Editing Public–private partnership (section)

===Transfer of risk===

One of the main rationales for P3s is that they provide for a transfer of [[Risk (finance)|risk]]: the Private partner assumes the risks in case of cost overruns or project failures. Methods for assessing value-for-money rely heavily on risk transfers to show the superiority of P3s. However, P3s do not inherently reduce risk, they simply reassign who is responsible, and the Private sector assumes that risk at a cost for the taxpayer. If the value of the risk transfer is [[Economic appraisal|appraised]] too high, then the government is overpaying for P3 projects.<ref name=":0" />{{rp|chapter 4}}

Incidentally, a 2018 [[UK Parliament]] report<ref>{{Cite web|title=Treasury must set out clear position on PFI - News from Parliament|url=https://www.parliament.uk/business/committees/committees-a-z/commons-select/public-accounts-committee/news-parliament-2017/private-finance-initiatives-report-published-17-19/|access-date=2018-06-27|website=UK Parliament|language=en}}</ref> underlines that some private investors have made large returns from PPP deals, suggesting that departments are overpaying for transferring the risks of projects to the private sector, one of the Treasury's stated benefits of PPP.
[[File:Npl new building module1.JPG|thumb|The maintenance of the new National Physical Laboratory building was transferred back to the [[Department of Trade and Industry (United Kingdom)|British Department of Trade and Industry]] in 2004 after the private sector partners involved in the PFI contract made losses of over £100m.<ref name=":nlp">{{cite web|year=2013|title=The Termination of the PFI Contract for the National Physical Laboratory &#124;National Audit Office|url=https://www.nao.org.uk/report/the-termination-of-the-pfi-contract-for-the-national-physical-laboratory/|access-date=23 December 2013|work=nao.org.uk|archive-date=24 December 2013|archive-url=https://web.archive.org/web/20131224111648/https://www.nao.org.uk/report/the-termination-of-the-pfi-contract-for-the-national-physical-laboratory/|url-status=live}}</ref>]]
Supporters of P3s claim that risk is successfully transferred from public to private sectors as a result of P3, and that the private sector is better at [[risk management]]. As an example of successful risk transfer, they cite the case of the [[National Physical Laboratory, UK|National Physical Laboratory]]. This deal ultimately caused the collapse of the building contractor Laser (a [[joint venture]] between [[Serco]] and [[John Laing plc|John Laing]]) when the cost of the complex scientific laboratory, which was ultimately built, was very much larger than estimated.<ref name="tcnp">{{Citation| title = The Termination of the PFI Contract for the National Physical Laboratory| year = 2006| publisher = [[National Audit Office (United Kingdom)|National Audit Office]]| url = http://www.official-documents.co.uk/document/hc0506/hc10/1044/1044.pdf| archive-url = https://wayback.archive-it.org/all/20071129091206/http://www.official-documents.co.uk/document/hc0506/hc10/1044/1044.pdf| url-status = dead| archive-date = 2007-11-29}}</ref>

On the other hand, Allyson Pollock argues that in many [[Private finance initiative|PFI]] projects risks are not in fact transferred to the private sector<ref name="Pollock 2005 3">{{Citation
  | last = Pollock
  | first = Allyson
  | title = NHS Plc: The Privatisation of Our Health Care
  | publisher = [[Verso]]
  | year = 2005
  | page = 3
  | isbn = 1-84467-539-4}}</ref> and, based on the research findings of Pollock and others, George Monbiot argues<ref name="bwry">
{{Citation
  | last1 = Monbiot | first1 = George
  | title = The Biggest Weirdest Rip-Off Yet
  | newspaper = The Guardian
  | date =7 April 2009
  | url = https://www.theguardian.com/commentisfree/2009/apr/07/olympics-2012-m25-pfi
  | location=London}}
</ref> that the calculation of risk in PFI projects is highly subjective, and is skewed to favor the private sector:

{{blockquote|When private companies take on a PFI project, they are deemed to acquire risks the state would otherwise have carried. These risks carry a price, which proves to be remarkably responsive to the outcome you want. A paper in the [[British Medical Journal]] shows that before risk was costed, the hospital schemes it studied would have been built much more cheaply with public funds. After the risk was costed, they all tipped the other way; in several cases by less than 0.1%.<ref>
{{Citation
  | last1 = Pollock
  | first1 = Allyson M
  | last2 =  Shaoul 
  | first2 =Jean
  | last3= Vickers
  | first3=Neil
  | title = Private finance and "value for money" in NHS hospitals: a policy in search of a rationale?
  | journal = [[British Medical Journal]]
  | volume = 342
  | pages = 1205–1209
  | date = 18 May 2002
  | issue = 7347
 | doi = 10.1136/bmj.324.7347.1205
  | postscript = .| pmid = 12016191
  | pmc = 1123165
  }}</ref>}}

Following an incident in the [[Royal Infirmary of Edinburgh]] where surgeons were forced to continue a heart operation in the dark following a power cut caused by PFI operating company Consort, Dave Watson from Unison criticized the way the PFI contract operates:

{{blockquote|It's a costly and inefficient way of delivering services. It's meant to mean a transfer of risk, but when things go wrong the risk stays with the public sector and, at the end of the day, the public because the companies expect to get paid. The health board should now be seeking an exit from this failed arrangement with Consort and at the very least be looking to bring facilities management back in-house.<ref>{{Citation
  | last = Carrell
  | first = Severin
  | title = Power cut leaves surgeons operating by torchlight at PFI hospital
  | journal = [[The Guardian]]
  | date = 21 April 2012}}</ref>}}

Furthermore, assessments ignore the practices of risk transfers to contractors under traditional procurement methods. As for the idea that the private sector is inherently better at managing risk, there has been no comprehensive study comparing risk management by the public sector and by P3s. Auditor Generals of [[Auditor General of Quebec|Quebec]], [[Auditor General of Ontario|Ontario]] and [[Auditor General of New Brunswick|New Brunswick]] have publicly questioned P3 rationales based on a transfer of risk, the latter stating he was "unable to develop any substantive evidence supporting risk transfer decisions".<ref name=":0" />{{rp|chapter 4}} Furthermore, many PPP concessions proved to be unstable and required to be renegotiated to favor the contractor.<ref>{{Cite journal|last1=Cruz|first1=Carlos Oliveira|last2=Marques|first2=Rui Cunha|date=2013|title=Endogenous Determinants for Renegotiating Concessions: Evidence from Local Infrastructure|journal=Local Government Studies|language=en|volume=39|issue=3|pages=352–374|doi=10.1080/03003930.2013.783476|s2cid=153619884|issn=0300-3930}}</ref>