Jean Shaoul, Anne Stafford and Pamela Stapleton

This paper examines empirically the financial outcomes of using private finance in roads under the UK government’s Private Finance Initiative (PFI) known as Design Build Finance and Operate (DBFO).

It refutes the government’s claim that private finance would lever in additional finance that it could not afford since in the three years for which information was available, the Highways Agency paid out more than the £590m construction cost of the projects.

It questions the claims of greater VFM over the life of the contracts than conventional procurement because: (i) the payment mechanism, based on the volume of traffic which has been rising, introduces additional costs for the public sector; (ii) DBFO seems to have been more costly than expected, thereby eroding the expected and very marginal cost advantage of DBFO; and (iii) the high cost of risk transfer.

Unpublished.