Last edited 14 Mar 2019

Public private partnerships PPP

Public Private Partnerships (PPPs) are a very broad range of partnership where the public and private sectors collaborate for some mutual benefit.

PPPs were first developed in the UK in the 1990s in the belief that private sector companies might be more efficient at providing certain services than public authorities and so could deliver better value for money for taxpayers.

PPPs can cover a range of partnerships to deliver policies, services, buildings or infrastructure, from hospital catering to maintenance and renewal of London Underground. Partnerships can be with either central or local government.

The three main categories of PPP are:

Concession contracts, where a private sector company provides a concession on behalf of a public authority, for which the public pays them (such as a toll road).
Private Finance Initiatives (PFI), where a private sector company finances and provides a public service that might include construction, maintenance and operation, for which they are paid by a public authority.
Institutional PPP where a joint venture company is established jointly by a public authority and a private company to provide a public service.

PFI is the most common form of PPP (ref. HM Treasury: Public private partnerships), and is one of the three procurement routes preferred by the Government Construction Strategy for central civil government projects. Generally it is only suitable for large-scale projects, i.e. those with a capital cost of over £20 million (ref. Achieving Excellence Guide 6 - Procurement and Contract Strategies P6), such as hospitals and schools.

However, in 2011, the damning House of Commons Treasury Select Committee report on PFI 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'. It is difficult to see where this leaves private finance initiatives,

Following a review of PFI, the government published details of a new approach in 2012, 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. See PF2 for more information.

However, in the 2018 Autumn Budget, Chancellor Philip Hammond confirmed that the government would be scrapping both PFI and PF2 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."

On 13 March 2019, The government opened a consultation on how best to support private investment in infrastructure. The review will look at the government’s tools for supporting private investment, and how they are delivered, in the context of the UK’s changing relationship with the European Investment Bank. The consultation closes on 5 June 2019. Ref https://www.gov.uk/government/consultations/infrastructure-finance-review