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Grant support for local authority PFI is available from central government. The promise of support is given in the form of a letter, which sets out a level of 'PFI credits' issued for that project. PFI credits are a measure of the private sector investment which will be supported, and act as a promise that PFI grant can be claimed once the project is operational. The level of grant is then based on the level of PFI credits issued. Each sponsoring department is limited in the level of of PFI credits it can issue by having to manage within an allocation for its programme(s).
How do local authorities apply for PFI credits?
The procedures for applying for PFI credits are set out in an annual document produced by CLG, the Local Government PFI Project Support Guide. The 2008-09 Support Guide includes:
- A framework for the administrative process of applying for PFI credits
- Qualifying criteria which all projects must meet
- How to calculate the maximum level of PFI credits which can be issued for a particular project
- Draft letters used at key stages
There are various differences when PFI credits are used to support projects involving NHS LIFT leaseplus agreement, and these are set out in a separate section of the Support Guide.
There are a number of main stages in the procedure. The following is a brief outline and a fuller description inc discussion of timetables, applications for additional support and publication of business cases, can be found in the Support Guide):
1. First Approach
Each sponsoring Government department will define and publish their priorities for deciding what sort of projects they wish to support. Some departments will invite proposals in an annual bidding round, while others will consider proposals submitted at any time. The initial proposal, which may be referred to as an 'Expression of Interest' or a 'Strategic Outline Case', is likely to be a fairly short outline rather than a fully worked up business case. Where a proposal crosses over departmental boundaries it should be submitted to the one with the major interest. It is the responsibility of the lead department to liaise with those others which also have an interest.
In the early stages of a project proposal local authorities are encouraged to work with the 4ps (The Public Private Partnership Programme), which acts for local government, helping to develop viable projects, determine whether PFI is a suitable procurement route and advise on how best to present the case.
2. Outline Business Case
If a project is prioritised by a sponsoring department the authority will be invited to work up an Outline Business Case (OBC). Once the OBC is submitted, the sponsoring department will assess it to determine whether the project continues to meet their criteria and all the general criteria which all PFI projects must meet. If it is satisfied, the OBC is forwarded to the Project Review Group (PRG) for endorsement. Projects cannot continue without PRG endorsement. Key documents on PRG, including the Code of Conduct and dates of meetings are available on the Treasury website.
Endorsement of a project indicates that PRG considers that it (i) is sufficiently developed to be commercially viable / bankable; (ii) has demonstrated that PFI is the best value for money procurement route; (iii) is affordable, taking account of the level of PFI credits which have received ministerial endorsement; and that the authority (iv) is committed to the use of standard contract conditions and to good quality design; and (v) has the strategy and capacity to undertake the procurement.
The format of an OBC may vary depending on the Department involved and there is no overall prescriptive proforma. General 4ps guidance on producing an OBC is available, while more detailed sector specific advice should be sought from departments or may be included in procurement packs (see the PFI contracts page). The guidance on assessment by PRG is also a good guide to what needs to be covered.
3. Procurement
Projects endorsed by the PRG are issued with a letter from the relevant government department confirming support. The project is then likely to be ready to enter procurement. Guidance on this process is available from a variety of sources, including the 4ps map of the PFI process. The process has recently changed with the introduction of the competitive dialogue procedure. Some guidance on issues which will arise during procurement is available as Treasury Taskforce Technical Notes.
Prior to selecting a preferred bidder, any derogations from standardised contract conditions need to be agreed, and the project may be subject to a Second Stage PRG review.
4. Final Business Case
Where a project is being procured using the competitive dialogue procedures, the authority should submit a Final Business Case (FBC) for agreement by the sponsoring department, prior to selecting a preferred bidder. The FBC should provide re-assurance that the project continues to support the aims and outputs approved at OBC, and that the procurement process has been such as to ensure VfM. The FBC should also cover any proposed derogations to the standard contract conditions.
Older projects which are not using the competitive dialogue procedures should submit their FBC, which should cover the same issues, before financial close but when confident that there will not be further significant changes to the project.
As with the OBC, authorities are advised to take account of advice in the 4ps guidance on producing an FBC.
How much support is Government providing?
£29.385 billion of PFI credits have been allocated from the start of the programme up to the current spending review period. They have been or will be used to support projects as (figures as at May 2008):
PFI credits up to and including Spending Review 2004 Comprehensive Spending Review 2007 £ million Operational Signed Procurement Pipeline ** 2008-09 2009-10 2010-11 TOTAL Schools 3975 1492 1916 510 1320 1320 1320 11853 Transport 889 59 1738 1053 750 750 750 5989 Housing 1066 136 789 760 655 610 610 4626 Waste 668 98 514 0 600 700 700 3280 Police 444 75 87 324 120 120 120 1290 Fire Services 120 28 111 236 55 0 0 550 Social Services 178 51 128 217 130 130 130 964 Libraries & Leisure 147 58 149 27 0 0 0 381 Other* 262 19 124 48 0 0 0 453 Total 7749 2016 5556 3175 3630 3630 3630 29385 * 'Other' projects have included office accommodation, IT and community facilities. Since 2003/04 the allocation has been used to support Joint Service Centres.
** 'Pipeline' represents PFI credits which may have been put aside for known projects which have not yet been endorsed by PRG, or may not yet have been assigned to any known project.Investment under the PFI represents around 10-15 per cent of the total capital investment in public services.
Endorsed projects
Endorsed projects list - A list of all projects endorsed by the Project Review Group, updated following each PRG meeting.
More details of signed PFI projects can also be found on the website of Partnerships UK
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.ukCLG 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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