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The Association for Consultancy and Engineering has looked at PFI deals signed over a 15 year period by government departments, finding that the more projects a department undertook, the lower the eventual cost to the taxpayer. This suggests a need to examine what worked well and badly within the PFI system as reforms are taken through to finance new infrastructure using different models.  

The study, entitled Performance of PFI – 1996-2010 – lessons learned, is the first of a series looking at how the UK will finance future infrastructure investment. It was undertaken to highlight the lessons that could be learned from PFI in order to better inform new ways of thinking about financing projects.

The least expensive department was the Department for Communities and Local Government. It undertook 64 projects and faced public sector costs over the lifetime of the contracts of £2.69p for every pound of private investment generated. This contrasted with the Ministry of Justice, which undertook just 23 projects and faced a cost to the public purse of £11.53p for every pound of private investment generated.

Chief executive of ACE, Nelson Ogunshakin OBE, said: “There was clearly a divergence between departments that shows the need to review and learn lessons. Those that had built up a greater deal of experience in running PFI deals appeared to procure them more effectively. This may suggest that government is right to look at creating a central team, through the Efficiency Reform Group to drive efficiency across departments as it seeks new ways of financing vital projects.”

The research, which looked at deals done through 1996 to 2010, also suggests that the first five years of PFI, from 1996 to 2000, were the most costly for the taxpayer for every pound generated in private investment. The period from 2001 to 2005 was the least costly spell for PFI, with the cost to the taxpayer rising again in the last five years, possibly because the financial crisis raised the cost of private capital.

However, there was little divergence in the cost to the taxpayer between larger and smaller PFI deals, suggesting that large complicated deals were not more likely to prove expensive than relatively small deals. This being the case, private investment may still prove valuable in future for projects of all sizes.

Nelson Ogunshakin said: “It is important to note that there seems to have been a tangible rise in the level of experience in procuring PFI projects over time, and perhaps within industry in delivering through PFI, that made it less costly for the taxpayer. This means that as the UK looks to meet its infrastructure needs it should learn the lessons of what PFI did well and where it struggled to ensure best practice and develop better more flexible models. ACE will be looking at what these new flexible models should look like in its next paper.”



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Notes to Editors

This paper is the first of a new series of infrastructure financing papers from ACE. It looks at 15 years of Private Finance Initiative experience in the UK. The paper establishes the lessons learned, both positive and negative, that must inform new thinking on project financing if the public and private sectors, and most importantly the taxpayer, is to get the best possible value for money.

The analysis of this data looks at the unitary payments as reported by HM Treasury. The data does not provide a breakdown that would allow for a detailed analysis of the scale and number of components that make up these unitary payments. This subsequently makes value judgements difficult. However, it does allow us to make comparisons over time, across departments and over capital ranges.
Click here for the full document.

Click here for the full paper.


Table of department spending in unitary payments over the contract per £1 of private sector investment.