2.17 The principles of the Private Finance Initiative put considerable emphasis on transferring risk to the private sector. There are three main reasons for this:
■ To provide strong incentives for the private sector to control risks.
■ To pass each risk to the party best able to manage it.
■ To encourage innovation and flexibility by giving the service provider discretion to determine how best to provide the service specified by the public sector.
2.18 By procuring the new facilities through an output based specification, the Department sought to transfer design risk to the private sector. Forcing resolution of its concerns over the design would mean that the Department would be taking back some of the risk it was paying the private sector to bear. The Department was also concerned that if it contributed to the design, then it might become responsible for some of the cost of correcting design defects and prejudice its other rights, including its rights of termination. However, the Department did not model a downside scenario in which those elements of the design over which it had concerns did not meet the specification. Such a model could have indicated to the Department the potential problems that it, Laser and JLC Ltd later faced.