Gao , Simon S and Handley-Schachler, Morrison (2003) Public bodies’ perceptions on risk transfer in the UK’s private finance initiative. Journal of Finance and Management in the Public Services, 3 (1). pp. 25-39. ISSN 1475-1283

Abstract/Description

This paper presents a preliminary study of public bodies’ perceptions relating to risk transfer in the
UK private finance initiative (PFI). The study is based on semi-structured interviews conducted
during the period from April to October 2002 at three public bodies which had used PFI to finance
capital projects located in Scotland, Wales and England. Overall there is a mixture of impressions
from the interviewees on attitudes to risk transfers and how risks were quantified in decisionmaking.
The study reveals that PFI has definite advantages over conventional contractual and
financing arrangements for public sector projects in a number of areas. However, these advantages
do not predominately derive from risk transfer as generally suggested by the UK government. The
client-contractor split, rather than risk transfer, was seen as being in many ways the most beneficial
feature of the PFI. Given the lack of experience and expertise of public sector bodies in assessing
and valuing risks, more training of risk management in procurement is clearly needed for public
sector managers.

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