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

● Absence of supervisory function: there was a problem in the supervisory function,
which lacked the proper partnership between the designer, superintendant and
constructor.
To reduce the construction defect risk, a strengthening of the supervisory function would be
primary. The orderer must have the ability to fully understand the contents of the submitted project
documents and to evaluate them properly. At the same time, by recognizing the cost-cutting efforts
of the operator towards compressing the construction costs, the orderer should strengthen the
inspection system to ensure the required strength and avoid shoddy construction throughout the
project period from the design to the completion.
It can be also observed that there was a problem in the way the risk of building damage was shared.
There is an opinion that arranging for a payment reduction of the facility maintenance costs would
give an economic incentive to the operator to ensure the safety of the facility. (Nagoya Urban
Institute, 2008)
Summary
This chapter introduced several cases of both successful and failed PFIs. The successful examples
were projects that were able to utilize the private sector’s strength, originality and management
efforts. In the case of Chubu International Airport, it succeeded in reducing significant construction
costs through the private company’s cost-cutting efforts, which would not have been achieved by
the conventional method. The case of Lowdham Grange was successful in reducing the life cycle
costs by the creative design that achieved an efficient operation. In the case of Luton airport, the PFI
concession method enabled to respond the rapid growth of demand with the ingenuity of facilities.
As for the troubled cases, this chapter introduced three examples of projects that were interrupted
and whose risk became actualized. Taraso Fukuoka was bankrupted due to the poor project finances
and the excessive relocation of demand risk. Ohmihachiman General Hospital almost collapsed
financially because of an improper design for setting up a management incentive, an ambiguous
contract, and a poor partnership between stakeholders. In the Spopark Matsumori case, the project
was halted due to a facility collapse. One of the causes was shoddy construction, which potentially
resulted from a disabled supervisory function and insufficient risk relocation to the private sector.
The subsequent chapters will discuss the issues related to the whole PFI system, such as risk
management and decision-making processes on the basis of lessons learned from the cases
described in this chapter.
52