By: Paul Emanuelli
This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide.
In the January 2020 report entitled Privately financed infrastructure investment: The Non-Profit Distributing (NPD) and hub models, Scotland’s Auditor General called for greater transparency and better governance in the decision to use private financing in Scotland’s infrastructure projects. The report calculated that £13.1 billion in annual payments were already being allocated to infrastructure projects using alternative financing methods that cover “the cost of building, financing and maintaining the assets, as well as providing some services” and that “a further £27.0 billion is due to be paid” for these projects. The Auditor General also warned that private financing “costs more than traditional forms of financing, such as public borrowing or capital grants” and that while the Scottish Government “has accepted these additional costs as part of its priority of investing in infrastructure to support economic growth and help improve public services”, it remains unclear “how individual projects are identified as suitable to be financed privately, or how the overall combination is securing the best available balance of cost and benefits.” The report warned that public institutions tend to place short-term affordability over long-term value-for-money in their decision-making when the government commits to a privately financed contract.
The Auditor General made a series of recommendations to promote great transparency around the decision-making process for privately financed projects, noting that the government should “better document and report how decisions on the use of private finance are made at a programme level, and how the overall combination of programme and project funding aims to maximise investment and benefits.” The report also found that the government should “better communicate the rationale of project financing and funding decisions to public sector organisations and Parliament”, and that it should be reviewing existing projects to determine if they are “achieving their original aims, and documenting lessons learned.” Furthermore, the Auditor General recommended that the government “establish clear criteria for selecting programmes and monitoring risks” and also “develop its public reporting to provide more information on the costs and benefits of using private finance, the management of risks and outcomes delivered, and its contribution to supporting economic policies and growth.” As this Scottish report illustrates, questions around value-for-money for the taxpayer in the use of private financing in public infrastructure projects is becoming an increasingly global concern, which will continue to put those projects under increased scrutiny in the future.
