Understanding Public Private Partnerships

3 March 2009

Public-Private Partnerships (PPPs), of which the Private Finance Initiative (PFI) is the dominant sub-type in the UK, are now firmly entrenched as a delivery mechanism for infrastructure projects across many sectors, both in the UK, and, increasingly, in a number of European countries. Properly structured, PPPs deliver value for money to the public sector, acceleration of Government investment programmes and a genuine transfer of risk to the party best able to manage it. Effective risk transfer, particularly during the construction phase, can generate significant cost savings that easily outweigh the higher funding costs of the private sector partners.

Since its inception in the mid 90s, the PPP concept has delivered close to 630 closed PFI projects (of which 540 are operational) in the UK. Many lessons have been learnt during this time, and the PFI model has been refined and adapted for the needs of a variety of different sectors, including transport, health, education, prisons, waste, social housing, defence and local authorities. In some cases, PFI has evolved into various forms of long-term, strategic, PPP partnerships. Examples of these include the NHS Local Improvement Finance Trust (LIFT) in primary health care and the Building Schools for the Future (BSF) model. Other new forms of PPP include alliancing, incremental partnerships, the non-profit distributing model and various "derisked" structures. The credit crisis and the related reduction in the availability of funding for projects are likely to result in further innovation in PPP structures.