Structure of a PFI Project

A PFI project can be broken down into three phases:

1. The Procurement Phase

In this phase of the project the authority advertises the scope of their project in the Official Journal of the European Union. In response to this a number of private sector consortia, consisting of organisations with the required skills to deliver the project, prepare documents outlining their experience, methods of working and eventually their solution. At this stage the private sector consortia put in place an agreement to outline the sharing of the bid costs between the consortia members. This cost exposure is significant and there is no compensation from the public sector if a bidder is unsuccessful. This major risk makes the targeting and selection of which projects to pursue critical.

2. The Construction Phase

The successful consortium will then take on a formal structure, which is shown above. Under the PFI, a specially formed private company, normally referred to as Special Purpose Company (SPC) contracts with an authority to finance, design and construct or refurbish a public asset, under a time and cost specific contract. This SPC is usually owned by the organisations that are responsible for the construction and service provision to the project, as well as investment funds. These organisations invest risk capital into the SPC. The SPC then raises non-recourse finance from a bank syndicate or the capital markets to fund the construction of the asset.

3. The Operating Phase

Following construction, the SPC provides support services under a long term contract and maintains the facility according to the Client’s specification. Once the operational period begins, the public authority pays the SPC for the provision of services. This revenue stream, which is subject to deductions for poor performance, is used to repay debt, fund operations and provide a return to the investors.