Department for Communities and Local Government | Public Private Partnerships - Private Finance Initiative
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Local Government Finance
Private Finance Initiative
PFI Contracts

PFI contract principles

PFI projects should be structured to provide incentives for the private sector supplier to perform efficiently and effectively. There are four inter-related principles at the heart of this approach:

  • Genuine risk transfer. Risks should be allocated between the public and private sectors to the party best able to manage them to ensure best value for money. This will vary between projects, e.g. demand risk will be very different between schools and roads.

  • Output specification. Contracts should specify the service outputs required rather than the configuration of the capital asset itself or how the service is to be delivered. No unnecessary constraints should be placed on the private sector's discretion to innovate in design and construction, or on the method of subsequent operation.

  • Whole life asset performance. PFI contracts require the contractor to take responsibility and assume risk for the performance of the asset over a long term, at least for a significant part of its useful life, so that efficiencies arising from long term asset management can be realised.

  • Performance-related reward. Payment will be subject to availability of the asset and/or for the performance of the private sector. Fees, in particular, will only be made on the basis of available for use.

Standardised documentation

Standardised PFI contract documentation is a requirement for local authority projects which are seeking central government funding support. There is a hierarchy of documentation, all of which must be used:

  • The overall framework is the Treasury Standardisation of PFI Contracts (Version 4).

  • Local authorities must also follow Local Government supplement produced by the 4ps.

  • The third level of documentation is that tailored for specific sectors. This is available in the form of procurement packs from the 4ps (which have all been agreed to be consistent with the documents above) for the following areas:

Housing
Street lighting
Joint Service Centres
Fire & Police
Social Care

The following packs are in development:

Highways Management
Leisure
Waste management

Any derogations (i.e. deviations from the above documentation) are expected to be exceptional and must first be agreed with HM Treasury in line with its implementation letter.

Further Treasury advice on particular issues should also be followed:

There is separate documentation for projects being developed under:

Enquiries to:
Central Private Finance Unit
Zone 1/A5
Eland House
Bressenden Place
London SW1E 5DU
Tel: 020 7944 4228
Fax: 020 7944 4259
E-mail: capital.finance@communities.gsi.gov.uk

CLG is not responsible for the contents or reliability of the linked web sites and does not necessarily endorse the views expressed within them. Listing should not be taken as endorsement of any kind. We cannot guarantee that these links will work all of the time and we have no control over the availability of the linked pages.

CLG can only offer an informal interpretation of legislation and it is for the authorities to seek their own legal and accounting advice.

Last updated on 5 June 2008
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