PFI is a long term contractual arrangement that makes the private sector responsible for, and bear the risks of, designing, building, financing, maintaining and sometimes operating a public sector facility (e.g. a school, hospital or road) to output specifications set by the public sector. The public sector commits to make a unitary payment to the private sector for use of the maintained facility, once it is operational, over the life of the contract (typically 20 to 30 years). The private sector generally establishes a new special purpose project company to deliver the contract requirements. The project company raises private finance to cover the costs of the project and sub-contracts with third parties for the delivery of construction and facilities management services required under the contract with the public sector.
The private finance that is raised to cover the costs of the project is done at a higher cost than that at which Government can borrow and so a value for money judgement is required for all privately financed projects, to confirm that the additional costs of private finance are more than offset by the benefits of risk transfer and private sector delivery.
Question 1: Do respondents think that the private sector has a role to play in the future delivery of public sector assets? Are there specific sectors where the private sector should not have a role? Question 2: Are there other delivery and procurement models used in the delivery of public assets in the UK and internationally that respondents consider work well? What are the key features of these model(s)? Question 3: How should the use of private finance be evaluated when considering the best procurement route to deliver a public asset? Question 4: Are there features of the PFI model that should be retained? |