Savings from operational PFI contracts

1.1 The private finance initiative (PFI) is a way to finance and provide public sector infrastructure and capital equipment projects. Under a PFI contract, a public sector authority pays a private contractor an annual fee called the 'unitary charge' for the provision and maintenance of a building or other asset. The charge may also cover provision of so-called 'soft services' such as cleaning, catering and security services for the asset. The unitary charge is typically paid over a period of 25 to 30 years, and at the end of this period the public authority owns the asset. Most elements of the unitary charge are fixed when the contract is signed. However, the charges for soft services can be variable and are often reviewed every five years or so.

1.2 For the purpose of this report, operational PFI contracts are those where asset construction is complete and service provision has commenced. HM Treasury has identified 684 operational contracts within central and local government. As at June 2013, the total charge still to be paid on these contracts was £206.6 billion.2

1.3 Two departments, the Department of Health and the Department for Education, sponsor more than half of all the operational PFI contracts. These departments provide part of the funding for many of the contracts that are managed by local bodies such as local authorities. The Department of Health sponsors 209 operational contracts and the Department for Education 167 contracts, see Figure 1.3

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Figure 1

Number of operational PFI contracts by sponsor department

NOTES

1. 'Other' contracts are held by the Home Office, Department for Business Innovation & Skills, Department for Work & Pensions, HM Revenue & Customs, Cabinet Office, Department of Energy & Climate Change, Foreign & Commonwealth Office, HM Treasury and local authorities.

2. The value of the total remaining unitary charge by department is given in Figure 5.

3. For the purpose of this Figure, departments are deemed sponsors of a particular contract if it falls within the sector for which they have policy responsibility. Central Government departments have directly procured 110 contracts, while 574 contracts have been procured through local bodies.

Source: National Audit Office analysis of Treasury data

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2 The final unitary charge payment under these contracts is due in 2043-44.

3 See Figure 5 for the full list of sponsoring departments