5.26 Guidance has been issued on interest rate and inflation risks in PFI projects. The purpose of the guidance is to help procuring authorities and their advisors develop, evaluate and implement cost-effective strategies for managing interest rates and inflation. The guidance "Application Note - Interest Rate & Inflation Risks in PFI Contracts"17 can be found on the HM Treasury website. In determining the value of financial flexibility, procuring authorities need to take proper account of:
• The need for flexibility in determining the procurement strategy;
• The cost of any flexibility within the VfM evaluation framework used by procuring authorities; and
• Whether loss of flexibility due to affordability constraints can adversely impact overall VfM.
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17 http://www.hm-treasury.gov.uk/media/295/98/pfi_hedging120506.pdf