Risk Management and Governance for PFI Project ... - Title Page - MIT

yen (Nagano Board of Trade, 2006).
● Concept of flexible design: in the design stage, there was a concept to keep the airport
plan compact and then to expand it when the user demand increased (Nagano Board of
Trade, 2006). This is a good example of using the concept of real option approach.
Next, successful cases from the UK will be introduced. The first case is a prison that has achieved a
reduced life cycle cost, and the second case is an airport that used the method of concession.
[PFI] Lowdham Grange Prison (UK)
-- Success in reducing operating costs by effective design
Project overview
Basics
Used the project delivery method of 25
years DBFO (PFI)
Project area Prisons
Orderer HM Prison Service
Contractor
Effective design for reducing operating costs
Project period 25 years from 1998
Lowdham Grange Prison Services Ltd (Joint venture company equally
owned by Serco Group plc and Wackenhut Corrections Corporation)
Project method Design, Build, Finance & Operate (DBFO), one of the methods of PFI
Corporate structure Financially free-standing project
Amount of the contract 35 million pounds
● Project includes the construction and the 25 years operation and maintenance of prison,
which can accommodate 500 prisoners. The total project cost is covered by capitals and
bank loans of the parent company. After recovering the funds by the fee the government
will have continued to pay for 25 years, then the contractor will transfer the facility to the
government.
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Achieved 10% reduction in the cost of
construction and operation than
originally estimated