Case Study - NHS Confederation: Risk Management in PFI health projects

Client: NHS Confederation
Sector: the health sector
Services delivered: strategic risk management

University College Hospital London

The introduction of the Private Finance Initiative (PFI) marked a substantial change in the way the public sector, including NHS Trusts, procured capital projects and the services delivered by these projects. Private contractors became responsible not only for building facilities, but also financing and operating them. NHS Trusts shifted from buying facilities to buying services, based on contracts embodying output-based specifications. Along with this, a much greater degree of risk transfer to the private partner was expected, which in turn entailed pricing the risk, something which had not been common practice in the public sector before.

Bearing in mind the emphasis placed on risk issues in the PFI, Risk Solutions worked with the National Association of Health Authorities and Trusts (now the NHS Confederation) to write a guidance document on risk management for PFI projects in the NHS.

The project combined Risk Solutions’ expertise on risk management with information gathered from a wide-ranging series of interviews with people familiar with different aspects of the PFI process including Trust finance directors, private sector parties, the NHS Executive, HM Treasury and the PFI panel. In particular the NHS Executive’s Private Finance Unit gave considerable input on areas where they thought NHS Trusts needed guidance.

A framework was produced that proceeded methodically through the steps required in setting up and then managing a PFI project, indicating at each point what risk management activities should be undertaken. This was supplemented by a series of annexes on the more technical aspects of risk assessment and management, such as risk-based costing and the price of risk transfer.