An alternative to conventional public sector procurement, Public Private Partnerships (PPPs) establish and create new assets - ranging from schools to prisons and roads. The most commonly used form of PPP, the Private Finance Initiative (PFI), was first introduced in the UK by the Conservative government in 1992 and was significantly expanded under the Labour government from 1997.1 PFI is a form of procurement which consists of a group of private investors managing the design, build, finance and operation (DBFO) of public infrastructure. The public sector does not own the asset, but rather leases the asset from private investors, over a period of 25-30 years typically, for which it pays a charge. In a PFI project, the private investors set up a Special Purpose Vehicle (SPV) which is responsible for the creation of the new facility, and is involved in the construction and maintenance of the facility over the life of the contract.

The initial capital investment that is required for the build and transaction costs are provided by a combination of both debt (bank borrowing) and equity (capital contributions), generally from the financial sector and shareholders. They bear the construction risk and most of the risk of the project failing.

PFI is a form of procurement, consisting of the design, build, finance and operation of public infrastructure