Construction Procurement Research
Research into Private Finance Initiatives (PFIs):
We aim to work with other Departments and organisations in the wider public sector to increase the opportunities for innovation arising from public sector procurement of around £100 billion per year. The Private Finance Initiative (PFI) is a relatively new public procurement approach that originated in the UK. It is often used for the procurement of construction projects and involves substantial risk transfer to the private sector. It has been suggested that PFIs with their risk transfer and long-term contracts often have an involved procurement process. As the Department has a remit covering the construction industry and improving procurement, economists working on the sector have carried out work on procurement and risk transfer to promote understanding of PFIs and innovation in procurement.
PFI school procurement, Analysis of a DTI survey of English Local Authorities
This working paper is a study of 28 English Local Authorities that procured PFI education projects. It is based on a voluntary survey of Authorities who procured PFI schools between 1996 and 2002, and aims to improve understanding of the PFI process. The work contains information on: The type of projects, their unitary payments and risk transfer, the procurement process and the costs of external advisors employed on the projects. Amongst the issues discussed are: The determinants of project and external advisor costs, the distribution of advisor costs between different types of advice, and the duration of construction and procurement.
The economics of PFI risk transfer
This working paper undertakes an economic analysis of the risk transfer in PFIs. In it, a simple economic model of a PFI is developed which examines the effects of different levels of risk aversion on the part of the Government and the PFI contractor. The ability of the contractor to control cost uncertainty is modelled and a simple microeconomic condition indicating when PFIs might be optimal is derived. The effects of PFIs on efficient technology use are discussed and the implications of the Government’s access to cheaper capital analysed.
The views expressed in this paper are those of the author and should not be treated as Government policy. We welcome feedback on the issues raised, and comments should be sent to Nick Scott.
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