Private Finance Initiative
Traditionally
governments have paid for major projects through capital financing
raised from taxes. Since 1992, an alternative way of procuring new
public facilities has been available – the Private Finance
Initiative (PFI). Through this approach the government, and other
agencies such as Local Authorities, seek to procure contracts for
services rather than operating the facilities themselves.
In PFI, private consortiums (usually involving developers or
large construction firms) are responsible for raising the necessary
finance themselves and for designing, building and operating
facilities for a given term of contract, usually for 25 years or
more. Payment is then paid to the consortium over the life of the
contract for the availability and quality of services received. No
payment is made until the services (and any accommodation required
to deliver them) is operational. It is, therefore, in the private
consortium's interests, to ensure that the project is delivered on
time and to the quality required. The ongoing risk of operation and
maintenance of the facilities also lies with the private sector as
failure to meet standards and targets throughout the contract term
may lead to reductions in the payments made to them.
Through PFI procurement central government has been able to
support investment in a number of sectors including housing,
schools, prisons, hospitals, and roads.