The effect of deploying Prudential Borrowings in whole or part funding of a procurement, is to place public sector capital at risk in substitution for private sector capital. In this context, it is important to remember that under PFI (and PPP following PFI principles), 100% of private sector invested capital (both equity and debt) should be and normally is placed at risk to long-term performance. Accordingly, it is not possible, using Prudential Borrowings, to replicate the same degree of risk transfer as achieved under PFI (or PPP following PFI principles).
Nonetheless, insofar as an Authority will be placing its capital contribution at risk within a non-PFI procurement, the Authority will wish to carry-out due diligence in its capacity of capital funder, in addition to that which it would naturally perform as a procuring authority. That is, to help ensure that funds committed to a procurement under Prudential Borrowings enjoy similar risk mitigation to that enjoyed by the private finance for which they are substituting, an Authority will need to perform its due diligence scrutiny to the same rigorous standards as applied by banks and investors. The cost of this due diligence is likely to be unchanged if the same level of comfort if sought. Essentially the same level of care should be taken with deployment of public finance as for private finance.
On a project which uses Prudential Borrowing, an Authority will need to ensure that it has the resources and expertise to deliver due diligence and on-going contract management to the required standard. An Authority should be aware of the costs of such a process and recognise that it may find it difficult to assemble and retain the skills required to perform this role for a single project. To the extent that risks are retained, rather than transferred by an Authority because of its chosen procurement route, so corresponding provision must be made by the Authority, in terms of budgetary contingencies, skills and management resources to manage, mitigate and absorb these risks.