by a desire on the part of the procuring authority to keep the debt off its balance sheet. However this is not considered to be a legitimate justification. In 2013 the present government, following a review of PFI, made some adjustments of a non-fundamental nature to the model to address certain criticisms, and rebranded PFI as Private Finance 2/PF2. There has been only a limited pipeline of new deals coming to the market since 2010, as a result of both constraints on public spending following the financial crisis and also a shift away from social infrastructure development (which was the primary driver of the original PFI pipeline). It is possible, however, that PF2 – or a further iteration of the PPP model – will be more widely used in coming years, if fiscal constraints are relaxed by the Government. PFI – guidance and legislation Unlike many other jurisdictions, there is no specific legislation in the UK governing the operation of PFI. There has, however, been extensive guidance and standardised drafting issued by Her Majesty’s Treasury (HMT), and this has been updated a number of times over the history of PFI and PF2. Compliance with this guidance has been mandatory for procuring authorities and bidders, subject only to sector specific derogations. The overarching HMT guidance has, in turn, been developed into sector- specific standard form contracts.
principles (see Finance above), the private sector partner – usually a consortium comprising a building contractor, an operator and frequently a financial investor (typically a fund) – sets up a special purpose vehicle (SPV) for the purposes of the project (the “project company”). The project company will enter into the project agreement with the procuring authority together with a suite of subcontracts passing down its design and construction, and operation and maintenance, obligations to the relevant operating subsidiaries of its consortiummembers. The principal justification for using the PFI model is that it is capable of providing the public sector with value for money compared with a conventional procurement. Although the cost of funding in a PFI project is generally higher than in a conventional procurement, this is offset by the benefits of transferring certain risks to the private sector – particularly construction risk and lifecycle risk. Whether or not the benefits of risk transfer outweigh the additional cost of funding depends on the facts and in particular the nature and size of the project. In order for the use of PFI to be approved, the procuring authority is required to demonstrate that it will deliver overall value for money through detailed financial modelling and the production of a “public sector comparator” using an established methodology for ascribing a monetary value to the transfer of risk to the project company. There may also have been cases where the use of PFI may have been partially motivated
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