1.15 The essence of PFI is that authorities provide contractors with an output specification of the services they require. Contractors then have the responsibility and risk for deciding how they will provide those services. If authorities tell contractors how the services are to be provided, they are transferring the risk back to themselves. Contractors told us that authorities sometimes attempted to define the technical solution, or had expectations on how a service should be provided, which limited contractors' freedom to propose alternatives. Where an authority believes it must prescribe aspects of how a service should be delivered then, where practicable, this should be made clear to all bidders at the outset of the procurement.
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| Examples of contractors' perception of inappropriate risk transfer | ||
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| TAFMIS 'There have been some minor risks, principally arising from uncertainty over requirements e.g. quantity of terminals, that have in the contractor's view been inappropriately passed to it.' | A19 'Traffic flow risk transferred to the contractor was inappropriate because payment depended on traffic flows which the contractor cannot control.' | RAF Mail 'The contractor is carrying all of the cost risk. However, the revenue is dependent on the number of users which is not guaranteed. There are variable tariffs to compensate for low use but very low use will reduce revenue dramatically.' |
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| Source: National Audit Office survey of contractors | ||