What is a Private Finance Initiative (PFI) contract
A Private Finance Initiative (PFI) contract is a way of financing public-sector projects through the private sector.
It enables:
- the public sector to have long-term infrastructure investment and management, including transferring performance and delivery risk to the private sector
- private investors to make a return, based on the performance and delivery risk that they take
A private sector company is formed by private investors who hold shares in the company.
The company contracts with a public authority, usually to:
- create or upgrade an asset such as Birmingham’s highway network and assets
- maintain it during the contract
- hand it back at the end of the contract
In Birmingham’s case the company formed is now known as Birmingham Highways Limited (BHL).
The public authority funds this through a business case to the government to receive a PFI grant combined with its own revenue resources.
BHL employs sub-contractors to deliver services and take the risk of non-performance. A return is paid to the shareholders for successful performance. If there is non-performance, their equity is at stake.
Page last updated: 1 February 2024
