8.33 Previous PFI policy restricted the use of capital contributions by procuring authorities to 30 per cent of project costs to be paid on construction completion. Following a review of this policy the Government will now consider larger capital contributions and may approve milestone payments during the construction phase where the payment of capital contributions does not upset the balance of risk transfer, maintains incentives for sponsors and lenders, and value for money can be demonstrated.
8.34 Increasing capital contributions results in a lower debt financing requirement, easing market capacity constraints and providing more competitive pricing. Payment of the contributions during the construction period removes the need for short-term bank bridging facilities and associated financing costs. The combination of these measures will reduce the overall unitary charge payment making projects more affordable. For further information see Chapter 21 of the Standardisation of PF2 Contracts.
8.35 Increased capital contributions and payments during construction have recently been approved on several projects.