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

● The use of an outputs specification approach to describe the Authority's requirements
● A rigorously executed transfer of risks to the parties which are responsible for them
● Sufficient flexibility to ensure that any changes to the original specification can be
accommodated at reasonable cost;
● Ensuring sufficient incentives within the procurement structure and the project contracts to
ensure that assets and services are developed and delivered in a timely, efficient and effective
manner
● The term of the contract should be determined with reference to the period over
● There are sufficient skills and expertise in both the public and private sectors
● Managing the scale and complexity of the procurement
Accordingly, VFM can be achieved “by establishing a competitive and contestable market for
infrastructure projects; from private sector innovation and skills in asset design, construction
techniques and operational practices; and from transferring key risks in design, construction
delays, costs overruns and finance and insurance to private sector entities for them to manage.”
(Grimsey & Lewis, 2004)
However, Kaneko et al. pointed out that most of the Japanese PFI projects that have been
conducted so far were recognized to produce a significant VFM, but a substantial portion of
the VFM resulted from an enhancement of the transparency of procurement procedures and not
from the PFI method itself. In other word, this VFM was not necessarily produced by
exercising creativity through the collaboration of public and private sectors (Development
Bank of Japan, Research Center for Regional Policy, 2004). Also, Noda claims that the cause
of a high VFM in Japanese PFI projects is considered to be largely a result of the principle of
competition (Noda Y. , 2004). In this way, a review of the more fundamental VFM drivers is
required for the PFIs in Japan.
Benefits and Disadvantages of PFI
The National Audit Office (NAO) in the UK issued a report called "Lessons from PFI and
other project" in 2011, where it has warned against the easy choice of the PFI method by
describing disadvantages of the PFI contract, remarking that "Government should also do more
to act as an 'intelligent customer' in the procurement and management of projects." It
summarized the benefits and disadvantages in Table 11.
It is remarkable that the potential disadvantages in the table included specific weaknesses in
the PFI, such as an inflexibility, increased cost of finance, and the ultimate risk on the public
sector. It is noted that a conventional scheme can be desirable for some project than a PFI
scheme (Bennett & Iossa, 2006). It is also said that, in the UK, a PFI was successful in some
cases, such as prisons, but failed in other cases, such as schools and hospitals. The former
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