Private Finance 2 (PF2)

Last year, the Government initiated a fundamental reassessment of PFI. The Government conducted a broad based engagement process, which invited all interested parties to respond to a call for evidence on the reform of PFI and to bring forward proposals for a new approach in using the private sector in the delivery of public infrastructure and services. 155 responses to the call for evidence were received in total. These have been published in full.

On the 5th December, the Government concluded its review of PFI and published full details of a new approach to public private partnerships, PF2. The Government remains committed to private sector involvement in delivering infrastructure and services, but has recognised the need to address the widespread concerns with Private Finance Initiative and the recent changes in the economic context.

A new approach to public private partnerships’ sets out the Government’s approach to involving private finance in the delivery of public infrastructure and services through a long-term contractual arrangement. PF2 will;

Strengthen significantly the partnership between the public and private sector by Government looking to act as a minority public equity co-investor in PF2 projects;
Ensure that procurement is much faster and cheaper by;
- improving public sector procurement capability by strengthening the mandate of Infrastructure UK and supporting departmental centralised procurement units;
- committing that the competitive tendering phase of PF2 projects, measured from project tender to the appointment of a preferred bidder, will not be allowed to take longer than 18 months unless an exemption from the Chief Secretary is agreed;
- introducing a standardised and efficient approach to PF2 procurement and launching a comprehensive suite of standard documentation; and
- strengthening the scrutiny of project preparation by introducing additional Treasury checks at the pre-procurement stage.
Improve the flexibility of services by;
- removing soft services, such as cleaning and catering, from projects;
- providing procuring authorities with discretion on the inclusion of certain minor maintenance activities at the project outset and additional flexibility to add or remove certain elective services once a contract is in operation; and
- introducing periodic reviews of service provision.
Transform the approach taken to transparency by;
- introducing a control total for all commitments arising from off-balance sheet PF2 contracts signed;
- requiring the private sector to provide equity return information for publication;
- publishing an annual report detailing project and financial information on all projects where Government holds a public sector equity stake;
- introducing a business case approval tracker on the Treasury website;
- introducing an open book approach and a gain share mechanism for the lifecycle fund to facilitate the sharing of any surplus lifecycle fund at the end of the contract; and
- improving the information provisions within the standard contractual guidance.
Improve the value for money of risk allocation in the contract by;
- the greater retention and management of certain risks by the public sector, such as the risk of additional capital expenditure arising from an unforeseeable general change in law; and
- amendments to the current provisions that set out the arrangements for risk sharing of core required insurances in the operational phase of projects.
Widen sources of debt and equity finance by;
- introducing funding competitions for a proportion of equity to attract long-term investors into projects prior to financial close;
- encouraging the use and assessment of a range of debt financing sources including public and private bonds, commercial bank debt and multilateral debt products.
Deliver value for money by developing and consulting on guidance which will replace the existing Value for Money Assessment Guidance

Private Finance 2 (PF2)

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Public private partnerships