The U.K. Revolution in Public Procurement and the Value of Project Finance

Abstract

The Private Finance Initiative (PFI) has radically affected the way public contracts are awarded in the United Kingdom. Public-sector project appraisals in the past did not take into account the cost of risks left with the public sector. Those appraisals now include discounted-cash-flow valuations to facilitate the comparison of different approaches. The are expected to embrace the fullest possible capital, operating, and other costs and to estimate the cashflow effects of bad public-sector procurement. Whether or to contracting with the private sector can improve the infrastructure procurement process depends on the adequate transfer of construction, operating, upgrade, quality, demand, and other familiar project-finance risks.