The document summarizes the preliminary results of an OECD review of the UK's PPP governance framework. It finds that the UK has a comprehensive institutional framework for PPPs that aligns with OECD principles on transparency, value for money, and budgeting. Key aspects include the National Infrastructure Plan for prioritizing projects, guidance in the Green Book for evaluating delivery options, and transparency tools like the Whole of Government Accounts. The framework has evolved over time, with reforms through the PF2 model, but continues to provide integrity in the procurement process.

1. OECD REVIEW OF THE PPP
GOVERNANCE FRAMEWORK
IN THE UNITED KINGDOM:
PRELIMINARY RESULTS
Annual Meeting of Senior PPP and
Infrastructure Officials
23-24 MARCH, 2015
Paris, France
Ian Hawkesworth
Head, Capital Budgeting and PPPs
Budgeting and Public Expenditures Division
Public Governance and Territorial Development
Directorate, OECD
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2. The OECD’s PPP Principles (2012) fall under three
main headings:
1. Establishing a clear, predictable and legitimate
institutional framework.
2. Grounding the selection of Public-Private
Partnerships in Value for Money.
3. Using the budgetary process transparently to
minimize fiscal risks.
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Framework for analysis

3. In 2012, the UK introduced a new
private finance scheme : PF2
3
Some key characteristics of PF2 :
• Strengthened partnership through public equity stake in SPVs
• Greater flexibility through the exclusion of ‘soft’ services from contracts
• Faster and cheaper procurement through a new ambitious timetable (18
months)
• Improved VfM through more appropriate risk retention by the public sector
• Greater transparency through:
– New control total for PFI/PF2 commitments (GBP 70 billion until 2020)
– Private sector equity return information to be published
– New business case approval tracker available
• Introduction of funding competitions for a part of private sector equity to
attract long term investors

4. 1. THE INSTITUTIONAL
FRAMEWORK
4

5. The UK possesses a comprehensive institutional
suite to manage capital investments
- Treasury approvals Points (TAPs)
for PPP appraisals
- Spending/budget department
- Public policy
- Planning, prioritisation and
enabling of infrastructure investment
in the UK
- Includes the PPP policy team (PPP
unit), strategy team (NIP), etc.
-Supreme audit institution
- ex-post reporting on PPP projects
and processes
- Include sub-national governments,
line Departments, and executive
agencies (ex Highways Authority)
- Responsible of PPP from planning
to exit
- Part of ERG
- Assurance process (incl. Gateway
Review)
- Commercial and operational
support to Departments
- Department for Communities
and Local Government
- Scottish Futures Trust
- Local Partnerships
5
HM Treasury
Contracting
Authorities
Infrastructure
UK (IUK)
National Audit
Office
Major Projects
Authority
Others

6. Principle 1: Ensure public awareness of the relative costs,
benefits and risks of PPPs as part of an integrated public-sector
infrastructure investment framework.
• The UK National Infrastructure Plan and the Top 40 is
a process and document well designed to ensure prioritisation,
transparency and linkages (see principle 4).
• Several mechanisms are in place to disclose commitment and
potential liabilities from PFI/PF2 contracts such as the Whole of
Government Accounts (WGA) and the Office of Budget
Responsibility (OBR)
• Broad public and private consultation about the limits of PFI
leading up to PF2 adoption
• The National Audit Office (NAO) plays a key role in informing the
public debate about PFIs
 Transparency and open communication about the relative costs,
benefits and risks of PFIs is evident in the UK
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7. Principle 2: Key institutional roles and responsibilities should
be maintained, and there are clear mandates and sufficient
resources to ensure a prudent procurement process.
• HM Treasury’s Infrastructure UK (IUK) is well capacitated and its
different units regularly advise the public sector with regards to the
appropriateness of PFIs
– Strengthened commercial capacity of IUK and other institutions
• A wide range of institutional support is available to contracting
authorities at the central level (IUK, MPA) and at the devolved
level (ex: SFT, LP).
• Public sector capacities are well established,
complementary, and roles clearly defined.
• Capacity to prepare, procure, and manage projects at the local level
can still be enhanced.
 The institutional set up and public sector capabilities for PFIs and
capital projects generally are clear and coherent.
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8. Principle 3: Ensure that all significant regulation affecting the
operation of Public-Private Partnerships is clear, transparent
and enforced.
• A constantly evolving framework of gradual adjustment and
refinement e.g. refinancing gains.
• There is no specific PPP law in the UK, but the government follows
contract law and EU procurement directives.
• No issues raised with regards to the regulatory framework of PPP
contracts (legal issues, enforcement, or other aspects).
• Steps have been taken to further strengthen the regulation of
PFI/Pf2 contracts
– more centralized procurement is emphasized under PF2
– new standardized suite of documentation issued
 Rules affecting contracts are clear and enforced in the UK.
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9. 2. ENSURE VALUE FOR MONEY
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10. Principle 4: All investment projects should be prioritised at senior
political level.
• The UK National Infrastructure Plan (NIP) was put in place
since 2010 and
– presents a global government vision with respect to infrastructure
development in the UK.
– lays out the strategic need for investment in the UK.
– creates transparency about the project pipeline and priority
investments in order to show that there is an ongoing market.
– ensures delivery progress by measuring and publishing reports on
developments.
• The ‘Top 40’ list of projects on the NIP has been developed in an
iterative process with the line Departments, HM Treasury and the
Cabinet office.
 The NIP and its ‘Top 40’is a good example of a cabinet
sanctioned priority process for projects. 10

11. Principle 5: Carefully investigate which investment method is
likely to yield most value for money.
• The UK Green Book provides comprehensive guidance for the appraisal of all
projects receiving central funding.
• The business case is structured around 5 aspects to ensure that projects are:
– supported by a robust argument for change – the Strategic Case;
– optimise Value for Money – the Economic Case;
– commercially viable (where relevant) – the Commercial Case;
– is financially affordable – the Financial Case; and,
– can be delivered successfully – the Management Case.
• The centrally developed value for money test (PSC) was removed in favor of
contracting authorities developing their own quantitative evaluation of projects as
an integral part of the business case
– The PSC tool was never intended as a “pass-or-fail” test, but it created a
tendency to over-focus attention on the numerical result of the exercise
• Three stages of business case approval by HM Treasury: Strategic Outline
Business Case, Outline Business Case, and Full Business Case (see table)
 A level playing field exists for the appraisal, comparison, and selection of the
delivery mode of projects in the UK via the Green Book. 11

12. The appraisal and evaluation of projects is
complemented by an independent gateway
review process
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Source: Cabinet Office & HM Treasury (2011), Major Project approval and assurance guidance, April 2011
Table: Stages of Treasury Approval Points
Treasury Approval Point
(TAP)
Scope and timing How does the TAP relate to
MPA approval
Strategic Outline Business
Case (SOBC) - Project
initiation stage
- All new Major Projects to ensure
strategic fit, value for money and
deliverability.
- Approval required before any public
commitment is made.
Preceded by at least one of
the following:
● Starting Gate
● Gateway Review 1
● Project Assessment Review
(PAR)
Outline Business Case (OBC)
- Pre-market stage
- All Major Projects to assess all
options in detail.
- Approval required before going to
the market
Preceded by at least one of
the following:
● Gateway Review 2
● PAR
Full Business Case (FBC) -
Pre-final negotiation
stage
- All Major Projects pre-spending
commitments
Approval required before finalising
commercial contracts.
- For projects using competitive
dialogue as a procurement route,
approval required before close of
dialogue.
Preceded by at least one of
the following:
● Gateway Review 3
● PAR

13. Principle 6: Define, identify, measure and transfer the risks to
those that manage them best (at the least cost).
• Standardised contracts in the UK provide a sound basis
for the allocation of generic risk in a PFI project.
• An evolutionary process.
• The PF2 consultation process highlighted that a greater
retention of risk by the public sector (ex: utility
consumption risk) could further improve the VfM of
contracts
 Greater risk retention by the public sector might improve
VfM.
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14. Principle 7: The procuring authorities should be prepared for
the operational phase of the Public-Private Partnerships.
• Ongoing initiatives (ex. MPLA) to strengthen the capacity of
project managers to maintain the performance of projects over
time
• Ongoing operational savings program to implement savings
measures in ongoing projects (in 2013, 118 projects reported savings
of GBP 1.6 billion)
• The NAO reviews individual PFI projects, draws useful lessons,
and offers suggestions on how to cut cost and improve efficiency
• Ex-post evaluation of projects and systematic data collection for
comparison purposes might be enhanced.
 Preliminary evidence suggests that performance has been good in
terms of on-time and on-budget delivery of PFI assets
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15. Principle 8: Value for money should be maintained when
renegotiating.
• A 2008 study found that the monetary impact of
changes to contracts was minimal for projects that were
renegotiated (1.1 % increase in unitary charges)
• Infrequent cases of high impact renegotiations of
infrastructure PFIs (ex: Channel Tunnel Rail Link)
• Some renegotiations shown to have brought significant
savings to projects (NAO 2013)
 On balance, contract renegotiations do not appear to be
an issue in the UK
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16. Principle 9: Government should ensure there is sufficient
competition in the market.
• Decades-long pipeline and substantial industry has
developed the relevant expertise and skills to furnish
sufficient bids to ensure the basis for a competitive
market process
• General issue that may also affect PFI projects:
sometimes, complex and mega projects may not have
enough bidders (e.g. nuclear energy)
The UK market is open and vigorous in term of
engineering, construction and financial companies
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17. • The argument for pursuing the PFI the UK is
premised on increasing value for money
• In addition, developing a viable private sector
delivery modality to challenge then
prevailing public sector approaches may
have played a role
• As may the then off budget accounting
treatment.
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18. 3. THE BUDGET PROCESS
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19. Principle 10: The Central Budget Authority should ensure that the
project is affordable and the overall investment envelope is
sustainable.
• Spending Reviews set a medium term expenditure framework, with
firm spending limits for line Departments
• Specific approval procedures for major investment decisions such
as PFI/PF2 contracts (HMT TAPs)
• The Office of Budget Responsibility helps the government keep
track of the fiscal sustainability of its expenditures
• Control caps: new control total of GBP 70 billion for PFI/PF2
projects up to 2020; limit in place for capital expenditures in
Scotland.
 HM Treasury spending teams work closely with IUK, the Office of
Budget Responsibility, contracting authorities, and other institutions to
ensure the affordability and fiscal sustainability of projects within the
overall budgeting framework.
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20. Principle 11: The project should be treated transparently in the
budget process. The budget documentation should disclose all
costs and contingent liabilities.
• The Whole of Government Accounts (WGA) provides a comprehensive
overview of PFI commitments over the long term, as well as quantifiable
and non-quantifiable information on contingent liabilities.
• Practically all PFIs are on balance sheet in the WGA under IFRS
standards (based on the “control” criterion; also followed by departmental
accounts).
• Individual Departments also required to report contingent liabilities to
Parliament
• Despite the WGA, there can still be an accounting incentive to use PFI,
but this stems mainly from compliance with Eurostat rules (“risk and
rewards” criterion).
 There is a strong suite of tools to transparently account for PFI
commitments and contingent liabilities in the UK, regardless of classification
20

21. The WGA provides a comprehensive
overview of future PFI payments
21
Source: Office for Budget Responsibility (2014), Fiscal Sustainability Report 2014.
Table: Whole of Government Accounts data for
total future costs of PFI deals

22. Principle 12: Government should guard against waste and
corruption by ensuring the integrity of the procurement process.
• Potential conflict of interest from PF2 mitigated by creation of the
public equity team in IUK, but too early to judge
• Procurement identified by government as an area of improvement:
new tools for simplified, more streamlined procurement procedures
(ex: Procurement Routemap)
• PFI/PF2 Tracker newly in place to provide more transparency on
the business case process
• Procurement skills sometimes limited at the sub-national level
• Capacity building to strengthen procurement skills of public
officials (ex: training on Lean Sourcing principles)
 Public procurement displays integrity and discipline, and can
further be strengthened.
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23. CONCLUSIONS
• More than 20 years of experience with PFI have brought the
government lessons and improvements with respect to all forms of
infrastructure procurement and life-cycle management, such as
discipline in cost control.
• The framework for private finance is still evolving in the UK, but
important lessons have been learned and reforms introduced as
part of PF2.
• There is a positive outlook from both the public and private sectors
about the new model, but …
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24. In the end, it all depends on deals being
done
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Source: HM Treasury (2014 b), Private Finance Initiative projects: 2014 summary data, December 2014
Number of PFI/PF2 projects having reached
financial close* in the UK, with total capital values

25. For more information:
www.oecd.org/gov/budgeting/ppp.htm
Ian.Hawkesworth@OECD.org
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