Last edited 15 Jan 2021



[edit] Introduction

Private Finance Initiatives (PFI) are a form of Public Private Partnerships (PPP), one of the procurement routes preferred by the Government Construction Strategy for central civil government projects. Generally PFI is only suitable for large-scale projects such as infrastructure projects, hospitals and schools.

On PFI projects, a single integrated supply team is appointed with design, construction and facilities management expertise to design, build and operate a development for a period of time. A special purpose vehicle (SPV), of which the integrated supply team is a part, finances the project and leases it to the government for an agreed period (perhaps 30 years) after which the development reverts to government ownership.

PFI projects give the public sector access to private sector project management skills and funding whilst allowing financing not to appear in government debt. As a single supplier is responsible for the delivery and operation of the project, it should also ensure better consideration of whole-life costs.

However, in practice, PFI is seen to be inflexible, offering poor value, with inequitable sharing of risk and profits. A damning 2011 House of Commons Treasury Select Committee report found '...that PFI projects are significantly more expensive to fund over the life of a project' and that there is no '...clear evidence of savings and benefits in other areas of PFI projects which are sufficient to offset this significantly higher cost of finance'.

[edit] Changes to PFI

The government initiated a review of PFI in 2011, and on the 5th December 2012, published details of a new approach, stating that it '…remains committed to private sector involvement in delivering infrastructure and services, but has recognised the need to address the widespread concerns…'

The new version of PFI is referred to as PF2, and the key changes are set out below:

[edit] Financing

[edit] Procurement

  1. Procurement and contract guidance.
  2. A shareholders' agreement.
  3. A facilities management service output specification.
  4. A payment mechanism for accommodation projects.

[edit] Risk

Broadly, these changes to PFI were welcomed. The standardisation of procurement, and the shortening of the tender period were seen as positive, cost-cutting changes, and it was generally accepted that it was sensible to remove some long-term soft services from PFI contracts. However, there were concerns that changes to the financing of projects could in fact increase costs, in particular, changes to the debt to equity ratio, and the need for bidders to factor in an element of government equity.

PF2 was piloted on the £1.75bn Priority Schools Building Programme (PSBP) as well as some defence projects and a new hospital project.

[edit] Decline in use

Oral evidence given to the House of Commons Public Accounts Committee (PAC) on 28 May 2018 revealed that only 12 projects had been brought forward under PF2 in the past five and a half years and that the last PF2 scheme agreed by the government was in April 2016.

Charles Roxburgh, the second permanent secretary at the Treasury said; “We think there are some promising projects on the horizon – some good roads projects – but we are talking of a handful, rather than going back to the days of the 2000s, when it was up to one a week and £8bn a year… PF2 is used only if it gives us better value for money. That is a pretty high bar, particularly when there is an awful lot of other public investment going into infrastructure...”


In the 2018 Autumn Budget, Chancellor Philip Hammond confirmed that the government would be scrapping both PF2 and PFI contracts, with no more being signed.

Addressing the House of Commons, Hammond said: "I'm committed to PPP where it delivers value to the taxpayer and shifts risk to the private sector. There is compelling evidence that PFI does neither." While the government will, he said, honour existing contracts, there "will be no pushover" in their management.

"I have never signed off a PFI contract as Chancellor…and I can confirm today that I never will. I can announce that the Government will abolish the use of PFI and PF2 for future projects."


For step by step guidance on public projects, see: Public project: outline work plan.

[edit] Related articles on Designing Buildings Wiki

[edit] External references


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