Last edited 28 Jan 2014

Design build finance and operate

An example of a design build finance and operate procurement route is a public private partnerships (PPP), the most common form of which is private finance initiative (PFI) projects (ref HM Treasury Public private partnerships).

A single contractor (perhaps a special purpose vehicle (SPV), with design, construction and facilities management expertise as well as funding capability) is appointed to design and build the project and then to operate it for a period of time. The contractor finances the project and leases it to the client for an agreed period (perhaps 30 years) after which the development reverts to the client.

As this is a very long-term relationship, entered into before any design work is undertaken, it is extremely important that the client defines their requirements very carefully, in particular the quality that is required and how it will be judged. A great deal of risk is given to the contractor, however the price they offer will reflect this.

PFI is one of the three procurement routes favoured by the Government Construction Strategy for central civil government projects.

Variations include: design, build, operate (DBO), and build, own, operate, transfer ( BOOT).

In 2011 two government reports concluded that PFI contracts have not been a good use of taxpayers money, suggesting that PFI cost five times more than conventional government procurement. The banks, funding institutions and professions have not been prepared to take the risk associated with PFI projects, and it has instead been transferred to the building contractors and operating companies which have offered high prices in return. The attraction to government is that PFI projects do not appear on the balance sheet, albeit piling up debt in the public sector with as much as twenty five year commitments. The recommendation of the reports is that in future PFI liabilities should be shown on treasury accounts. This may reduce this type of government contracting in the future.

For a detailed description of the sequence of activities necessary on a PFI contract see the free work plan: Public project: outline work plan.

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[edit] External references

HM Treasury PFI / PPP guidance. 25 July 2013.