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Footnotes
1. Many projects involve some sort of partnership
between the public and private sectors. We restricted this
study to projects that involve long-term payments to the
private sector in return for the provision of a public
service asset.
PPP projects of this type are often
referred to as Private Finance Initiative (
PFI) projects.
PPP projects typically differ from
conventionally procured projects in that a single contract
is let for the design, construction and operation of an
asset and long-term financing is provided by the private
sector.
2. In most
PPP contracts, a significant proportion
of the payment to the contractor is linked to the asset
being available for use by the public sector at the
contracted standard.
3. In contrast with operational risks, construction
risks can be measured more easily in terms of whether the
assets were delivered to time and budget.
4. The low response rate may also reflect the
possibility that some of the smaller projects are not
considered by authorities to be 'true'
PPPs.
5. Although note that we believe that it should be
possible to procure using 'Design, Build and Operate'
structures using public finance and gain some or all of
these benefits.
6. With the exception of some special situations,
for example complex
IT contracts.
7. Design, build,
finance and operate (
DBFO) as opposed to design, build and
operate (
DBO)
8.
PFI: Meeting the investment challenge (
HMT), July 2003
9. 1989 in the case of the Skye Bridge project,
which was a
PPP style project but preceded the
private finance initiative.
10. The public sector may be more exposed if the
project will be bond-financed since, unlike in the case of
bank debt, the margin on the bond is not pre-fixed.
11. For example, increasing the interest rate from 7
percent to 8 percent would increase each annual repayment
on a 25 year annuity by 9 percent. Even after discounting
at 6 percent real, the increase in
NPV could well be greater than 5
percent.
12. The
NAO 2001 'Modernising Construction'
report found that some 70 percent of projects were
delivered late.
13. The 2001
NAO report 'Modernising Construction'
found that the 73 percent of government construction
projects ran over budget.
14. It was not clear whether this reflects the fact
that contracts do not allow authorities access to
information or that authorities are not exercising their
rights.
15. Only 2 respondents considered that the service
exceeded expectations.
16. Local authorities are responsible for
PPPs in the education, local transport
and waste sectors.
17. One of the issues noted in carrying out this
survey has been the time costs imposed on respondents
required to answer detailed procurement and financial close
questions on projects that closed many years ago.
18. Benchmarked services here relates to the
elements of the contract (e.g. soft
FM services) were there is an explicit
requirement or allowance for benchmarking of costs.
19. This is likely to involve a significant
'benchmarking exercise' of the kind that utility regulators
undertake to understand the efficiency of regulated
companies.
20. Taking the initiative: using
PFI contracts to renew council schools,
Audit Scotland 2002
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