1. On the basis of a report by the Comptroller and Auditor General, we took evidence from HM Treasury (the Treasury), the Infrastructure and Projects Authority (IPA) and Local Partnerships about managing the expiry of PFI contracts.1
2. The Private Finance Initiative (PFI) is a way of engaging the private sector to deliver public infrastructure such as roads, schools and hospitals. The government has used PFI, and its successor Private Finance 2, for over 25 years.2 There are currently more than 700 operational PFI contracts in place across the UK worth around £60 billion. PFI involves the government entering into a long-term contract with a private sector company which then designs, finances, builds, maintains and operates the assets over a period of 25 to 30 years. During this period the government makes annual payments to the PFI company covering debt repayment, financing costs, maintenance and any other services provided.3
3. In 2018, the government announced it would no longer use PFI.4 We examined the PFI model in 2018 as part of our "Private Finance Initiatives" inquiry. We concluded that after more than 25 years the Treasury still had no data on benefits to show whether the PFI model provides value for money.5 Existing PFI contracts, however, remain in place and the oldest ones are now starting to expire. Over the next 10 years more than 200 PFI contracts will end, covering assets worth in excess of £10 billion.6 On expiry, in most cases, asset ownership will transfer to the public sector which will then be responsible for ensuring they are run as before, and well maintained. The public body (the authority) that entered into the original contract therefore needs to closely monitor the performance of the PFI company to ensure maintenance is carried out and the assets are returned in the agreed condition. The authority must also decide whether services, such as running a hospital, are either provided in-house, by a new contractor or by the current provider. Failure to prepare sufficiently far in advance may result in the taxpayer becoming liable for expensive rectification work or disruptions to important public services.7
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1 C&AG's Report, Managing PFI assets and services as contracts end, Session 2019-21, HC 369, 5 June 2020
2 In December 2012 the Treasury launched Private Finance 2 as the successor to PFI. This was in response to concerns that the PFI model was too costly, inflexible and opaque. Only six projects used PF2 before the Treasury withdrew the model in Budget 2018. Despite the minor differences between PFI and PF2, we do not separate the two models throughout this report.
4 HM Treasury, Budget 2018, HC 1629, October 2018, para 1.51, p.29
5 Committee of Public Accounts, Private Finance Initiatives, 44th Report of Session 2017-19, HC 894, 20 June 2018
6 C&AG's Report, para 1.4, Figure 1