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

Risk rethink boosts PFI

FEARS THAT new accounting rules would make many Private Finance Initiative projects unbankable eased last week following the publication of new guidelines from the Accountancy Standards Board.

The ASB changed the final draft of the rules after contractors and bankers argued that they failed to account for the complexities of PFI projects.

The original draft suggested that if projects failed any one of a number of risk transfer criteria, their cost would automatically count towards public spending calculations (NCE 1/8 January).

Projects like prisons or hospitals would have to include an element of risk relating to demand for the service, if they were to be accounted for on the balance sheets of private operators and not count towards public spending.

Government has previously tried and failed to offload demand risk for projects like prisons and hospitals on to the private sector.

The new ASB rules accept that PFI project risks are too complicated for individual risks to be taken in isolation. They acknowledge that demand risk does not have to be a significant element of a contract if other risks are considered weighty enough.

The final guidance draft acknowledges this, saying that penalties for failing to comply with contract demands for availability of services could be severe enough to allow a project to stay on the private operator's balance sheet.

Major Contractors Group director Jennie Price welcomed the change of tone. 'It looks as though there is going be more flexibility,' she said.

The Treasury, which had originally disagreed with the ASB on the first draft, will revise its own guidance on accounting for PFI deals early next year.

Andrew Bolton

Amendment to FRS5 'Reporting the substance of Transactions': Private Finance Initiative and similar contracts. ASB, tel: (0171) 404 8818.

The Trades Union Congress was expected to come under pressure to campaign for the scrapping of the PFI in a debate at its annual conference in Blackpool yesterday.

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.