A Public Private Partnership (PPP) is a way of providing public services which are funded and operated through a partnership between the government and the private sector.

A Private Finance Initiative (PFI) is a specific way of providing funding for PPPs, developed initially in the UK. Under this initiative, capital investment is made by the private sector, which then provides services in return for regular payment (a unitary charge) over the course of the project. In the most common form of PFI, a provider such as Equitix will form a consortium of service providers, called a Special Purpose Vehicle (SPV), which will then form a contract with a local authority for the supply of services for a wide range of industries, such as health, education, social housing and waste. Initial funding will be provided in the form of debt (usually around 90%) and equity; the former is paid back over the course of the project life-cycle, which generally lasts 20-25 years.

What are the advantages of PFI?

PFI allows the government to provide improved or new public services without the need for up-front funding. As control of the project is transferred to the SPV, so too is the risk. Furthermore, because the loans are paid back by the service provider throughout the 20-25 years of the project, they are at risk if standards are not maintained throughout; this ensures that individual consortium members are held responsible for their role in the delivery of services. As a strong disincentive, contracts drawn up at the start of a project include government penalties for poor standards.

Each PFI project has a rigorous bidding process, which ensures that the authority has sufficient time and information to appoint the most suitable consortium. During this stage, a consortium must not only demonstrate its experience, integrity and capability, but also that it can provide value for money. In this way the government can ensure that services are produced on time and to budget.

What role does Equitix play?

Apart from providing development capital and equity investment, Equitix’s main role in PFI is to put together and lead a consortium of suitable and capable service providers, which supply services for the entire life of the project. The skill of the Equitix team in managing the bid process, the project, the asset and the facilities, as well as our expertise in legal and financial issues, ensures that our projects maintain exceptional standards and deliver value for money.

The links below provide further information on PPP and PFI:

PPP Forum
PPP Bulletin

Government-related
PartnershipsUK
Partnerships for Schools
Department of Health
Department for Education and Skills
National Audit Office
HM Treasury PFI/PPP