The Allocation of Risk in PPP/PFI Construction Projects in the UK

Public-private partnership (PPP) procurement is seen as an effective way to achieve value for money (VFM) in public infrastructure projects. The Private Finance Initiative (PFI) in the UK is a form of PPP that seeks to combine the advantages of competitive tender and flexible negotiation, and transfer risk away from the public sector. The final risk allocation agreement is reached along with overall contract agreement. It is important for the public client and the private bidders to assess all the potential risks through the whole project life.

A questionnaire survey was conducted to explore preferences in risk allocation. Analysis of the response data shows that some risks should still be retained within the public sector or shared with the private sector. These are mainly macro and micro level risks. The majority of risks in PPP/PFI projects, especially those in the meso level risk group, should be allocated to the private sector. However, there are a few risks where unilateral allocation is not always obvious.

The research findings should enable public sector clients to establish more efficient risk allocation frameworks in the early stages of project development.