Risk in Private Finance Initiative Projects::A Public Sector Perspective

The management of public sector risk is increasingly seen as a priority area of UK government policy. This has been highlighted recently by the Prime Minister Gordon Brown who stated that “the issue of public risk is one of the most challenging areas of policy-making for any government” (Strategic Risk, 2008). In response to these challenges, the UK Prime Minister has appointed a new body - the Risk and Regulation Advisory Council (RRAC) which is tasked with improving the way risk to the public is understood and managed. One area of particular concern with regard to the governance of public sector risks involves projects procured via the Private Finance Initiative (PFI). These projects involve long-term contracts, complex multi-party interactions and thus create various risks to public sector clients. Today, most PFI actors acknowledge the potentially adverse effects of these risks and make an effort to prevent or mitigate undesirable results. As a consequence, issues of risk allocation, risk transfer and risk management have become central to the PFI procurement process. This paper provides an overview of the risk categories and risk types which are relevant to the public sector in PFI projects. It analyses risk as a feature of uncertain future project-related events and examines potential pitfalls which can be associated with PFI risk management on the basis of a case study of a high-profile PFI hospital in Scotland. The paper concludes that, despite the trend towards diminished risk profiles during the operational phase, the public sector continues to be exposed to significant risks when engaging in PFI-based procurement.

Does the UK Local Finance Improvement Trust (Lift) Initiative Improve Risk Management in Public-Private Procurement?

The UK government introduced the Private Finance Initiative (PFI) and, latterly, the Local Improvement Finance Trust (LIFT) in an attempt to improve public service provision. As a variant of PFI, LIFT seeks to create a framework for the effective provision of primary care facilities. Like conventional PFI procurement, LIFT projects involve long-term contracts, complex multi-party interactions and thus create various risks to public sector clients. This paper investigates the advantages and disadvantages of LIFT with a focus on how this approach facilitates or impedes risk management from the public sector client perspective. Our paper concludes that LIFT has a potential for creating additional problems, including the further reduction of public sector control, conflicts of interest, the inappropriate use of enabling funds, and higher than market rental costs affecting the uptake of space in the buildings by local health care providers. However, there is also evidence that LIFT has facilitated new investment and that Primary Care Trusts (PCTs) have themselves started addressing some of the weaknesses of this procurement format through the bundling of projects and other forms of regional co-operation.

Finance, social economics and community development

The last three decades have seen social enterprises in the United Kingdom pushed to the forefront of welfare delivery, workfare and area-based regeneration. For critics, this is repositioning the sector around a neoliberal politics that privileges marketization, state roll-back and disciplining community groups to become more self-reliant. Successive governments have developed bespoke products, fiscal instruments and intermediaries to enable and extend the social finance market. Such assemblages are critical to roll-out tactics, but they are also necessary and useful for more reformist understandings of economic alterity. The issue is not social finance itself but how it is used, which inevitably entangles social enterprises in a form of legitimation crises between the need to satisfy financial returns and at the same time keep community interests on board. This paper argues that social finance, how it is used, politically domesticated and achieves re-distributional outcomes is a necessary component of counter-hegemonic strategies. Such assemblages are as important to radical community development as they are to neoliberalism and the analysis concludes by highlighting the need to develop a better understanding of finance, the ethics of its use and tactical compromises in scaling it as an alternative to public and private markets.