Recommendation 23

We asked the Treasury how it decides on which private finance model to use, and how it assesses the additional cost of private finance against the benefits of risk transfer. The Treasury told us that the benefit of private finance is that the private sector is incentivised to take on and manage risk. It explained that the private sector performs more front-end due diligence on projects because it tends to have access to more skilled and experienced people for delivery of these projects, which can lead to better performance and outcomes. The Treasury added that the returns that the private sector receives is determined by their assessment of the risk in the contract and the difficulty of delivering it, and so the private sector is incentivised to give the best price for both finance and the delivery contractor.53 The Treasury highlighted that when deciding whether to choose private or public finance, the Green Book dictates that the risk that the public sector is retaining should be considered, even if public financing is cheaper.54