House of Commons, Treasury - Seventeenth Report: Private Finance Initiative
The ‘House of Commons, Treasury - Seventeenth Report: Private Finance Initiative’ was prepared by the Treasury Committee and was published on 18 July 2011. It followed the NAO report ‘Lessons from PFI and other projects’ published in the same year, and gave a damming assessment of the Private Finance Initiative (PFI). The aim of the report was to ‘…aid the Treasury in the work they are doing to reform PFI.’
Typically, PFI projects involve appointing a single, integrated supply team with design, construction and facilities management expertise to design and build a development and then to operate it for a period of time. A special purpose vehicle (SPV), of which the integrated supply team is a part, finances the project and leases it to the government for an agreed period (typically 30 years) after which the development reverts to government ownership.
The Treasury Committee found that PFI projects had a higher financing cost than could have been achieved by the government if it borrowed on its own account, suggesting that whilst the long-term government gilt rate was approximately 4%, the cost of capital for a typical PFI project was over 8%. This, they suggested, represented a significant cost to the tax payer over the life of a project. The committee could see no clear evidence of benefits to justify this cost, finding that the actual cost of construction and other services procured through PFI projects remained broadly the same as if they had been traditionally procured, whilst in some cases (notably in the NHS) the quality had been lower. The report also suggested that PFI was inherently inflexible.
However, they foresaw that if PFI ‘debt’ remained off balance sheet (ie not included in government debt figures), and if it continued to enable departments to leverage their budgets, it was likely to remain a feature of government procurement. The report recommended removing these perverse incentives and suggested that ‘…the Government should be looking to use PFI as sparingly as possible until the VfM (Value for Money) and absolute cost problems … have been addressed’.
On the 5th December 2012, the government announced a new approach to PFI, as part of the Autumn Statement, and published ‘A new approach to public private partnerships‘.
Commonly referred to as PF2, changes include:
- The government will look to become a minority equity investor in PF2 projects.
- A control total will be introduced into government accounts for off-balance sheet PF2 contracts.
- Contracts will no longer include 'soft' services, such as cleaning, catering and perhaps some aspects of maintenance.
- The government will retain certain risks, and take a more appropriate share of others (such as insurances and the risk of changes to the law).
See PF2 for more information.
[edit] Find out more
[edit] Related articles on Designing Buildings Wiki
- Construction industry reports since 1944.
- PFI
- PF2
[edit] External references
Featured articles and news
Specifying rendered external wall insulation for fire safety
How to interrogate the evidence provided to the specifier.
The benefits of writing articles for your organisation
How to create a profile for your organisation and publish for free.
No Falls Week. The importance of safe working at height
What to expect and what is on offer to avoid accidents.
Scottish Government action to reach net-zero targets
Retrofit expert group highlight critical actions needed.
A forward thinking, inclusive global community of members.
From engineered product life-spans, to their extension.
Circular economy in the built environment
A brief description from 2021. Where are we now?
Mental Health Awareness Week with ABS
Architects Benevolent Society programme of activity.
CLC publishes domestic retrofit competency framework
Roadmap of Skills for net zero.
May 13-19: Moving more for our mental health.
Understanding is key to conservation.
Open industry engagement survey seeks responses
Institutions and the importance of engagement.
National Retrofit Hub unveils new guide
Digital Building Logbooks and Retrofit: An Introduction.
Enhancing construction site reporting efficiency
Through digitisation and the digital revolution.