3.3 In order to obtain the benefits of private finance there is an associated risk premium payable compared with government gilts. This risk premium represents the cost of the private sector taking on and managing certain risks within a project that would otherwise be managed by the public sector and borne by taxpayers were the project wholly financed by public funds.
3.4 The Government's standard contractual terms for PFI projects (SoPC4) contain risk-sharing mechanisms and contract provisions that are designed to allow contracting with a project-financed Special Purpose Vehicle (SPV). While SoPC4 is only mandatory for PFI contracts, many of the contractual provisions and commercial positions set out within it are equally applicable to other forms of PPP. Procuring authorities are strongly urged to consider SoPC4 when negotiating contracts for alternative PPP solutions, particularly where private finance is used to fund all or an element of the capital requirement for the project. The Government will keep under review the need to adapt and extend guidance currently specific to PFI to other PPP models.