Owolabi, H; Oyedele, L; Alaka, H; Ajayi, S; Bilal, M and Akinade, O (2020) Risk mitigation in PFI/PPP project finance: A framework model for financiers' bankability criteria. Built Environment Project and Asset Management, 10(1), pp. 28-49. ISSN 2044-124X
Abstract
Purpose: Earlier studies on risk evaluation in private finance initiative and public private partnerships (PFI/PPP) projects have focussed more on quantitative approaches despite increasing call for contextual understanding of the bankability of risks. The purpose of this paper is to explore the perspectives of UK PFI financiers' regarding the bankability of four critical risks (construction and completion risk, operations, supply and offtake risk) in PPP projects. Design/methodology/approach: Multiple case study strategy was adopted to investigate the phenomenon within real-life context of PFI/PPP projects in UK. Using purposive sampling approach, the study examined school and road PFI/PPP projects through interviews, documentations and focus group discussions. Findings: Results from the study unravelled 36 suitable bankability criteria and some mitigation strategies for evaluating the four critical risks in PFI/PPP during due diligence appraisal. Further evidences from the study also show that, financiers' bankability criteria, when paired along with corresponding risks and mitigation strategies within with a single framework, provides a quick and effective view of bankability of risks in PFI/PPP funding application. Research limitations/implications: In order to ensure generalisability of findings, only projects with similar nature were selected from just two sectors of the UK economy (road and education sectors). The context of the study is also based on UK’s PFI/PPP and Construction Industry, as such, other geographical regions in Europe and beyond have not been contextualised in this study. Due to the significance of finance in PFI/PPP contracts, only the perspective of project financiers have been explored in this study. Practical implications: This study provides a less complicated but useful understanding of how risks in PFI/PPP projects may be packaged in a bankable manner to secure the confidence of project financiers. By presenting a qualitative framework, the study addresses concerns of over quantification of risk analysis in PFI/PPP appraisals and provides a relatable approach useful for non-finance oriented PPP practitioners. Social implications: This study addresses the social concerns of too much complexity and ambiguity in PFI/PPP structuring especially regarding factors that could make a project acceptable to lenders. Originality/value: The study proposes a “Bankability and Risk Qualitative Framework”, which presents bankability information on critical risks in clear manner and represents critical parameters for winning financiers' funding approvals for PFI/PPP projects.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | bankability; completion risk; debt service repayments; lenders' perspectives; offtake risk; operation and maintenance risk; private finance initiative; public-private partnership; risks; supply risk |
| Index terms: | Europe, focus group, operation and maintenance, case study, approval, interview, quantification, documentation, partnership, strategy, evidence, mitigation, practitioner, private finance initiative, funding, methodology, project finance, public private partnership, complexity, appraisal, risk analysis, risk mitigation, construction industry, purposive sampling |
| Subjects: | contractual role, evaluation and assessment methods, data collection methods, practitioner, contractual arrangements, economic analysis, factor and component analysis, physical geography and landforms, management, financial management, research methods, maintenance engineering, financial risk, professional development, partnership management, measurement and scaling, industry analysis, systems engineering, environmental hazards |
| Topics: | Contract Administration, Geographical Context, Research Practice, Information Management, Engineering Principles, Business Strategy, Cost Management, Procurement, Sustainability, Stakeholder Management, Roles and Professions |
| Descriptive scope: | 5 PCTEA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here