The economic efficiency of accommodation service PFI projects

Dissertation

Kai Rintala

Research output: ThesisDissertationMonograph

Abstract

In 1992, the UK Government introduced the Private Finance Initiative (PFI) as a policy to allow and regulate privately financed public projects. However, PFI is better understood as an innovative procurement method. PFI involves a private sector entity taking the responsibility to design, build, finance and operate (DBFO) an asset used in the provision of a public service for a contract period of up to four decades. It is widely propositioned that PFI procurement leads to improved value for money (VFM) and profit for the public sector clients and private sector actors respectively as a result of improvements in economic efficiency. The aim of this research is to generate a detailed understanding of how the economic efficiency of an accommodation service PFI project is determined in its development through contract whole life cost (CWLCP) minimisation. This research consists of two case studies on large and complex accommodation service PFI projects. It focuses, in particular, on the effects of PFI procurement on the heating and ventilation design solutions of the project-facilities. The data obtained is self-report interviews, public and private sector issued project documentation and expert opinions. The data is subjected to solution, incentive, opportunity and perception analyses. The research unexpectedly identifies only a small number of design solutions that are incorporated in the project-facilities with the aim of achieving CWLCP reductions. In other words, the research finds that the economic efficiency improvement in the procurement of public accommodation services due to the adoption of PFI is considerably smaller than proposed by economic theory. This, however, does not suggest that the economic efficiency of PFI accommodation services is found to be worse than those procured traditionally. The research establishes that the limited improvement is because of: the guidance documentation used to govern the design of PFI project-facilities; the market testing mechanism used to adjust the payment for the service provision in the operational phase; the organisation of the private sector actors in the project development; and the lack of good quality data to estimate expected CWLCP reductions. The research develops possible strategies to rectify the identified problems. The adoption of these strategies should enable the economic efficiency of future accommodation service PFI projects to be improved through CWLCP minimisation.
Original languageEnglish
QualificationDoctor Degree
Awarding Institution
  • University College London
Supervisors/Advisors
  • Ive, Graham, Supervisor, External person
Place of PublicationEspoo
Publisher
Print ISBNs951-38-6434-0
Electronic ISBNs951-38-6428-6
Publication statusPublished - 2004
MoE publication typeG4 Doctoral dissertation (monograph)

Fingerprint

Economic efficiency
Private finance initiative
Accommodation
Procurement
Private sector
Documentation
Responsibility
Economic theory
Public sector
Incentives
Public services
Value for money
Service provision
Self-report
Finance
Cost minimization
Public and private sector
Expert opinion
Testing
Guidance

Keywords

  • Private Finance Initiative (PFI)
  • Design Build Finance and Operate (DBFO)
  • Public Private Partnership (PPP)
  • accommodation service
  • economic efficiency

Cite this

Rintala, K. (2004). The economic efficiency of accommodation service PFI projects: Dissertation. Espoo: VTT Technical Research Centre of Finland.
Rintala, Kai. / The economic efficiency of accommodation service PFI projects : Dissertation. Espoo : VTT Technical Research Centre of Finland, 2004. 478 p.
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Rintala, K 2004, 'The economic efficiency of accommodation service PFI projects: Dissertation', Doctor Degree, University College London, Espoo.

The economic efficiency of accommodation service PFI projects : Dissertation. / Rintala, Kai.

Espoo : VTT Technical Research Centre of Finland, 2004. 478 p.

Research output: ThesisDissertationMonograph

TY - THES

T1 - The economic efficiency of accommodation service PFI projects

T2 - Dissertation

AU - Rintala, Kai

N1 - Project code: R1SU00612

PY - 2004

Y1 - 2004

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AB - In 1992, the UK Government introduced the Private Finance Initiative (PFI) as a policy to allow and regulate privately financed public projects. However, PFI is better understood as an innovative procurement method. PFI involves a private sector entity taking the responsibility to design, build, finance and operate (DBFO) an asset used in the provision of a public service for a contract period of up to four decades. It is widely propositioned that PFI procurement leads to improved value for money (VFM) and profit for the public sector clients and private sector actors respectively as a result of improvements in economic efficiency. The aim of this research is to generate a detailed understanding of how the economic efficiency of an accommodation service PFI project is determined in its development through contract whole life cost (CWLCP) minimisation. This research consists of two case studies on large and complex accommodation service PFI projects. It focuses, in particular, on the effects of PFI procurement on the heating and ventilation design solutions of the project-facilities. The data obtained is self-report interviews, public and private sector issued project documentation and expert opinions. The data is subjected to solution, incentive, opportunity and perception analyses. The research unexpectedly identifies only a small number of design solutions that are incorporated in the project-facilities with the aim of achieving CWLCP reductions. In other words, the research finds that the economic efficiency improvement in the procurement of public accommodation services due to the adoption of PFI is considerably smaller than proposed by economic theory. This, however, does not suggest that the economic efficiency of PFI accommodation services is found to be worse than those procured traditionally. The research establishes that the limited improvement is because of: the guidance documentation used to govern the design of PFI project-facilities; the market testing mechanism used to adjust the payment for the service provision in the operational phase; the organisation of the private sector actors in the project development; and the lack of good quality data to estimate expected CWLCP reductions. The research develops possible strategies to rectify the identified problems. The adoption of these strategies should enable the economic efficiency of future accommodation service PFI projects to be improved through CWLCP minimisation.

KW - Private Finance Initiative (PFI)

KW - Design Build Finance and Operate (DBFO)

KW - Public Private Partnership (PPP)

KW - accommodation service

KW - economic efficiency

M3 - Dissertation

SN - 951-38-6434-0

T3 - VTT Publications

PB - VTT Technical Research Centre of Finland

CY - Espoo

ER -

Rintala K. The economic efficiency of accommodation service PFI projects: Dissertation. Espoo: VTT Technical Research Centre of Finland, 2004. 478 p.