DESIRABILITY

PFI can provide better risk management and produce incentives to develop innovative approaches to output delivery. Consistent high quality services can be incentivised through performance and payment mechanisms. However, risk transfer is priced into the contract. The purpose of these questions is to consider whether the benefits of PFI are likely to outweigh any additional costs and disbenefits.

Issue

Question

Stage 1 Assessment Requirement

Risk management

Is the private sector likely to be able to manage the generic risks associated with the programme more effectively than the procuring authority?

Using evidence from existing programmes and projects, the project team will need to assess and establish whether the Department has sufficient expertise to manage the risks in whole or in part or whether the private sector is better placed to manage these risks. Generic risks that need to be considered include the potential likelihood of cost/time over-runs with reference to both conventional and PFI procurement.

Bearing in mind the relevant risks that need to be managed for the programme, what is the ability of the private sector to price and manage these risks?

The project team will need to provide evidence from existing contracts delivering similar or analogous services whether the private sector has or has not been able to price and manage the relevant risks satisfactorily to. ensure that best value is achieved and retained in terms of price, service level quality and the delivery mechanism.

Can the payment mechanism and contract terms incentivise good risk management?

The project team will need to provide evidence from existing contracts delivering similar or analogous services whether the payment mechanism and contract terms can or cannot genuinely incentivise good risk management to ensure that best value is achieved in terms of price, service level quality and performance.

Innovation

Is there scope for innovation in either the design of the solution or in the provision of the services?

The project team will need to provide evidence as to the potential scope for innovation by reference to contracts for similar or analogous services. Lack of innovation does not prevent the delivery of the service via PFI.

Does some degree of flexibility remain in the nature of the technical solution/service and/or the scope of the projects? Is the solution adequately free from the constraints of imposed by the procuring authority, legal requirements and/or technical standards?

The project team will need to establish and identify to what extant is the projects's scope, specification and operation pre-set or open to negotiation with the private sector. The project team will also need identify the degree of flexibility that will be given and whether the design of the solution is free from any imposed standards. The project team must identify any potential restrictions that may inhibit innovation.

Does a preliminary assessment indicate that there is likely to be scope for innovation in the programme?

Project teams need to identify where innovation may occur and the likelihood of it happening in the project.

Contract Duration & residual value

How far into the future can service demand be reasonably predicted?

The project team will need to provide evidence to underpin their assumptions as to future service demand by commenting on:

• Possible changes in future service due to demographics, technological advances or policy changes;

• Certainty of requirement and potential changes in End-user requirements;

• Whole life costs including design and economic life of assets;

• The number of major asset upgrades or refurbishments; and

• Risk management and incentivisation.

What is the expected life of the assets? What are the disadvantages of a long contract length?

The project team will need to provide an estimate underpinned by evidence as to the expected life of the assets. The project team will need to consider the following factors in their response for advantages or disadvantages of a long term contract:

• Certainty of requirement;

• Asset lives (including major maintenance and renewals)

• Continuity of service

• Incentivisation and risk management

• Ability to re-compete the contract regularly

• Certainty of cost base

Are there constraints on the status of the assets after the contracts end?

Incentives and monitoring

Can the outcomes or outputs of the investment programme be described in contractual terms, which would be objective, specific and measurable?

The project team will need to provide evidence from contracts providing similar or analogous services as to whether it can conceive meaningful contract, which is unambiguous and measurable.

Can the service be assessed independently against an agreed standard?

The project team will need to provide evidence from contracts providing similar or analogous services as to whether it can be assessed against agreed standards.

Would incentives for delivery of service levels be enhanced through a PFI payment mechanism?

The project team will need to consider whether the service lends itself to establishing a genuinely incentivised payment regime to ensure that best value is achieved and retained in terms of price and quality of service.

Lifecycle costs

Is it possible to integrate the design, build and operation of the projects in the programme?

Integrating design, build and operation should lead to facilities that are designed to focus on the whole costs. The project team will need to assess whether this possible and the potential benefits that may accrue. If this is mot possible, will need to explain the reasons as to why not.

Are there significant ongoing operating costs and maintenance requirement? Are these likely to be sensitive to the type of construction?

OVERALL DESIRABILITY

Overall, is the accounting officer satisfied that PFI would bring sufficient benefits that would outweigh the expected higher cost of capital and any other disadvantages?

The project team will need to provide a brief narrative summarising the main benefit and dis-benefits of using PFI procurement over conventional procurement.