PFI in the UK

Under-investment in public buildings over the last thirty years has resulted in a significant maintenance backlog and inefficient public facilities not suitable for the public service delivery in the 21st Century. The .PFI allows the Government to bring private sector skills and management to public sector services. Not only does the construction contract ensure that the facilities are provided to a fixed cost and programme, but it allows the service provider to input into the design of the facility, ensuring the most cost-effective, appropriate solution.

The SPC raises funds to pay for the provision of the facility therefore there is no requirement for the public authority to make an up front cash payment. The Client then pays an annual payment over the life of the project to enable the SPC to repay the debt and cover the cost of the service delivery. This structure has allowed the Government to under take an extensive building programme of public facilities, such as hospitals, roads and schools, without having to substantially raise income tax.

Risk transfer is another element of the PFI method of procurement which is attractive to public authorities. It allows certain risks, which would normally be borne by the public authority, to be passed over to the SPC. For example, there is a long history of delays and cost overruns in the construction of public facilities and infrastructure. However, under PFI the private consortium is gives a fixed-price, date certain offer. The risk of cost increases is borne by the building contractor who must also pay compensation to the SPC should construction be completed late.

PFI Activity to Date

The latest figures published by the Office of Government Commerce (which go up to 31 December 2006) show that circa 800 PFI contracts with a total capital value of over £55bn have now been signed . The project sectors that dominate the spending are transport, health and education.

Reviews of PFI to date

There have been a number of reports published analysing PFI. A recent study by the National Audit Office reported that only 22% of public building projects had exceeded the initial cost estimated by the public sector, compared with a previous study in 1999 that found 73% had exceeded the expected cost. Of these increases almost all were for additional features added by the public authority while the projects were under construction. Plus, only 24% of public building projects had been delivered late compared with 70% reported in the previous survey in 1999.

Another study carried out in 2001 on 127 PFI projects revealed that 81% believed they were achieving satisfactory or better value for money from their PFI contracts.

For links to further reports into PFI, go to Key Information.