ISSN 1608-7143 OECD JOURNAL ON BUDGETING Volume 5 – No. 3 © OECD 2006

The United Kingdom Private Finance Initiative: The Challenge of Allocating Risk by David Corner∗

Since 1992, the United Kingdom has used a new type of public-private partnership for the delivery of public services: the Private Finance Initiative. In the design of PFI projects, the assessment of risk, and who is best able to manage it, needs to be carefully considered. Using data from government reports and case examples in the British public sector, this article explores aspects of procurement including, among other things, due diligence, public sector comparators, and the consequences of taking back the responsibility for delivering the service (taking back risk). PFI contracts can deliver better value for money than traditional methods of procurement if risks are transferred to the parties best able to handle them. The article concludes with a discussion of guidelines on generally accepted accounting practice and indicators for assessing risk.

∗ David Corner is Director of Corporate Policy in the United Kingdom National Audit Office. This article was originally published as Chapter 3 in Graeme Hodge and Carsten Greve (eds.) (2005), The Challenge of Public-Private Partnerships: Learning from International Experience, Edward Elgar Publishing, Cheltenham, United Kingdom, and Northampton, MA, United States, pages 44-61. Reprinted with permission from the editors and the publisher.

OECD JOURNAL ON BUDGETING – VOLUME 5 – NO. 3 – ISSN 1608-7143 © OECD 2006

38 – THE UNITED KINGDOM PRIVATE FINANCE INITIATIVE: THE CHALLENGE OF ALLOCATING RISK

1. Introduction
The United Kingdom (UK) has been at the forefront of the development of innovative approaches to engaging the private sector in the delivery of public services. In 1992 the UK embarked upon a new type of public-private partnership,