7.18 A key objective of the review of PFI has been to ensure better value for money in future projects. PFI has been applied across a wide range of projects from accommodation based projects, such as schools and hospitals, to more complex projects such as waste management and military equipment. This rich experience has continued to develop governments' knowledge as to where private finance delivery solutions work best.
7.19 Many of the suitability criteria identified for PFI will continue to apply and should be considered as part of the project appraisal process. For example, long-term planning horizons and confidence that the infrastructure and services will be required throughout the life of the contract will continue to be essential considerations. The decision to invest in a capital asset, however financed, is a significant commitment. However, the costs of unwinding a long-term privately-financed contract are greater than a conventionally funded alternative and so particularly careful consideration needs to be given to the initial investment decision. Recent experience has shown that caution should also be exercised in other areas, for example we have seen that projects can become so large and complex that the private sector may struggle to bear the risks inherent in the project.
Box 7.B: Project characteristics for which PF2 may be suitable Project characteristics for which PF2 may be suitable include where: • there is a major capital investment need, requiring effective management of risks associated with construction and delivery; • a stable policy environment and long term planning horizons exist, so there is a high degree of confidence the infrastructure and services will be required throughout the life of the contract; • the nature of the requirement allows the public sector to define its needs as service outputs that can be adequately contracted for in a way that ensures effective and accountable delivery of public services over the long term, thus ensuring risk allocation between the public and private sectors can be clearly defined and enforced; • the nature of the assets and services identified as part of the scheme, as well as the associated risks, are capable of being costed on a whole life, long term basis; • a slow rate of technological change - as projects involving a high IT content are unlikely to provide the stability in demand required for a PF2 approach; • a capital investment in excess of £50 million - as less capital intensive projects seldom justify the procurement and management costs involved; and • a project is not so large or complex that the private sector is unable to bear the risks being transferred. |