1 Private finance initiative (PFI) contracts are a form of public private partnerships used in the UK since the 1990s. PFI is a way to finance and provide public sector infrastructure and capital equipment projects, such as roads, hospitals and schools. There are currently more than 700 operational PFI contracts in place in the UK with a capital value of £57 billion.1 This study focuses on the 571 English PFI contracts, excluding those for which devolved governments are responsible.
2 The management of PFI contracts involves different organisations across central government and local bodies. The public authority (the authority) which entered into the original agreement is primarily responsible for managing the contract, including the expiry process. Government departments can be involved as the authority or as a sponsor (sponsor department) for a local body that signed the contract. The Infrastructure and Projects Authority (IPA) provides a support function to departments and authorities as the government's centre of expertise for infrastructure and major projects. It reports to the Cabinet Office and HM Treasury. HM Treasury is responsible for PFI policy and fiscal decisions and co-owns the PFI strategy with the IPA.
3 PFI projects involve a new private finance company - a special purpose vehicle (SPV) - being set up. The SPV finances, builds, maintains and operates the assets over the contract term, usually 25 to 30 years. During this term, the authority makes payments, known as a unitary charge, to the SPV which cover debt repayment, financing costs, maintenance and any other services provided. The SPV is obliged to deliver the contract and because the PFI model is designed to be self-monitoring, the SPV is also responsible for reviewing performance and reporting back to the authority.
4 In October 2018, government announced it would no longer use the PFI model. Existing PFI contracts remain in place and the earliest ones are now starting to expire. These earlier PFI contracts did not always benefit from standardisation which HM Treasury introduced in 1999. Most PFI contracts result in the assets being returned to the authority once the contract ends. One potential benefit of PFI is that the assets should be well maintained throughout the contract life and therefore be in a good condition when returned to the authority. The main risks to value for money is that the assets are not returned in a satisfactory condition and that the continuity of service associated with the assets, if required, is therefore not assured.
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1 The £57 billion represents the nominal value.