F38 Many PFI contracts provide for penalties if the property is below a specified standard or is unavailable because of operator fault. (Penalties relating purely to services, however, are not relevant and should not be brought into the assessment.) These penalties may take the form of either cash payments or reductions in revenue. It will be important to assess both the likelihood of the penalty occurring in practice and whether the likely payments are significant. For example, a penalty may have little impact in practice because the contract gives the operator ample time to rectify the fault or the penalty is invoked only if the property is completely unavailable. Where, as in this example, potential penalties are either not significant or are unlikely to occur, this is evidence that the property is an asset of the purchaser.
F39 Conversely, the penalty mechanism may have the effect that the operator's profits associated with the property are genuinely subject to significant potential variation. For example, a PFI contract for a road may contain penalty clauses if lanes are closed for more than a minimal period for maintenance, with the penalty being significant and having a reasonable possibility of occurring. This would be evidence that the property is an asset of the operator.