Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more

New accounting rule puts risk in hands of private sector

REVISED ACCOUNTING rules published by the Treasury last week should see a rapid increase in the volume of work flowing from PFI projects, according to civils contractors.

The revised guidance, known as PFI Technical Guidance Note Number 1 (Revised), was agreed after extensive talks between the Government and the Accounting Standards Board. It is designed to identify if genuine risk transfer to the private sector has been achieved under PFI contracts.

Risk is defined as the potential for variation in payment or revenue streams on a project. In effect, the new guidance will force the private sector to accept that it will lose income if, for example, a new hospital or prison is underused.

Tarmac concessions director Robin Hertzberg welcomed the news. He said: 'I think this is very important because it removes uncertainty.

'We were in danger of going back to where we were three years ago.'

'The PFI is not going to be stifled and it can now move ahead fast. The whole ethos of the thing now is that risk is with the private sector,' he added.

The revised guidance modifies the application of accounting standard FRS5, and risk transfer now excludes the commercial consequences of service- related risks in PFI deals.

Six major PFI schemes have already been scrutinised under the new rules, and revenue risks were found to be greater for the private sector in all cases. This means that payments can be kept off the Government's balance sheet, and so not count against the Public Sector Borrowing Requirement.

The Treasury, the National Audit Office and the Audit Commission are discussing whether all previous PFI deals, totalling some £11bn, will have to be re-assessed.

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Please note comments made online may also be published in the print edition of New Civil Engineer. Links may be included in your comments but HTML is not permitted.