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

[PFI] Kochi Health Sciences Center
-- Rigid contract and failure of the creation of management incentive
Redevelop the hospital due to the aging
of the Prefectural Hospital
Project overview
Basics
Project period 30 years
Project method
Corporate structure
BTO (main hospital facility)
BOT (staff quarters)
Services sold projects (management of general services facilities:
financially free-standing projects)
Selection Method Open-Application Proposal Method (Single Tendering)
Amount of the contract
213.19 billion yen (Construction cost: 33.7 billion yen; equipment
purchase cost: 15.1 billion yen; management and operation cost
(including interest expense) 1,644 billion yen)
● The need to redevelop the hospital was increased due to the aging of the prefectural
hospital. The Hospital opened as the first hospital using PFI in March 2005.
Unforeseen impact
● The hospital has been continually in the red. In 2008, the cumulated deficit reached 8.1
billion yen and faced management crisis.
● In June 2009, SPC proposed to have a consultation regarding termination of the PFI
contact. The contract was cancelled in March 2010.
Causes of problems
• Failure to create incentives for the SPC
• Inflexible contract
• Lack of understanding and communication
between the public and private sectors
● Failure of creating management incentive for SPC: a payment to SPC was
immobilized regardless of business performance. As a result, it had the SPC to be
uncooperative lacking management for the company commissioned, not improving the
items that do not meet the required service level.
● Inflexible contract: because of the long-term contract for 30 years, it is difficult to make
a flexible contract which can appropriately cope with new problems associated with
96
Hospital had been continually in the red
and finally contract was cancelled