Risk transfer and allocation in PFI / PPP projects

All projects are subject to risk: at the planning and consultation stage, the contract stage, the implementation stage and even during maintenance of the finished product. It is important to understand how risk transfer and allocation works with Private Finance Initiatives (PFI) and Public Private Partnerships (PPP), both in the UK and internationally.

Risk determines whether a project is value for money (vfm): the ‘risk adjusted whole-of-life cost of a project’ determines whether it should have public or private finance or indeed whether it should proceed at all. From a financial point of view, risk must be measured in terms of cost or lost value. However, the evaluation of risk is often difficult, both in terms of the kind of risk and the detailed information required to make a judgement.