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The private finance initiative. PFI in the NHS - Is there an economic case?

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Investment under the private finance initiative costs more than public sector procurement. The annual charge for the use of privately financed facilities is between 9.1% and 18% of the original construction cost, whereas as government can borrow at interest rates of 3.0% to 3.5%. The extra cost of private finance is disguised by the Treasury's insistence that NHS trusts discount costs at 6% per annum when comparing the costs of the private finance option with public sector investment. The amount of risk transferred to the private sector under privately financed deals has been exaggerated, leading to spurious attributions of additional value to private sector options.
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data are available on long term trends in exposure to
sunlight in Britain to confirm that such a reduction has
taken place. Reduced exposure to sunlight could have
adverse effects, but we believe that any advice to increase
exposure to sunlight is premature given the tentative
nature of our review and concerns about the changing
nature of sunlight exposure with the thinning of the
ozone layer.
24
However, we suggest that the basis for cur-
rent advice to reduce exposure to sunlight should be
reviewed in a formal and quantitative manner so that the
potential benefits and harm from exposure to sunlight
can be conveyed to the public. The risk:benefit ratio will
differ between individuals; for many people the small
absolute increase in risk of melanoma could easily be
outweighed by the effect of reduced sunlight on mood.
A recent article in Vogue suggests that lay understanding
is, perhaps again, ahead of medical thinking in attempt-
ing to weigh up factors for and against exposure to sun-
light.
25
Perhaps, while we await the conclusions of such
formal analyses, those of us who enjoy spending time in
the sun can rest (on our deck chair, sun lounger or
whatever) assured that the chance that we will be one of
the people dying from our tan is small.
We thank Mr Sunil Thakar of the M P Shah Hospital, Jamnagar,
for arranging a visit to the solarium and providing details of its
history.
Competing interests: None declared.
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5 Carter S. Who wants to be a “peelie wally”? Glaswegian tourists’ attitudes
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health. London: Pinter, 1997.
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7 Finkel E. Sorting the hype from the facts in melanoma. Lancet
1998;351:1866.
8 Elwood JM, Jopson J. Melanoma and sun exposure: an overview of pub-
lished studies. Int J Cancer 1997;73:198-203.
9 Office for National Statistics. 1995 Mortality statistics. Cause. England and
Wales. London: Stationery Office, 1997.
10 West SK, Duncan DD, Munoz B, Rubin GS, Fried LP, Bandeen-Roche K,
et al. Sunlight exposure and risk of lens opacities in a population-based
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ation between non-Hodgkin’s lymphoma and skin cancer. BMJ
1995;310:1491-5.
12 Freedman DM, Zahm SH, Dosemeci M. Residential and occupational
exposure to sunlight and mortality from non-Hodgkin’s lymphoma:
composite (threefold) case-control study. BMJ 1997;314:1451-5.
13 Grimes DS, Hindle E, Dyer T. Sunlight, cholesterol and coronary heart
disease. Q J Med 1996;89:579-89.
14 Brennan PJ, Greenberg G, Miall WE, Thompson SG. Seasonal variation
in arterial blood pressure. BMJ 1982;285:919-23.
15 Khaw KT. Temperature and cardiovascular mortality. Lancet
1995;345:337-8.
16 Scragg R, Jackson R, Holdaway IM, Lim T, Beaglehole R. Myocardial inf-
arction is inversely associated with plasma 25-hydroxyvitamin D
3
levels: a
community-based study. Int J Epidemiol 1990;19:559-63.
17 Vik T, Try K, Thelle DS, Forde OH. Tromsø heart study: vitamin D
metabolism and myocardial infarction. BMJ 1979;ii:176.
18 Lund B, Badskjaer J, Soerensen OH. Vitamin D and ischaemic heart dis-
ease. Horm Metab Res 1978;10:553-6.
19 Wehr TA, Rosenthal NE. Seasonality and affective illness. Am J Psychiatry
1989;146:829-39.
20 Chew KSY, McCleary R. The spring peak in suicides: a cross-national
analysis. Soc Sci Med 1995;40:223-30.
21 Utiger RD. The need for more vitamin D. N Engl J Med 1998;338:828-9.
22 McMichael AJ, Hall AJ. Does immunosuppressive ultraviolet radiation
explain the latitude gradient for multiple sclerosis? Epidemiology
1997;8:642-5.
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effect of regular sunscreen use on vitamin D levels in an Australian popu-
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(Accepted 19 April 1999)
The private finance initiative
PFI in the NHS—is there an economic case?
Declan Gaffney, Allyson M Pollock, David Price, Jean Shaoul
The private finance initiative substantially increases the
cost of hospital building. Total costs (construction costs
plus financing costs) in a sample of hospitals built
under the private finance initiative are 18-60% higher
than construction costs alone (table 1). Shareholders in
private finance initiative schemes can expect real
returns of 15-25% a year.
1
The consortiums involved in
these schemes charge the NHS fees equivalent to 11.2-
18.5% of construction costs (table 2). If the Treasury
were to finance new hospitals directly out of its own
borrowing it would pay a real rate of annual interest of
3.0-3.5%. It has been estimated that the £2.7 billion
Scottish private finance initiative programme will cost,
at a conservative estimate, “£2 billion more than if the
Treasury had acquired the assets directly.
2
The higher
costs will be met locally through cuts in clinical spend-
ing and nationally through subsidies from NHS capital
budgets.
Medical staff are deeply implicated in hospital pri-
vate finance initiative schemes. Clinical directors
approve and medical directors sign off the full business
website
extra
Sources of data in
table and figures
are given on the
BMJ’s website
www.bmj.com
Summary points
Investment under the private finance initiative
costs more than public sector procurement. The
annual charge for the use of privately financed
facilities is between 9.1% and 18% of the original
construction cost, whereas government can
borrow at interest rates of 3.0% to 3.5%
The extra cost of private finance is disguised by
the Treasury’s insistence that NHS trusts discount
costs at 6% per annum when comparing the costs
of the private finance option with public sector
investment
The amount of risk transferred to the private
sector under privately financed deals has been
exaggerated, leading to spurious attributions of
additional value to private sector options
Education and debate
This is the
second of four
articles on
Britain’s
public-private
partnership in
health care
Correspondence to:
Allyson Pollock
allyson.pollock@
ucl.ac.uk
continued over
BMJ 1999;319:116–9
116 BMJ VOLUME 319 10 JULY 1999 www.bmj.com
case, clinical posts are lost, and heroic targets are set for
gains in medical productivity. Clinical concerns are
generally met by assurances that the largely undis-
closed price of the private finance initiative is well
worth paying because schemes approved by the initia-
tive offer better value for money than public
procurement. This claim is based on the fact that, for
approval purposes, all privately financed schemes are
compared with a notional publicly funded equivalent,
the public sector comparator. However, this compari-
son is carried out using an appraisal methodology
under which the cash payments associated with each
option are “discounted, and costs are adjusted to
reflect “risk transfer.” Both these factors have an influ-
ence on the results of the comparison. The appraisal
methodology is prescribed in government guidance
and plays a crucial part both in the selection of
schemes for the initiative and in making the case for
the private finance initiative as a policy.
The procurement and approval process
The procurement process currently in operation in the
NHS departs from earlier approaches based on
non-financial ranking of options for meeting needs.
3
Now the procurement process requires that NHS
trusts prepare business cases for approval by the NHS
Management Executive and the Treasury. This process
reflects the criteria used by those bodies in appraising
schemes: financial viability and control of public
spending.
45
An NHS trust makes the case for the proposed
investment in an outline business case and gives an
estimate of the capital cost based on standard NHS
costs. Since 1994, all approved outline business cases
have to be tested for inclusion under the private
finance initiative. Final approval of schemes depends
on trusts producing a full business case that includes
an economic appraisal showing that the privately
financed option represents better value for money
than funding by the public sector.
Value for money and discounting (buy
now, pay later)
Calculations of value for money exploit the fact that
under public procurement all the costs of hospital
development are paid in the first few years, whereas
under the private finance initiative they are spread
over 25 or 30 years. To calculate the economic conse-
quences of spreading capital payments evenly
throughout the contract period (under the private
finance option) or paying them all in the first few years
(under the public sector option) a discounted cashflow
analysis is carried out. The principle is that money
spent now or in the near future carries a higher cost
than money spent several years down the road. This is
because more potential to earn interest will be
sacrificed by a sum that is spent immediately than the
same sum spent gradually over 30 or 60 years.In other
words, discounting introduces an interest rate
assumption. Discounting is widely used in the private
sector as it is assumed to maximise value for
shareholders. Its relevance to the public sector, where
profit maximisation is not the objective of investment,
is unclear.
Cost comparisons, once discounted, are expressed
as net present costs. The option with the lowest net
present cost is said to offer the best value for money. In
practice, this single figure is the basis of approval. Value
for money is assumed to provide neutral criticism, but
discounting clearly favours private finance with its pro-
tracted repayment schedule.
The level at which the discount rate is set
determines whether or not private finance option
shows value for money. The higher the discount rate
applied, the lower the value placed now on
expenditure in later years. Treasury guidance imposes
a discount rate of 6%, with the effect that £100 of
expenditure incurred in five years’ time has a “present
value” for appraisal purposes of £74.73, in 10 years of
£55.84, in 20 years of £31.18, and so on (box). Note
Table 1 Capital cost of private finance iniative schemes: construction costs compared
with total capital costs
NHS trust
Construction cost to
private sector (£m)
Total capital cost
(£m) Difference (£m)
Difference as % of
construction cost
Dartford 94.0 115.0 21.5 22.8
Carlisle 64.7 85.0 20.3 31.3
Norfolk 143.5 214.0 70.5 49.1
North Durham 61.0 96.0 37.0 60.6
Greenwich 84.0 109.9 25.9 30.8
Bromley 118.0 155.0 37.0 35.8
Wellhouse 54.0 65.0 11.0 18.5
The difference between construction costs and total capital costs is usually explained as arising from
financing costs incurred by the private sector during the construction period.
Table 2 Construction costs and availability payments* under the private finance
initiative
NHS Trust
Construction cost
(£m)
PFI availability
payment (£m)
PFI availability payment
as % of construction cost
Calderdale 64.6 8.7 13.5
Carlisle Hospitals 64.7 8.0 12.4
Dartford 94.0 10.5 11.2
Greenwich 84.0 11.0 13.1
North Durham 61.0 7.1 11.6
Wellhouse 54.0 10.0 18.5
*The availability payment funds private sector debt service obligations and returns to equity shareholders. A
minor element of the charge also funds maintenance costs over the life of the building.
Trusts with major (>£25m) capital developments under the private
finance initiative
Education and debate
Health Policy and
Health Services
Research Unit,
School of Public
Policy, University
College London,
London
WC1H 9EZ
Declan Gaffney,
research fellow
Allyson Pollock,
head
Social Welfare
Research Unit,
University of
Northumbria,
Newcastle upon
Tyne NE7 7XA
David Price,
research fellow
Department of
Accounting,
University of
Manchester,
Manchester
M13 9PL
Jean Shaoul,
lecturer
117BMJ VOLUME 319 10 JULY 1999 www.bmj.com
that for the purposes of appraisal, the costs to be
discounted are expressed in real terms.
The discount assumption affects fundamentally the
appraisal outcome. Table 3 shows that at 6% the
Carlisle private finance initiative scheme is slightly
cheaper than its public sector equivalent and is thus
held to be better value for money. When the discount
rate is reduced by only 0.5%, the outcome of the
appraisal is reversed and the public sector option
seems preferable. The economic advantage of public
sector procurement continues to increase as the
discount rate is reduced. Thus, economic advantage is
to a large extent a product of the discount rate used.
How is it determined?
Determining economic advantage
The 6% discount rate does not reflect interest rates on
government borrowing, any more than NHS capital
charges reflect the actual cost of public sector capital.
The choice of 6% was a policy decision. According to
Treasury guidance, “the practical choice of 6%, from
the top of the range . . . is an operational judgement,
reflecting, for example, concern to ensure that there is
no inefficient bias against private sector supply.
4
The 6% discount rate favours private finance and
obscures the central characteristic of private finance:
the higher cost of capital. Therefore, economic
appraisal assumes from the outset what it is held to
prove: the economic advantage of private finance.
Risk transfer
Despite the use of a 6% discount rate, comparisons of
net present costs have been to the advantage of public
sector options in almost all cases. However, in private
finance initiative appraisal, all costs are “risk adjusted.
The principle of risk adjustment is that, in order to
make a fair comparison of costs between private
finance initiative options and public sector compara-
tors, account needs to be taken of risks which under
public procurement the public sector carries itself, but
which under private finance initiative it pays another
agent, the private investor, to bear. When the cost of
public sector options is adjusted to reflect this transfer
of risk, the apparent cost disadvantage of the private
finance initiative options disappears. In most cases this
is done through adding a lump sum representing the
cost of risk to the net present cost of the public sector
comparator. Table 4 shows that risk transfer is valued at
between £20 million and £73 million in a sample of
schemes and has a decisive effect on the outcome of
economic appraisal. Both discounting and risk adjust-
ment seem to be necessary if the private finance initia-
tive is to show value for money.
There are several problems with the risk adjust-
ment carried out in the appraisal of private finance ini-
tiative schemes. One is that the 6% discount rate
already takes account of an element of risk, as it is set at
a level that is deemed by the Treasury to be higher than
a risk-free interest rate.Interest rates are after all largely
determined by the level of estimated risk associated
with an investment. As the value for money test
involves discounting costs at 6% and then adjusting the
comparator for risk, the cost of risk is effectively
counted twice.
A further problem is the tendency for trusts
seeking approval for private finance initiative develop-
ments to ascribe risks to private finance initiative con-
sortiums that they have not in fact taken on. Risk can
only be transferred through the private finance
initiative contract, by means of financial penalties
imposed on consortiums for failing to meet their obli-
gations. This basic principle is consistently overlooked
in economic appraisals of the private finance initiative.
At Carlisle, one of the risk supposedly transferred was
that targets for clinical cost savings would not be met,
and the cost of this risk was estimated at £5m.
6
The
consortium, however, had no responsibility for
Discounted cashflow analysis
The table below shows a worked example of
discounted cashflow analysis, with a discount rate of
6%. The result is that expenditure of £1000 in annual
instalments of £100 over 10 years, starting next year, is
held to be equivalent to expenditure of £736 this year.
This result depends entirely on the discount rate
used
when a 4% discount rate is used, the figure is
£811.
Year Total cash flow (£) Discounted cash flow (£)
000
1 100 94.34
2 100 89.00
3 100 83.96
4 100 79.21
5 100 74.73
6 100 70.50
7 100 66.51
8 100 62.74
9 100 59.19
10 100 55.84
Total 1000
Net present cost 736.02
Table 3 Effect of varying the discount rate on results of economic appraisal in Carlisle
hospitals’ private finance initiative scheme
Discount rate (%)
Public sector option
(PSC) (£000s)
Private sector option
(PFI) (£000s)
Economic advantage of PFI over
PSC (£000s)
6.0 174 337 172 633 1 704
5.5 185 803 186 692 889
5.0 198 884 202 043 3 159
4.5 213 900 219 480 5 580
4.0 231 247 239 388 8 141
3.0 275 027 288 622 13 595
0 549 882 577 048 27 166
Table 4 Risk added to public sector comparator: net present costs over 60 years
Trust
PFI net present
cost (£m)
PSC net present cost
Before risk
adjustment (£m) Risk added (£m)
After risk adjustment
(£m)
Calderdale 1221 1191 73 1264
Carlisle 173 152 22 174
Dartford 928 881 55 937
Durham 177 153 24 177
Wellhouse 1206 1210 20 1230
PFI=private finance initiative; PSC=public sector comparator
Figures may not sum due to rounding. Figures are taken from original full business cases and may not
reflect later adjustments. In some cases, figures represent the entire cost of running the hospital over 60
years, leading to very high net present costs; in others, only the services to be provided under the private
finance initiative contract are included, so that the net present cost relates to the scheme alone and not to
the costs of clinical activity.
Education and debate
118 BMJ VOLUME 319 10 JULY 1999 www.bmj.com
ensuring that these savings would be made, and faced
no penalty if they were not: £5m of additional value
was thus attributed to the private finance initiative
scheme on quite spurious grounds.
Constr uction period risks
The bulk of the risk supposedly transferred relates to
the building period, the first three to five years, rather
than to the operational phase, the subsequent 25-30
years. In the Greenwich Hospital scheme, seven of the
eight risks said to have been transferred to private
investors related to the construction phase of the
project and therefore could not threaten the income
of the investors during the operational phase.
7
Restricting risk to the construction period means that
income during the operational phase is guaranteed by
the Treasury for the life of the contract and is
sufficient to recoup virtually risk free the whole capital
cost of the hospital, together with a return on the
investment. This makes private finance initiatives a
very safe investment.
One of the main risks during the construction
period is that of cost overruns. NHS trusts have based
their estimates of the risk of construction costs
overrunning on historical claims about the level of
cost overruns associated with earlier publicly funded
schemes. One high profile scheme which is regularly
used as evidence of overruns due to public sector inef-
ficiency is the Guy’s Hospital phase III development.
The increase in cost at this scheme was so extreme as
to affect the annual cost performance statistics for the
NHS as a whole. However, the National Audit Office’s
report on the scheme shows that among the major
factors contributing to the overrun were the effects of
inflation and the new liability for value added tax that
came with NHS trust status. The significance of Guy’s
phase III as an exemplar of public sector inefficiency
has thus been exaggerated. The average increase in
cost over approved tender sums for NHS capital
projects has been between 6.3% and 8.4% in the
1990s.
8
Public finance initiative business cases have in
most cases assumed that public sector projects
overrun by 12.5% or more. In costing its public sector
comparator, the Norfolk and Norwich Trust assumed
overruns of 34%.
9
Private finance initiative business cases have tended
to exaggerate the inefficiency of public sector
procurement, leading to overestimation of the eco-
nomic benefit of the private finance initiative.
Moreover, many of the risks associated with public
sector procurement arise from the relationship
between NHS trusts and other parts of the public sec-
tor. Such risks can be managed internally and it is
strange to assume that they should, or indeed can, be
transferred to the private sector. Even if they could, why
should the taxpayer pay to offload a risk that can be
addressed by internal action on the part of the NHS
Executive?
The market’s assessment of risk
The best indicator of the extent of risk actually
transferred in the private finance initiative contract is
the interest rates paid by consortiums to their lenders
(as distinct from the interest rate consortiums charge
NHS trusts). First wave private finance initiative
schemes have achieved extremely favourable borrow-
ing terms on bank debt and bond issues on the basis of
“little inherent risk. Market interest rates have been
between 4% and 5% in real terms. This suggests that
in the view of funders there has been very little risk
transfer.
This implies that there is little correspondence
between the sums NHS trusts ascribe to “risk transfer”
and the views of capital markets on the risks the
consortiums have actually taken on. In practice,
funders see little likelihood of the consortiums facing
financial penalties under the contracts and have set
interest rates accordingly. The legal advisers on the
North Durham scheme informed the NHS trust that
under the contract “various obstacles have been placed
in the way of . . . deductions being made.
10
None the
less, the trust valued “risk transfer” under the contract
at £23m,
11
materially affecting the outcome of the
appraisal. Similarly, when Meridian plc launched a
bond issue to finance Greenwich Hospital, its prospec-
tus announced that it had “structured the contractual
arrangements for the Project such that there are
intended to be few risks inherent in the Project which
are retained by the Issuer. The risk transfer charged
against the public sector comparator in the Greenwich
scheme was £20 million.
12
Conclusion
Formal appraisal of the private finance initiative is not
an objective process: it systematically reduces the
comparative advantage of public sector procurement
and disguises the basis of private sector costs. High
cost is ascribed to risk transfer but little risk is actually
transferred. The discounting method used to compare
the present value of different options is politically
determined and is set well above the government’s
interest rates. The government’s claim that the private
finance initiative represents better value than public
procurement is not supported, and clinicians should
not allow spurious economic arguments to deflect
them from criticising the clinical impact of private
finance initiative developments.
Competing interests: None declared.
1 Chantrey Vellacott DFK. Economics report. London: Chantrey Vellacott,
1999.
2 Fitzpatrick M. Letter to editor. The [Glasgow] Herald 1999 June 1.
3 Cook AN. The appraisal and financing of capital expenditure in the NHS.
London: CIPFA, 1996:3. (HFM/CIPFA occasional paper.)
4 HM Treasury. “The Green Book”: appraisal and evaluation in central govern-
ment. London: HMSO, 1992.
5 NHS Management Executive. Capital investment manual. London:
NHSME, 1994.
6 Carlisle Hospitals NHS Trust. Full business case addendum, appendix 5.
(Available from the trust.)
7 Shaoul J. The private finance initiative: looking glass world of PFI. Public
Finance 1999 Jan 29-Feb 4:14-16.
8 National Audit Office. Cost overruns, funding problems, and delays on Guy’s
Hospital phase III development. London: Stationery Office. 1998.
9 Norfolk and Norwich NHS Trust. Full business case, appendix 4.
(Available from the trust.)
10 North Durham Acute Hospitals NHS Trust. Summary contract
documents, p 40. (Available from the trust.)
11 Gaffney D, Pollock A. Downsizing for the 21st century: a report to Unison
Northern Region on the north Durham acute hospitals PFI scheme. London:
Unison, 1998.
12 Meridian Hospital Company plc. Bond issue prospectus. (Dated 9 July
1998.)
Education and debate
119BMJ VOLUME 319 10 JULY 1999 www.bmj.com
... Shaoul (2005) criticises and questions the dependability of a hypothetical PSC model as in practicality, the PSC can never be opted for the actual PFI project since it is no more than a conjectural model that cannot materialise. Similarly, Gaffney et al., (1999) contends that feasibility of PFI's Business Case (BC) is masqueraded by HM Treasury's imposed 6% discount rate which is taken as a policy decision aimed at pushing government's agenda towards private finance. Underpinning their argument, they conducted an analysis that exposed the fragility of the BC if a minimal reduction is applied to the discount rate (Table 1). ...
... Underpinning their argument, they conducted an analysis that exposed the fragility of the BC if a minimal reduction is applied to the discount rate (Table 1). Gaffney et al., 1999) ...
... The focal point of PFI projects is the asserted achievement of VFM, however, several scholars (Gaffney et al., 1999;Ball et al., 2000;Shaoul, 2005;Hannah, 2008;Fombad, 2013) have criticised the high costs associated with equity financing, the protracted bidding process, lack of competition and the discounted cash-flow analysis whose significance on public sector's non-profit making objectives is questionable. Ironically, regardless of the raised criticisms, Treasury Taskforce Private Finance (2000) maintains that private finance's increased costs are minimal to endanger the concept of VFM. ...
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... Yet, over time, PFI has been criticised, damaging the policy's public image thereby placing the policy under threat. Heald (2003) and Shaoul (2005) suggest that evaluation of PFI frequently encompasses a misunderstanding of value for money which, in any event, is rarely achieved (Gaffney et al., 1999b;Reeves, 2008). Risk transfer claims are often exaggerated (Gaffney et al., 1999b;Pollock et al., 2011) and conceptually flawed (Shaoul, 2005). ...
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Purpose-The UK private finance initiative (PFI) public policy is heavily criticised. PFI contracts are highly profitable leading to incentives for PFI private-sector companies to support PFI public policy. This contested nature of PFIs requires legitimation by PFI private-sector companies, by means of impression management, in terms of the attention to and framing of PFI in PFI private-sector company annual reports. The paper examines this issue. Design/methodology/approach-PFI-related annual report narratives of three UK PFI private-sector companies, over seven years and across two periods of significant change in the development of the PFI public policy, are analysed using manual content analysis. Findings-Results suggest that PFI private-sector companies use impression management to legitimise during periods of uncertainty for PFI public policy, to alleviate concerns, to provide credibility for the policy and to legitimise the private sector's own involvement in PFI. Research limitations/implications-While based on a sizeable database, the research is limited to the study of three PFI private-sector companies. Originality/value-Portrayal of public policy in annual report narratives has not been subject to prior research. The research demonstrates how managers of PFI private-sector companies present PFI narratives in support of public policy direction that, in turn, benefits PFI private-sector companies.
... Additionally, studies in PPPIP ex-post evaluation were conducted by [2,[14][15][16] in Australia [12,13,27], in the UK [17][18][19][20], and in China, among others. However, although these studies focused on various evaluation aspects such as time, cost, quality, and life-cycle evaluation approaches, and proposing comprehensive evaluation frameworks, there was little regard for social dimensions such as their inclusion in the ex-post evaluation of PPPIPs is not fully known, hence the need for a scoping review. ...
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Full-text available
Although public private partnerships (PPPs) have been in existence for decades as a procurement tool for infrastructure projects, a dearth of studies on ex-post evaluation of Public Private Partnership Infrastructure Projects (PPPIPs) exists globally. Additionally, the contribution of scholars to the inclusion of social dimensions in ex-post evaluations is not fully known. Due to the existing gap, this study aimed at identifying and mapping the literature on the ex-post evaluation of PPPIPs and reviewed its contribution to the assessment of social impacts through the inclusion of social dimensions. The Arkesy and O’Malley five-stage framework was used to conduct a scoping review grounded in 27 articles focusing on the ex-post evaluation of PPPIPs. The selection of articles for review used the PRISMA framework and data were analysed through content analysis. The key findings revealed that mutual relationships existed among the theoretical foundation of the review, the themes, and identified social dimensions. Additionally, diversity was seen in the needs and interests of stakeholders, and finally, the low research output in the ex-post evaluation of PPPIPs was observed. A huge research potential has been revealed with specific focus on the social dimension of the triple bottom line concept of sustainable development to achieve PPPIPs’ social sustainability.
... With the change of UK Government in 1997, the popular market-based vocabulary was also changed along with several features of the health-care market, such as the concentration on short-term "spot transactions" (Gray, 2011). However, PFI schemes increased despite opposition from the medical establishment who described them by 1999 as "perfidious financial idiocy" (Smith, 1999) and disputed the economic case (Gaffney et al., 1999). However, by December 2009, 159 PFI hospital contracts were signed in the UK, with NHS England being the biggest procurer in terms of numbers (72%) and capital value of the assets (86%) (Pollock et al., 2011). ...
Article
Purpose Since the 1990s, the National Health Service (NHS)advisory officers have developed considerable expertise in managing the process of specifying, procuring, contracting and running public–private partnership (PPP) projects. However, there has been a relatively consistent trajectory in the findings of studies and evaluation of PPP from its initial introduction in the health sector in 1992 to the present time. Therefore, the purpose of this study is to critically evaluate the PPP experience in the UK context using a case study in the NHS. Design/methodology/approach The partnership literature is primarily focussed on process issues, and the impact of partnerships on improving outcomes cannot be assumed. By conducting a critical review on most updated research studies and innovative approaches in this area, the literature as to the place of PPPs in health in the context of the UK is critically explored and whether they have a role in system resilience is examined. A case study has be used as well to describing the processes of a PPP arrangement. Findings Health-care PPP is one of the options relating to health system resilience. However, their contribution in the NHS has been mixed, with success noted in short-term clinical and services contracts while in the long-term the value for money argument has not been proven. In theory, the role of PPPs in bringing together ingredients supporting system resilience such as finance, management and innovation in the UK has not always been successful, and NHS providers have taken the approach to exit such arrangements. Research limitations/implications More research work is needed to capture the 21st-century challenges and critical success factors during its implementation. Practical implications The creation of strong partnerships is moving service delivery away from a project-by-project approach to one that includes strategic and policy developments for long-term results. Originality/value This is a fresh discussion in the role of PPP in system resilience in the UK perspective through a case study describing an exit from a PPP arrangement.
Article
Markets are taken as the norm in economics and in much of political and media discourse. But if markets are superior why does the public sector remain so large? Avner Offer provides a distinctive new account of the effective temporal limits on private, public, and social activity. Understanding the Private–Public Divide accounts for the division of labour between business and the public sector, how it changes over time, where the boundaries ought to run, and the harm that follows if they are violated. He explains how finance forces markets to focus on short-term objectives and why business requires special privileges in return for long-term commitment. He shows how a private sector policy bias leads to inequality, insecurity, and corruption. Integrity used to be the norm and it can be achieved again. Only governments can manage uncertainty in the long-term interests of society, as shown by the challenge of climate change.
Chapter
This chapter describes and analyses the role that Public–Private Partnerships (PPP), a policy now nearly 30 years old, played in the process of transferring the control of public policy to the financial services and broader corporate sectors in Britain. The study has international significance as the PPP policy, and its mode of implementation, has been adopted around the world. The policy, administered by financial consultants operating within the government bureaucracies, served to increase both the wealth and the power of the global accountancy industry. It gave them a direct and commanding role in the economic decision-making and administration of the British state, enabling them to control the future direction of public policy and wealth distribution, including the multibillion bailout of the banks in 2008–2009 and even greater bailout of the banking and corporate sectors during the COVID-19 pandemic, and further increase social inequality.
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Full-text available
While Public-Private Partnerships (PPPs) are a popular public policy tool, there is evidence to suggest that they often fail to deliver value for money, a key objective. Focusing on the use of PPPs in education in Ireland, this paper draws on perspectives from institutional and isomorphic theories to illuminate the use of PPPs as a modernisation tool of government. It finds that, while the adoption of PPPs has been characterised by difficulties, policy makers persist with their use. This is attributed to coercive isomorphic pressures in the case of Northern Ireland and mimetic isomorphic pressures in the Republic of Ireland.
Article
Purpose Since the 1990s, the National Health Service (NHS)advisory officers have developed considerable expertise in managing the process of specifying, procuring, contracting and running public–private partnership (PPP) projects. However, there has been a relatively consistent trajectory in the findings of studies and evaluation of PPP from its initial introduction in the health sector in 1992 to the present time. Therefore, the purpose of this study is to critically evaluate the PPP experience in the UK context using a case study in the NHS. Design/methodology/approach The partnership literature is primarily focussed on process issues, and the impact of partnerships on improving outcomes cannot be assumed. By conducting a critical review on most updated research studies and innovative approaches in this area, the literature as to the place of PPPs in health in the context of the UK is critically explored and whether they have a role in system resilience is examined. A case study has be used as well to describing the processes of a PPP arrangement. Findings Health-care PPP is one of the options relating to health system resilience. However, their contribution in the NHS has been mixed, with success noted in short-term clinical and services contracts while in the long-term the value for money argument has not been proven. In theory, the role of PPPs in bringing together ingredients supporting system resilience such as finance, management and innovation in the UK has not always been successful, and NHS providers have taken the approach to exit such arrangements. Research limitations/implications More research work is needed to capture the 21st-century challenges and critical success factors during its implementation. Practical implications The creation of strong partnerships is moving service delivery away from a project-by-project approach to one that includes strategic and policy developments for long-term results. Originality/value This is a fresh discussion in the role of PPP in system resilience in the UK perspective through a case study describing an exit from a PPP arrangement.
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This paper examines concession contracts between a private firm and a government in the presence of moral hazard within a real-options framework. The design of optimal contracts to provide incentives to the private firm to exert effort is analyzed. We show that although first-best investment timing can be implemented, contracts often do not provide firms with proper incentives to exert effort, resulting in high-cost projects being undertaken. This problem can be alleviated through the use of a monitoring technology that imposes a penalty on the shirking firm. Although monitoring distorts the investment timing leading to a delayed investment, it increases the government’s profits at the expense of the firm, so that the government finds it optimal to induce effort exertion, increasing the likelihood of low-cost projects. Considering jointly incentives and an exit option, we show that the regular compensation of firms and their compensation upon termination act as substitutes in providing incentives. Governments should set these remunerations jointly in order to minimize the cost of a bailout option for the society.
Article
Public-private partnerships (PPP) enjoyed its resurgence in China recently. However, while the government has initiated more than 12,000 projects since 2012, the number of them that have reached deals were small. This study aims to examine the determi- nants of PPP adoption in China between 2012 and 2016. Based on the transaction cost theory, we develop a four-pillar framework that includes factors related to the govern- ment, the market, the operating environment, and project-level characteristics. Applying the framework to empirical models at the provincial level, we find that the one-year adoption rate is affected especially by factors about the government.
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