Source · Select Committees · Public Accounts Committee
Recommendation 24
24
Accepted
Government has misplaced assurance regarding private sector risk transfer and management.
Conclusion
We heard from Mr Dalgleish that sometimes, with private finance, government has a misplaced assurance that risk transfer to the private sector equates to risk management by the private sector, which offers a false assurance that the risk lies outside of the public sector.55 Risk management by the public sector is paramount, as past examples have shown that the government will need to step in when suppliers fail, as was the case when Carillion went into liquidation and government had to complete two hospital projects.56
Government Response Summary
The government agrees with the committee's observation regarding public sector risk management in private finance projects. The Treasury and NISTA commit to publishing further guidance by May 2026 on contract and performance management, and how to reset infrastructure projects.
Government Response
Accepted
HM Government
Accepted
5.1 The government agrees with the Committee’s recommendation. Target implementation date: May 2026 5.2 Identifying where the private sector is better placed to identify, assess, price and manage risks – and structuring contracts to reliably incentivise and capture that expertise – is key to private finance projects being able to demonstrate value for money. 5.3 Where risks are better managed by the private sector, it is important to carefully consider how contractual provisions can best ensure robust risk management throughout the asset’s lifecycle. However, supplier failure remains a risk in any contractual situation. Although robust due diligence and contractual provisions can reduce these risks and mitigate their impacts, some degree of counterparty risk is inevitable. 5.4 Some risks are better managed by the public sector, and it is poor value for money to attempt to transfer these. Contracting authorities should consider the overall package of risks and returns to assess whether a financing model offers good value for money compared to alternative financing options. 5.5 In implementing the 10 Year Infrastructure Strategy, the Treasury and NISTA will carefully consider the risk allocation in infrastructure procurement, and the involvement of private capital in taking risk in different elements of financing structures, to ensure value for money is achieved. The government has learned the lessons from the past and is applying these learnings to current and future projects. For example, the lessons learned from Hinkley Point C helped lead to Sizewell C’s pioneering use of a Regulated Asset Base model to more effectively allocate risk between the parties and which enabled the conclusion of a private equity raise. 5.6 NISTA offers expert advice to public bodies contracting private finance deals for infrastructure, and further support and guidance is available from the government’s Risk Centre of Excellence, including the Orange Book, and the Cabinet Office. 5.7 The Treasury and NISTA will set out further guidance by May 2026 regarding contract and performance management as well as how to reset infrastructure projects, complementing existing guidance such as Navigating the risks of PFI project distress (GOV.UK).