3. The national position on risk transfer was established in the Standardisation of PFI Contracts (SoPC) and further clarified in a number of sector specific contracts such as the Scottish Schools Standard Contract (SSSC). This position includes the principle of the private sector providing all the required funding up front, i.e. until such point when the contracted service is being delivered. Further, it encapsulates the resulting natural efficiency drivers and management incentives associated with risk capital. It is not in the interest of the public sector to dilute these drivers or alter the balance of risk, or as a consequence potentially alter the Value for Money (VfM) attributable to the project.
4. On a standard PPP project, therefore, public sector capital injections or unitary charges should not be payable until facilities have been completed and certified. Whilst capital injections made at the start of the unitary charge payment period may appear attractive in easing the overall affordability position of a PPP project, Procuring Bodies must ensure that the market response includes full acceptance of risk and total funding requirement. Any proposal to make a capital injection (either in cash or in kind) must be underpinned by a strong VfM case and this analysis must consider all aspects of the project, including protection under scenarios such as early termination and sub-contractor failure. Procuring Bodies need to demonstrate and satisfy their auditors that a commitment to provide a capital injection will not affect the balance sheet treatment of the project.
5. Public Bodies may under limited circumstances consider it appropriate at the Outline Business Case stage to plan for a capital injection into a PPP project. These circumstances include where:
I. land or other fixed assets are directly contributed to a project contract;
II. land or other fixed assets are disposed of with a view to releasing an equivalent sum into the project contract; and/or
III. wider development opportunities and proposals and/or co-financings arise in projects.
6. The term 'capital injection' in the context of this note means a contribution from the Procuring Body to a private sector partner. It does not indicate any specific accounting treatment.