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

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