Private Finance Initiatve (PFI)

• The PFI provides government with a way of funding major capital investments such as schools, hospitals, prisons, roads, specialist offices.
• Private consortia are contracted by the public sector to design, build, and manage new projects.
• Management contracts typically last for 30 years, during which time the relevant asset is made available to the relevant public authority (for example, a local authority in the case of schools, an NHS Trust in the case of hospitals), in return for a specified series of payments during the term of the contract.
• PFI transactions thus provide secure public sector-backed returns to the project sponsor and its lenders.
• The assets involved are typically key to the community, and the risk of default is considered to be low as the payer in each case is usually a quasi-government entity.