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 disadvantages. | |||
Issue | Question | ||
Risk management | 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 update the Stage 1 assessment by identifying how risks are to be allocated between the Authority and the private sector. This includes those risks that are to be retained and managed by the Authority. | |
| Can the payment mechanism and contract terms incentivise good risk management? | The project team will need to update the Stage 1 assessment. The project team will need to state whether they intend to seek any specific derogations from the MOD Project Agreement. | |
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 update the Stage 1 assessment. | |
| Does some degree of flexibility remain in the nature of the technical solution/service and/or the scope of the project? Is the solution sufficiently free from the constraints imposed by the Authority, legal requirements and/or technical standards? | The project team will need to update the Stage 1 assessment by providing evidence, where appropriate, of any constraints that reduce flexibility or the nature of the technical solution being proposed. | |
| Does a preliminary assessment indicate that there is likely to be scope for innovation in the programme? | The project team will need to update the Stage 1 assessment by identifying areas where innovation in the delivery of services is likely to happen. | |
| Could the private sector improve the level of utilisation of the assets underpinning the project (e.g. through selling, licensing, commercially developing for third party usage etc)? | The project team will need to provide evidence as the potential third-party revenues opportunities and what the likelihood of generating sufficient revenues. | |
Contract duration and residual value | How far into the future can service demand be reasonably predicted? What is the expected life of the assets? What are the disadvantages of a long contract length? | The project team will need to provide evidence to underpin their assumptions as to future service demand and contract length. The project team need to consider: • Possible changes in future service either due to technological advances or policy changes; • 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. | |
| Are there constraints on the status of the assets after the contracts end? | Project team to update the Stage 1 assessment. | |
| Given the possibility of changes to the requirement, the assets and the operating environment, is it possible to sustain value for money over the life of the contract utilising as appropriate, mechanisms such as benchmarking and technology re-fresh? | The project team will need to provide evidence as to how they intend to maintain long term VFM over the duration of the contract. If the project team is not going to use either benchmark or market testing, they need to identify what other mechanisms they intend to use. | |
Incentives and monitoring | Can the outcomes or outputs of the investment programme be described in contractual terms, which would be objective and measurable? | The project team will need to update the Stage 1 assessment by providing evidence they have produced a meaningful draft contract which is unambiguous and requirements are measurable. | |
| Can the service be assessed independently against an agreed standard? | The project team will need to update the Stage 1 assessment by providing evidence of the draft set of standards that they intend to use to measure performance | |
| Would incentives for service delivery be enhanced through a PFI payment mechanism? | The project team will need to update the Stage 1 assessment and provide evidence to underpin their assumptions. | |
Lifecycle costs | Is it possible to integrate the design, build and operation elements of the project? | The project team will need to update the Stage 1 assessment highlighting the elements of the project that will be integrating design, build and operation. Where integration does not happen, the project will need to explain the reasons why not. | |
| Are there significant ongoing operating costs and maintenance requirement? Are these likely to be sensitive to the type of construction? | The project will need to update the Stage 1 assessment. | |
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 whether the additional cost (risk premium) of PFI outweigh the benefits that it has over conventional procurement | |