F35 This factor relates to who determines how the PFI contract is to be fulfilled and, in particular, what kind of property (road, hospital etc) is to be built. Where in essence the purchaser determines the key features of the property and how it is to be operated, bearing the cost implications of any changes to the method of operation, this is evidence that the property is its asset. The purchaser may determine the key features of the property explicitly by agreeing them as terms of the PFI contract or, for example, through a contractual acceptance provision at the end of the construction phase. Alternatively, the purchaser may implicitly determine the key features of the property. For example, a contract for a road may specify that the road will revert to the purchaser in a predefined state after a relatively short period: this may have the effect that the operator has little discretion over the standard of road to build in the first instance or how it is maintained subsequently.
F36 Conversely, where the operator has significant and ongoing discretion over how to fulfil the PFI contract and makes the key decisions on what property is built and how it is operated, bearing the consequent costs and risks, this is an indication that the property is the operator's asset. For example, this would be the case if the operator is free to redesign the property extensively during the term of the contract (perhaps even to scrap the original property and build a replacement), in the hope of reducing its costs. Similarly, in a PFI contract to design, build and operate a road, the operator may have complete discretion over the balance between the quality of the original road built and the consequent level of maintenance costs.
F37 Design risk is the risk that the design of the property is such that, even if it is constructed satisfactorily, it will not fully meet the requirements of the contract. This is part of the question of who determines the nature of the property, discussed above. In contrast, construction risk refers to who bears the financial implications of cost and time overruns during the construction period (and related warranty repairs caused by poor building work after the asset has been completed). Construction risk is not generally relevant to determining which party has an asset of the property once construction is completed, because such risk normally has no impact during the property's operational life. However, construction risk may be relevant where it calls into question the other evidence. In particular, if the purchaser is bearing construction risk in a project in which the property is claimed to be that of the operator, it will be necessary to look closely at the other terms of the transaction to determine whether the property really is the operator's asset and is not actually an asset of the purchaser.