The Private Finance Initiative (PFI) was launched in Autumn 1992 by the then Chancellor of Exchequer, its aim being to bring the private sector into the provision of services traditionally regarded as public. A key criteria for evaluation of any PFI `deal' is whether the public sector has achieved value for money (VFM), this being a test to whether the PFI solution represents better value for money than the traditional procurement on a whole life cost basis. Additionally each deal must be "off-balance" sheet, satisfying accountancy regulations (i.e. FRS5 and/or SSAP21), demonstrating that sufficient risk is transferred to the private sector, emphasising for both VFM and "off-balance" sheet treatment the importance of evaluating risk within a project. Conducting a risk analysis is a lengthy exercise, however it is a valued exercise since there are wider benefits to be gained by the sponsor, in addition to evaluating value for money, such as increased project understanding, scope issues, a checklist for writing an effective contract and an aid for forecasting the future. Confusion can arise when evaluating risk for a project under two distinct procurement routes. A comprehension of the risks relating to the scope and cost components of the procurement scenarios being compared need to be well understood before commencing a risk analysis. The aim of the paper is to provide guidance on both theoretical and practical aspects, highlighting the potential pitfalls of a risk analysis.
Abstract