection and evaluation of bidders, negotiation, approvals and due diligence?

Is the overall value of the project significant and proportionate to justify the transaction costs?

Does the nature of the deal and/or the strategic importance of the work and/or the prospect for further business suggest that it will be seen by the market as a potentially profitable venture?

Does the Authority have the skills and resources to define, deliver and support the service throughout the procurement and the subsequent delivery period?

OVERALL ACHIEVABILITY

Overall, is the accounting officer satisfied that a PFI procurement programme is achievable, given an assessment of the market, Authority resources and the attractiveness of the proposal to the market?