Saturday, January 21, 2012

Advantages of Private Finance Initiative (PFI) Procurement for Government Project.

The reason for growth in the number of PFI projects emerging in Malaysia especially in higher education sector can be attributed to the advantages include:

• allowing capital to be accessed immediately (at a time when governments often claim a scarcity of public funds);

• focusing upon output specifications provides an opportunity for greater innovation;

• taking long-term assets of a department's balance sheets;

• allowing an asset to be delivered more cheaply and efficiently (due to private sector capital and management expertise);

• the transference of risks normally borne by the public sector (including the obligation to invest in the development of new technology or attempt new innovations to meet output specifications);

• imposing the obligation on the private sector to maintain and operate the facility, provides the private sector partner with the incentive to construct the facility using high quality materials, and design the facility so that it can be run economically;

• overcoming the potential for major infrastructure projects being severely curtailed or cancelled following the election of a new government looking for financial savings;

• because the private sector partner must hand the asset back to the public sector at the end of the concession period in the condition it was in on the first day of the concession period, the private sector partner is compelled to maintain the asset properly;

• long term projects provide the service provider with long term capital as well as avoiding the costly process of re-tendering; and

• allowing a public sector body to transfer its non-core functions to a private provider (and thereby allow the public sector body to concentrate on its core functions, facilitating the delivery of higher standards of service and greater value for money).

The advantages of PFI are even more far-reaching than the above. For the structure of PFI itself is also a reason for the growth in PFI. Well drafted output specifications and contract documents which provide for operation, life cycle and routine maintenance and facilities management services will mean that a PFI contractor should (as discussed above) take a whole of life costing approach and formulate an integrated approach to design, financing, construction and the operation of facilities. This should increase economic efficiency as a whole by addressing issues of maintainability, durability and operability from the outset of a project. If all of the above factors can be achieved, then the parties will have gone a considerable way to ensuring that the best overall value is achieved.

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