Skip to main content

The Key Element of PPP: Risk

Abstract

The amount of risk transferred to the private operator must be enough to create the incentives that enhance the efficiency of delivery. But transferring risk has a cost in terms of increased finance costs. These affect the scale of the unitary charge, and hence only those risks that can be identified, managed and mitigated by the private operator should be allocated to them. Risk is also, in some jurisdictions, a crucial variable in terms of contract qualification and accounting treatment, and it must therefore be assessed objectively in both financial and economic appraisals. In this chapter, the key dimensions of risk assessment in these contexts are analysed in detail.

Keywords

  • Risk
  • cost
  • finance costs
  • rate of return
  • financial appraisal
  • economic appraisal

This is a preview of subscription content, access via your institution.

Buying options

Chapter
USD   29.95
Price excludes VAT (USA)
  • DOI: 10.1007/978-3-319-69563-1_3
  • Chapter length: 22 pages
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
eBook
USD   39.99
Price excludes VAT (USA)
  • ISBN: 978-3-319-69563-1
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
Softcover Book
USD   54.99
Price excludes VAT (USA)
Hardcover Book
USD   54.99
Price excludes VAT (USA)
Fig. 3.1
Fig. 3.2

Notes

  1. 1.

    According to Eurostat, the term PPPs “will be exclusively used to describe those long-term contracts in which government pays to a non-government partner all or a majority of the fees under a specific contractual arrangement, thus covering most of the total cost of the service provided (including the amortisation of the assets). In national accounts, this feature distinguishes PPPs from concessions. In a concession contract, government makes no regular payments to the partner, or such payments, if they exist, do not constitute a majority of fees received by the partner. In a PPP contract the final users do not pay directly (i.e. in a way proportional to the use of the asset and clearly identified only for this use), or only for a minor part (and generally for some specific uses of the asset), for the use of the assets for which a service will be provided”.

References

  • Boardman, A., & Hellowell, M. (2016). A Comparative Analysis and Evaluation of Specialist PPP Units’ Methodologies for Conducting Value for Money Appraisals. Journal of Comparative Policy Analysis, 19(3), 191–206.

    CrossRef  Google Scholar 

  • Carillo, P., Robinson, H., Foale, P., Anumba, C., & Bouchlaghem, D. (2008). Participation, Barriers, and Opportunities in PFI: The United Kingdom Experience. Journal of Management in Engineering, 24, 138–145.

    CrossRef  Google Scholar 

  • Eurostat. (2016). Manual on Government Deficit and Debt. Luxembourg: Eurostat.

    Google Scholar 

  • Farquharson, E., de Mästle, C. T., & Yescombe, E. R. (2011). How to Engage with the Private Sector in Public-private Partnerships in Emerging Markets. Washington, DC: World Bank Publications.

    CrossRef  Google Scholar 

  • Hellowell, M., & Pollock, A. M. (2009). Non-profit Distribution: The Scottish Approach to Private Finance in Public Services. Social Policy and Society, 8(03), 405–418.

    CrossRef  Google Scholar 

  • Hellowell, M., & Vecchi, V. (2012). An Evaluation of the Projected Returns to Investors on 10 PFI Projects Commissioned by the National Health Service. Financial Accountability & Management, 28(1), 77–100.

    CrossRef  Google Scholar 

  • Hellowell, M., & Vecchi, V. (2015). The Non-Incremental Road to Disaster? A Comparative Policy Analysis of Agency Problems in the Commissioning of Infrastructure Projects in the UK and Italy. Journal of Comparative Policy Analysis: Research and Practice, 17, 519–532. http://dx.doi.org/10.1080/13876988.2015.1016773.

  • Hellowell, M., Vecchi, V., & Caselli, S. (2015). Return of the State? An Appraisal of Policies to Enhance Access to Credit for Infrastructure-based PPPs. Public Money & Management, 35(1), 71–78.

    CrossRef  Google Scholar 

  • Lonsdale, C. (2005). Risk Transfer and the UK Private Finance Initiative: A Theoretical Analysis. Policy and Politics, 33(2), 231–249.

    CrossRef  Google Scholar 

  • National Audit Office. (2013). Review of the VFM Assessment Process for PFI.

    Google Scholar 

  • Office of the Auditor General of Ontario. (2014). Annual Report.

    Google Scholar 

  • Pollitt, M. (2005). Learning from UK Private Finance Initiative Experience. In G. A. Hodge & C. Greve (Eds.), The Challenge of Public-private Partnerships: Learning from International Experience (p. 207). Cheltenham: Edward Elgar Publishing.

    Google Scholar 

  • Pollock, A. M., Dunnigan, M. G., Gaffney, D., Price, D., & Shaoul, J. (1999). The Private Finance Initiative: Planning the “New” NHS: Downsizing for the 21st Century. BMJ: British Medical Journal, 319(7203), 179.

    CrossRef  Google Scholar 

  • Shaoul, J., Stafford, A., & Stapleton, P. (2008). The Cost of Using Private Finance to Build, Finance and Operate Hospitals. Public Money & Management, 28(3), 101–108.

    CrossRef  Google Scholar 

  • Siemiatycki, M., & Farooqi, N. (2012). Value for Money and Risk in Public–private Partnerships: Evaluating the Evidence. Journal of the American Planning Association, 78(3), 286–299.

    CrossRef  Google Scholar 

  • Vecchi, V., Hellowell, M., & Gatti, S. (2013). Does the Private Sector Receive an Excessive Return from Investments in Health Care Infrastructure Projects? Evidence from the UK. Health Policy, 110(2), 243–270.

    CrossRef  Google Scholar 

  • Vecchi, V., Hellowell, M., della Croce, R., & Gatti, S. (2017). Government Policies to Enhance Access to Credit for Infrastructure-based PPPs: An Approach to Classification and Appraisal. Public Money & Management, 37(2), 133–140.

    CrossRef  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

Editor information

Editors and Affiliations

Rights and permissions

Reprints and Permissions

Copyright information

© 2018 The Author(s)

About this chapter

Verify currency and authenticity via CrossMark

Cite this chapter

Vecchi, V. (2018). The Key Element of PPP: Risk. In: Vecchi, V., Hellowell, M. (eds) Public-Private Partnerships in Health. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-69563-1_3

Download citation