A private finance initiative (PFI) contract uses private sector investment in order to deliver public sector infrastructure or services, where the specification for the PFI contract is defined by the public sector. PFI is a sub-set of a broader procurement approach termed Public Private Partnership (PPP), with the main defining characteristic being the use of private sector debt and equity, underwritten by the public sector. The private sector's role is to develop the infrastructure, provide finance and to operate the public facilities.

PFI contracts were introduced in the 1990s and were used for designing, building and operating new public assets such as hospitals, schools, prisons, waste facilities (such as energy-from-waste facilities) and roads. Public sector organisations that have procured PFI contracts include the NHS, central government departments, waste authorities, and councils.

PFI contracts are typically for 25-30 years (depending on the type of project), although contracts less than 20 years or more than 40 years also exist.

Relatively small numbers of PFI contracts have expired already. However, larger numbers are due to expire over the next few years, reaching a peak in the mid-2030s. Many lessons have already been learned, including the need to prepare many years in advance of the expiry date, so that the contract is handed back in an optimal way and so that appropriate and measured decisions are taken for the potential future ownership and operation of the assets.

The preparation period can be as long as eight years. As the number of expiring contracts continues to grow each year, it is vitally important that public authorities do not leave key decisions to the last minute.

This document sets out guidance and details of the lessons that have been learned by Local Partnerships in our role as advisers to many of the public sector organisations that have dealt with PFI contract expiry or are in the process of dealing with the handback of their projects.